Q3 2018 Ends On A High Note For U.S. Equities

Each candle on the following three charts of the S&P 500 Index represents:

• a period of one month (Chart #1)
• a period of one quarter (Chart #2)
• a period of one year (Chart #3)

Each of the last candles on all three timeframes closed higher than its prior time-period candle. 

The most notable feature of the Yearly chart, in particular, is that price could, in fact, reach a resistance target of 3033 (as I described in my post of August 6th) by the end of this year. Such a price level would end up producing a candle range for 2018 on the Yearly timeframe that equals or slightly exceeds the candle range of each of the prior two years. It would also complete a very bullish cycle for this year.

Monthly chart of the SPX

Quarterly chart of the SPX

Yearly chart of the SPX

Each candle on the following three ratio charts of the SPX:VIX Ratio represents:

• a period of one month (Chart #4)
• a period of one quarter (Chart #5)
• a period of one year (Chart #6)

I've mentioned several support levels over the past year...notably 150 and 200, as shown on the Monthly timeframe. Price is slightly below the "Bull Froth" level, but is above the "New Bull Market" level of 200. 280 represents a major hurdle to be reached and overcome on this ratio. 

The Yearly chart shows how volatile price action has been this year, as evidenced by the massive 2018 candle range, and by the multiple re-tests of each of the candles on the Monthly timeframe.

We may see a re-test of part of the Q3 candle for the first-to-mid part of the Q4 candle, particularly as the November 6 mid-term election draws near. However, watch for the Momentum indicator to pop back above the zero level on the Monthly timeframe to signal a fall in volatility if price does not pull back on this ratio. Such price action would set the scene for the SPX to plough ahead towards 3033, with little resistance. In this regard, it's important for it to hold above 2900 (and that the ratio hold above 200), inasmuch as what was once a major resistance level/target (as mentioned in my above-noted article) is now major support.

Monthly Ratio chart of SPX:VIX

Quarterly Ratio chart of SPX:VIX

Yearly Ratio chart of SPX:VIX

Internet Trolls, Anonymous Sources, Political Rumours & Innuendos: Their Effect (Or Not) On U.S. Equity Markets

* See UPDATE below...re: DOJ & FBI's SECRET PLAN TO REMOVE PRESIDENT TRUMP

TROLLS & ANONYMOUS SOURCES

There are a number of definitions of an internet troll...a couple of them are as follows...

Trolls are anonymous. It seems to me that any news article that contains the use of anonymous sources would be akin to using trolls for information...or, rather, dis-information.

The most egregious example is this September 5 New York Times op-ed, which is actually authored by an anonymous source...hence, a troll. One of the paragraphs in this article (excerpt below) is especially troubling in that it hints of some kind of a nefarious outcome (impeachment) for President Trump, or, even, poses a threat of some kind (the highlights are mine).

This letter to the editor of the New York Times by Kevin McCarthy, Congressional House Majority Leader, says, in part, that, "The anonymous official's essay is shocking. He should be exposed and fired." "Whatever else the anonymous essay accomplishes, its ultimate effect will be to erode the legitimate authority of the president, in this and subsequent administrations."

The problem with trolls is that they cannot be identified, their credentials and information challenged, and, thus, be held fully accountable for their accusations. This will continue until and unless trolls step forward and properly identify themselves. In the meantime, their words are simply empty, inflammatory, confusing, meaningless, and without validity. They deserve to be ignored.

MYSTERIES SURROUNDING ROD ROSENSTEIN & HIS APPOINTMENT OF ROBERT MUELLER

For readers to decide what is truth or fiction in order to formulate an appropriate response and action, they should be given provable, reliable facts, not innuendos, and not have the truth hidden from them, as seems to be the case with the long-standing quest by Congress to determine the legal basis for Deputy Attorney General, Rod Rosenstein's special counsel (Robert Mueller) investigation, as described in former Chief Assistant U.S. Attorney, Andrew McCarthy's article.

Is the reason for Mr. Rosenstein's appointment of Mr. Mueller contained in this September 21 New York Times article (a piece which references claims made by anonymous sources and where wiring and impeaching the President are also mentioned, supposedly by Mr. Rosenstein...by the way, if the President was not a "target" or "subject" of Mr. Mueller's Russian/Trump campaign collusion investigation, as mentioned in my article on August 6, why would any DOJ/FBI discussion have occurred at all with respect to, potentially, recording conversations with Mr. Trump and, subsequently, making a case for his impeachment)? Or, is this article just another hit job against the Trump administration? Or does it explain Mr. Rosenstein's reluctance to release details of Mr. Mueller's mandate to Congress, as well as to declassify and release all the documents that Congress has been seeking for the past year and as was directed by the President this week, but which was bounced back to the President and delayed, yet again, as shown in the following tweets?

POLITICAL RUMOURS & INNUENDOS AND THEIR EFFECT ON U.S. EQUITY MARKETS

So far, these rumours of impeachment by unnamed sources, as well as threats of impeachment -- of, not only the President, but also of Judge Kavanaugh if he's confirmed to the Supreme Court by the Senate -- by some Democrats if they retake the House and Senate, seem not to have impacted the U.S. equity markets, as they continue to march to new highs (FACT: 36 of 49 Democratic Senators had already said they'd vote against Judge Kavanaugh even before Ms. Ford's allegations against him were made public. And, it's interesting that all four of her alleged witnesses have failed to corroborate her story in their sworn statements to the Senate Judiciary Chairman. By the way, I guarantee that, no matter the outcome of the confirmation vote in the Senate, the process, itself, leading up to it will be demeaned, denigrated and smeared by Democrats and the media...how can I be so sure?...because it already is and they look foolish to the rest of the world).

We'll see how much longer the equity buying continues, and whether any of these rumours and innuendos turn into facts anytime soon (particularly as the November 6th mid-term elections are fast approaching), as political rhetoric and media attacks (including vile male-bashing remarks) are becoming increasingly unseemly and vicious.

Furthermore, Democrats are pushing an increasingly far left-leaning, anti-economic, socialist, open-border agenda, replete with fear-mongering tactics (gobbledygook), as their platform leading into the elections, which threatens to derail market gains and investment in the U.S. by both domestic and foreign investors, alike. The fallout from this could cause a negative impact on other world markets and economies.

It's noteworthy that U.S. markets have seen a $9.3 Trillion growth in value since President Trump began fulfilling his 2016 campaign promises immediately following the November 8th election. It seems that investors have had confidence in the President and are supportive of his policies, rather than thinking he is unfit for office to warrant impeachment.

Percentage Gains made in the U.S. Major Indices since the 2016 Presidential Election

* UPDATE October 9...

DOJ & FBI's SECRET PLAN TO REMOVE PRESIDENT TRUMP

Further developments are noted in this article regarding Deputy Attorney General Rod Rosenstein and others in the DOJ and FBI...no doubt, more will be revealed in the next few days...

The Truth About U.S. & Canadian Dairy Farmers

Further to my articles here, here and here regarding trade and NAFTA, I came across this interesting Toronto Star article, which describes the truth about the oversupply of milk production in the United States.

Source: The Toronto Star

Canada already controls its Canadian milk production to ensure that its producers can sustain a living, while adequately satisfying its domestic demand. It's no fault of Canada that the U.S. has not done the same with respect to its domestic production and consumption.

It's notable that President Trump would rather try to bully Canadians into buying more than they need by forcing U.S. dairy products on them, rather than addressing his own domestic oversupply issues, or look for other export markets. As I mentioned previously, Canada has a population of only 36.95 million versus 327,867,715 (on June 7, 2018) in the U.S., so Canadians can consume only so much milk, compared with Americans...they don't need to be force-fed more! And, they certainly don't need to be ordered to consume American products or be threatened with auto tariffs if they don't comply with his bullying whims.

So, Mr. Trump, don't blame Canada for your country's own mismanagement issues! It appears as though some Americans are already studying a proposal for a "Sustainable Milk Inventory System Act," which has been summarized as a "U.S. version of the Canadian system with improvements," as noted in the following excerpt from the above article. Perhaps you could learn a thing or two from your own farmers, who are actively seeking solutions to their problems...in spite of your own inaction on this issue and reversion to trade bluster, instead, and punitive threats to dump and flood your country's excess dairy into Canada, while, at the same time, complaining that China is dumping and flooding its excess steel into world markets...the pot calling the kettle black!

Trump's Trade Tactics: Scare & Insult Canada Into Submission?

From the excerpt below, as reported today by The Toronto Star, it appears that President Trump is bargaining with Canada in bad faith and using scare tactics in the process (the red highlights and frames are mine). You can read their article in its entirety here.

Why should Canadians ever trust him, particularly as he's already tried to bully Canada with his distorted trade facts, as I've discussed at length here? And, he seems to have conveniently forgotten that Canada bailed out American GM and Chrysler's operations in Canada after the U.S. 2008/09 financial crisis...for a loss of CAN$3.7 billion to the Canadian taxpayer...so, to threaten to punish its auto sector in such a petulant manner is unbelievable!

Are there no adults running the U.S. government? It appears that the cat's got their tongues.

And, here's your confirmation of these "off the record" remarks, by Mr. Trump, himself...

Stay tuned for this upcoming Canadian press conference (without the U.S.)...

Notwithstanding Ms. Freeland's press conference (which just concluded) where she re-iterated that "Canada won't sign a trade deal unless it benefits Canadians" and where she announced that trade talks will resume next Wednesday, it doesn't look positive for Canada...if Trump won't compromise, why would Canada agree to his terms in the future, if it doesn't agree now? 

It looks like a tri-lateral trade deal is dead in the water to replace NAFTA. One brave Senator was willing to support U.S. allies...we'll see if the U.S. Congress disagrees with him and approves only a bi-lateral deal between the U.S. and Mexico that doesn't include Canada.

If Congress does approve a deal that excludes Canada, then Canada can look forward to the escalation of a trade war, inasmuch as it appears that the President is out to punish Canadians and cripple Canada's economy with his personal vendetta and agenda (as he already promised to do on June 12 and as described here)...one that is not based on actual and sound economic facts...and one that builds on his already punitive and unjustified steel and aluminum tariffs.

(Below is an excerpt from that article...click here to read it in full)

Finally, trust me, Mr. Trump, when I tell you that no Canadian believes that you love Canada...so, cut the crap...and, when you add a 'but' in a sentence, it completely negates the preceding phrase.

Nine-Year U.S. Bull Market Money Flow

The first three of the following graphs depict percentages gained for the Major U.S. Indices during three time periods, namely:

• since March 6, 2009 (the bottom of the 2008/09 financial crisis), 
• since November 8, 2016 (the Presidential election), and 
• year-to-date.

Generally, traders/investors have favoured technology, small-cap, and transportation indices over the large-cap and utilities indices...indicating a stronger preference for risk over value, which continues to today.

The next three graphs depict percentages gained for the nine U.S. Major Sectors:

• since March 6, 2009 (the bottom of the 2008/09 financial crisis), 
• since November 8, 2016 (the Presidential election), and 
• year-to-date.

Until this year, traders/investors have favoured consumer cyclicals, technology, industrials, health care, and financials. However, this year, industrials and financials have fallen out of favour, leaving only a risk-on environment in consumer cyclicals, technology, and health care, while the remaining sectors are roughly flat or under water, in comparison...indicating a reduced appetite for risk.

As I mentioned in my post of August 15, U.S. and world financial markets may hold the key as to whether or not this bull market continues to advance for the remainder of the year. Keep an eye on those, along with the USD and other factors mentioned in that article for confirmation, or not, of such a scenario. 

As well, watch for any reallocation of money from consumer cyclicals, technology, small caps, and transportation, into large caps, utilities, consumer staples, materials, and energy, if markets shift from a riskier to a more defensive posture.

Aretha Franklin, Queen of Soul, R.I.P. (March 25, 1942 - August 16, 2018)

Aretha Franklin...thank you for sharing your music with us all these years...we'll miss you...wishing you a safe journey...

A World Financial Battle Approaches

The first three ratio charts show:

1. the U.S. Financial ETF (XLF) compared with the SPX,
2. the European Financial ETF (EUFN) compared with the STOX50, and
3. the Chinese Financial ETF (GXC) compared with the SSEC.

Each one's Financial ETF is weaker than its country's major index, and in the case of the EUFN and GXC ratios, are sitting at a major support level, while the XLF ratio is approaching major support.

The fourth ratio chart shows that the Emerging Markets Bond ETF (EMB) is stronger than its counterpart Emerging Markets ETF (EEM) and is approaching a major resistance level. (Note that EMB holds USD-denominated rather than local-currency debt, and eliminates direct currency risk for U.S. investors, but raises the possibility that a strengthening dollar or weakening local currency could make the debt harder to service, increasing credit risk.)

The next chart of the USD shows price approaching its next major resistance level at 97.50.

The next ratio chart shows the strengthening of the USD compared to EMB since the end of January. Price has a way to go before it hits its next major resistance level.

The last three ratio charts compare price of the STOX50, SSEC, and EEM to the SPX. They are all much weaker than the SPX, the STOX50 and EEM ratios are sitting on major support, and the SSEC ratio is trading below major support.

The last graph shows the percentages lost in the SPX, XLF, STOX50, EUFN, SSEC, GXC, EEM and EMB since they peaked around the end of January this year, as well as the gains made, conversely, in the USD.

Unless all of the three Financial ETFs firm up and attract new buyers soon, we'll see weakness continue, and possibly accelerate, in European, Chinese and Emerging Markets, potentially dragging U.S. equities down, as well. Keep a close eye on the USD as a potential flight-to-safety trade in such an event.

With respect to the U.S. market, I'd also refer you to my comments outlined during the past month in my posts here, here, here and here, which describe other factors I'm watching.

A Grim Fairy Tale?...

An interesting article by Sharyl Attkisson in The Hill...

Will they all live happily ever after? Stay tuned...

China's Shanghai Index Approaching Freefall

I last wrote about China's Shanghai Index in my post of June 19.

This index is in bear market territory and is headed toward its last (monthly) swing low of 2638.30, as shown on the following monthly chart of SSEC. A break of that level could see a swift drop to its next major support level of 2260, or lower.

Both the momentum (MOM) and rate-of-change (ROC) indicators are below the zero level and are accelerating to the downside on this timeframe. Watch to see if they make a new swing low below the one made in February 2016.

If so, this index could be headed for major problems, and the increasing trade war with the U.S. is not helping.

Political Qestions of the Day

If President Trump is not a "subject" or "target" of Special Counsel, Robert Mueller's Russia/Trump campaign "collusion" investigation, as asserted by Deputy Attorney General, Rod Rosenstein, why would he have to sit down for an interview with him? In what capacity/role would Trump be expected to answer questions, if he's neither? I've heard no one provide an answer to this...nor, have I even heard anyone ask these questions.

This makes no sense. The whole thing is bewildering...so, I'm left wondering what Mr. Mueller has on Mr. Trump...