We had pretty heavy selling of more than four times the usual selling strength, as can be seen on the 20DMF. However, inversed ETFs did not attract money. We can see in the table below that mainly the commodities/energy/PM sectors were under selling pressure and since energy equities were somehow supported by the high oil prices, we can conclude that PM/commodities in general have been most under selling pressure. Indeed, as the oil price hike was much stronger than the PM price like, the robots trading PM miners quickly found that the PM miners' profitability was mathematically under pressure.
I believe that "watching your stocks" is a good strategy for now, altough there are interesting stocks to look at: FLEX, APD, WAT, WDR, PX, CLR Trading for February 22
Options expiration on Friday was a positive POMO event for the market: money moved out during the day while the last hour of trading showed our usual reverse pattern. The consequence is that the four double inversed ETFs (SKF, SDS, TWM, QID) are at their lowest since last year in April. We can see in the figures below that Short sellers are furiously covering their positions, while long players are still buying, although only cautiously.
The general conclusion is that since money continues moving into the markets as can be seen on the 20DMF and since the inversed ETFs show such a strong shorts covering pattern, we can say ... BUY! BUY! BUY!
What to buy then? Very easy: go see the sectors whose buy signal will be issued in the following days. Below are three such sectors. The problem is that these sectors look like failing sectors: the last buy signal was just a few days ago and the signal was cancelled, with money moving out in force.... While the market is generally attracting money.
On my Friday morning comments, I wrote "I still like the Coal miners, and KOL looks good right now, as it is in a trading range but under good accumulation. VALE and BHP still look interesting in the base metal sector."
Based on Thursday's close analysis, these sectors looked attractive and I initiated new position in BHP and VALE... to close them later while closing other base metals/ferts/uranium positions. I think that I was in pure investor "denial mode". This mode occurs when you start to become blind to signals that come in opposite direction to your positions.
I detected such a negative signal in base metals last Friday, but I discounted it as a signal produced by "Canadian funny-illiquid markets". But the Canadian market is THE reference in terms of mining stocks and because it is less sensitive to POMO funny money, I believe that it gives a better picture of what is happening to that sector. You can see in the figure below that the materials sector failed to issue a buy signal. It had a price bounce but this failed. We could have had a new price high and a buy signal (See the blue arrows), but we did not.
Now that we are not in denial mode anymore, let's see what this figure shows exactly. First, what is in this materials sector? This sector included all the Canadian market commodities based equities, except for gold/Silver and energy. That is: Fertilizers, Copper, Base metals in general, coal, uranium. Basically all the "stuff" that is "dry". This directly leads to have a look a the Baltic dry index, which is basically at its lowest since the crash of 2008. I previously thought that this was due to many new ships coming into service,... but it might also be less stuff moving into boats.
I thus looked at a longer term picture of the Canadian Materials sector, which is shown below. Let's first concentrate on the blue line. When above "0", this line says "for the past 20 days, the money flow was positive". This means that the money flow has now been negative for already a few weeks. If we now look at the past three instances where we had a deep downtrend in MF, we can see that we had three consecutive arrows: the red indicated the sell signal, the pink indicated the confirmed sell and the green indicated the buy signal. At the very right of the figure, we can see that the selling is the strongest since the time I have available data. Also, if we want to preview when the next buy signal will be issued, I would say that we are probably looking at 2 weeks down the road. This is enough for a 20% price haircut from here.
Is this real? I decided to take the same materials groups and calculate a MF pattern based on US stocks. The results are shown below. Although not as striking negative as the Canadian market, it is nevertheless pretty negative.
This is to compare to the MF for the energy sectors or any other sector. MF is positive for energy - look at all the oil related MF patterns - because of the risk of conflicts and contagion in the Middle-east. Even with the oil glut at Cushing, there is big money moving into oil sands and shale oil plays. This is "reserve buying". Also note that refiners just issued a sell signal, indicating that the relatively low cushing oil prices are a temporary pattern.
On the other hand, money continued to move strongly into silver markets, with a short squeeze under way... and a still positive but slower move into gold miners.
If I had an interpretation on these money moves I would say: China will increase rates dramatically and very fast. The Middle-East problems will not be solved soon and the US will continue printing while Germany will try to continue pushing for austerity measures in other European countries - but will fail to do so.
Of course, we could think that this could be just the result of "options expiration", that money "has to" flow into fertilizers because of the food crisis, that money must move into copper/base metals as future supply shortages have been documented. These are all valid investment theories. In reality, money is moving quickly out of these "dry stuff" sectors for a reason that we do not know but a reality that we'd better be aware of.
