They Don’t Usually Ring a Warning Bell

On a recent post – September 3 - I presented content sent to BNN Market Call last  August 6, 2015 -

“They Don’t Usually Ring a Warning Bell: Recent investors in the crowded spaces of the health care and consumer sectors tend to be weak holders and can stampede out of a sector when alarmed by any injury to one of the sector leaders. The current and alarming drop of Apple Inc. below its 200 day moving average has the financial media buzzing and for good reason. Apple is basically a consumer related company and has only violated the 200 day only three times since mid 2003.”

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Today our chart is a daily bar of the Concordia Health (CXR) displaying the recent downward break of the 50 and 200 day (10&40-week) moving averages. A good example of investors fleeing from an over-crowded space. Shocking – the over-loved Concordia has lost one half of is market cap in four weeks – in turn trashing the health care sector. Look for the Volkswagen fiasco to replicate the Concordia torpedo and trash the auto stocks..

Other bellwethers in trouble:

Back in August 28 I explained the term Bellwether – which was derived from the Middle English Bellwether which refers to the practice of placing a bell around the neck of a castrated ram - (a wether) in order that this animal might lead its flock of sheep.

Question – lead to where? Green pastures or to slaughter?

At the time Goldman Sachs (GS) at about $178 had broken down below the 50 and 200 day simple moving averages. Also relevant was the break below a 26-week price channel because Goldman tends to trend within a 6-month price window.

Now we have industrial bellwethers Boeing and Caterpillar trading below their related 50 and 200 day MA’s. Our chart is the weekly bar of a Canadian bellwether – Magna International (MG) breaking below 50&200 day (10&40 week) moving averages. You can also see that Magna has zero capital returns since the Aug 2014 peak. The time to buy the auto stocks is when the US auto sales are bleak like in 2008 when US auto sales were the worst since 1992 – (MG was trading under $10) - not now when the outlook is so bright you need sunglasses.

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So do we buy a house or buy a bank?

The GTA real estate boom continues – according to the Toronto Real Estate Board (TREB) August publication – Market Watch and I quote,

“Sales and Average Price Up in August: TORONTO, September 4, 2015 – Toronto Real Estate Board President Mark McLean announced that Greater Toronto Area REALTORS® reported 7,998

residential transactions through the TREB MLS® System in August 2015. This result represented a 5.7 per cent increase compared to 7,568 sales reported in August 2014. On a GTA-wide basis, sales were up for all major home types.”

And, “Buyers in the GTA remain confident in their ability to purchase and pay for a home over the long term. They see ownership housing as a quality investment that has historically produced positive returns while at the same time providing owners with a place to live in their chosen community,” said Mr. McLean.”

That was quite a bullish argument for home ownership and very timely when you consider the other choice – the stock market which lately has been the target for the doom and gloom crowd   

Our chart displays the 14+yr (5190 days) monthly price of the GTA average housing price over the TSX listed iShares Financial Sector exchange traded fund (XFN) – which is a basket TSX listed financial related stocks to include the banks and insurance companies. Note the buy and hold annualized returns – GTA TREB at +6.2% and the XFN at +5.9%. So far very close but the XFN spins off income and home will attract property tax and maintenance cost.

On the other hand the XFN is more volatile and your prime residence attracts no tax on the sell side. Probably the best strategy is to diversify and own smaller portions of both.

We may have lost another bellwether:

As sent to BNN Market Call August 6, 2015

The Markets – Too Many Investors on One Side of the Ship

An Unstable Ship: As investors chase fewer and fewer stocks ever higher the technical analyst can see the advance / decline line and the new cumulative new 52-week HI / LOW line failing or not confirming the advance of the broad stock indices.

Thinning Leadership: During the early stages of a bull market all market sectors participate (2009-2011) in the recovery from the bear market trough of 2008. The result is a high degree of sector commonality and broad leadership. As the current bull ages – (the later stages of a bull market) – investors tend to embrace the current “big thing” which currently is the hot – health care and consumer space. The result is we currently have the Toronto and U.S. Health Care, Consumer Staples and Consumer Discretionary sectors trading at all time highs and the Toronto and U.S. Mining, Materials and Energy sectors trading at or near multi-year lows.

They Don’t Usually Ring a Warning Bell: Recent investors in the crowded spaces of the health care and consumer sectors tend to be weak holders and can stampede out of a sector when alarmed by any injury to one of the sector leaders. The current and alarming drop of Apple Inc. below its 200 day moving average has the financial media buzzing and for good reason. Apple is basically a consumer related company and has only violated the 200 day only three times since mid 2003.

The 200-day moving average rule:

A long term up trend is in place if the price is above the 200-day MA – and the 200-day is pointed upward. A long term down trend is in place if the price is below the 200-day MA – and the 200-day is pointed downward

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Today our chart is a weekly of the SMH displaying the mid July 2015 downward break of the 200 day (40-week) moving average. The SMH bottomed November 2008 about 4-months ahead of the broader stock indices.