Too late to turn bullish on oil?

Although the media has "turned bullish" on oil, I wonder if this sentiment is a sign of a short term top.  I think the OPEC news is largely irrelevant.  We are awash in oil.  From a technical perspective, both WTI & Brent are approaching short term overhead resistance.

Microsoft Is Taking Off Like It Did In The Early 90s

Microsoft (MSFT) recently passed $400B in market cap.  Just by looking at the above chart, it appears to be in a long term uptrend similar to that of the early 1990s.

Vanguard Canada Must Own ETFs for Canadian Investors. VUN and VFV.

Vanguard Canada provide the best and cheapest ETFs available to Canadian investors.  Two must have ETFs for Canadian investors are the US Total Stock Market ETF (VUN) and the S&P 500 ETF (VFV).  Both are NOT hedged and provide broad exposure to the US stock market and the US dollar. They are the cheapest ETFs of their kind and have extremely low management expense ratios (MER).  The MER for VUN is 0.15% while the MER for VFV is a category low of 0.08%.

Biotechnology & Health Care Stocks & ETFs Continue To Lead The Stock Market Higher

Biotechnology and health care stocks and ETFs continue to lead the market.  This is becoming a dominant theme within the broad technology sector.  It is likely that health care and biotechnology stocks continue to grow in relative market cap weight in the major US indices (i.e. NASDAQ 100 & S&P 500).

Akamai breaks out. Tech leadership expands.

What began as market leadership in biotechnology stocks quickly spread to internet stocks and is now perpetuating in the NASDAQ 100 mega cap stocks.  We are entering a period of broad based tech market leadership which may continue for the duration of this bull market that began in 2009.  It is important to note that both the biotechnology and the internet index has doubled in a 2 year time frame.

NASDAQ 100 Big Cap Tech To Outperform

Mega cap tech stocks have lagged the broad NASDAQ and the S&P 500 for many months.  Recent market action suggests that this could be changing.  Apple makes up 12% of the NASDAQ 100 Index alone.  A new uptrend for the world's largest technology company by market cap would pull the NASDAQ 100 Index into the lead. It's also worth noting that other tech giants like MSFT, CSCO, INTC, AMZN and GOOG also have bullish charts.  Follow the QQQ.

Major European Indices Near End Of Secular Bear Market

As the three above charts show, returns on the big 3 European ETFs have been essentially zero for the past 15 years.  This is typical of a secular bear market, zero return with extreme volatility throughout.  I think the picture going forward will be quite different.

Germany (EWG) is pushing up on resistance established at the 2000 peak, the breakdown period in 2007-08 which lead to the global financial crisis and the 2011 peak established prior to the European Debt Crisis.  We could see some more sideways movement before finally moving higher but I think the lows are in.

France (EWQ) is sitting on major support established in 1998-99, 2006 and more recently in 2011.  The United Kingdom (EWU) has a similar chart.  Both are sitting on key Fibonacci retracement lines.

https://en.wikipedia.org/wiki/Fibonacci_retracement

Declining Volume

Although not illustrated particularly well in the above chart, it would seem that volume has declined on the S&P 500 and the other major indicies since the initial spike in volatility around the period of the flash crash. As I mentioned in a previous post, the market is trading in an apathetic fashion with little conviction in either direction. Volume has been very low in general, declining with each successive leg down since the end of April. Consequently, I'm not convinced we're going directly into the abyss as the daily headlines would suggest. I think, September will be an interesting month for the market.

If you like this article and/or others in this blog feel free to subscribe via e-mail or RSS feed located on the right side of the page.

Thanks,

Shawn

VIX

The volatility index (VIX) remained above 20 for most of the period between 1998 and 2003 during which time the technology boom completely unwound. The VIX spiked above 20 in late 2007 when the financial crisis began and has remained elevated since, dropping below 20 only briefly. It currently stands at 27. If history is to repeat itself, we may have a while to go before the VIX falls and remains below 20 for an extended period of time. This may be many months away but would indicate that confidence has returned to the equity markets for the long term and that a new bull market has truly begun. We are likely to experience sideways or range bound trading in the meantime.

Market In Correction?

According to Investors Business Daily, the market has experienced a high enough number of distrubution days relative to accumulation days to make the liklihood of a correction in the US indicies likely. Depending on how today plays out, they may issue a "market in correction" verdict in their Big Picture column later today.

They may be correct. We could experience another correction. However, the intensity of selling this time is reminding me of the May 2006 correction rather than the 2008 crash. I think the downside this time is limited given where we stand currently. It will be difficult for the DOW and S&P 500 to spend a significant amount of time below their important respective psychological 10 000 and 1000 point levels. Any significant move below these levels, should bring in institutional value investors in addition to technical support buyers.

Solar Energy

"If we could harness only 0.03% of the sun's light, we would have more than enough energy to power the entire planet"

This is a remarkable statement made by more than one scientist on the solar energy debate. Although solar energy is far more expensive to produce than other sources currently, we could be close to a tipping point where it becomes much more competitive and efficient.

This ETF is obviously not pricing in a solar energy revolution. In fact, solar energy stocks were crushed along with all energy stocks during the 2008 market crash. Currently, solar ETFs seem to be trading in a similar fashion to other energy related ETFs. The Market Vectors Solar ETF (KWT) is a relatively new ETF with little price history. Its major holdings are listed below.

TOP 10 HOLDINGS (67.25% OF TOTAL ASSETS)

Company
Symbol
% Assets
Canadian Solar Inc. CSIQ 4.18
First Solar, Inc. FSLR 9.64
MEMC Electronic Materials, Inc. WFR 10.16
Q-CELLS QCE.BE 4.48
RENEWABLE ENERGY REC.OL 11.45
SOLARWORLD SWV.BE 4.14
SunPower Corporation SPWRA 4.45
Suntech Power Holdings Co., LTD STP 9.47
Trina Solar Limited Sponsored A TSL 4.82
Yingli Green Energy Holding Com YGE 4.46

If solar energy is to become the dominant energy source in the not-so-distant future, solar energy related stocks should start to be priced less like energy stocks and more like technology stocks. I anticipate that traditional energy stocks will lag the market for some time. Solar energy companies should eventually prove to be market leaders sometime in the future.

Market Drift

2004 through 2005 was a relatively boring time for the stock market. The S&P 500 stood at ~1150 give or take a few points at the beginning of 2004 and stood at ~1250 a the end of 2005. This resulted in a mere gain of ~4% per year for this 24 month period. I realize that this is much better than the ~50% decline that most markets experienced in 2008, however, modest returns and normalcy in the market tend not to excite investors.

As the slow recovery in the US continues, the markets over the next year or two will probably provide less excitement than we've been used to lately. It is possible that the S&P 500 simply moves sideways or delivers very modest gains as extremely high unmployment in the US continues to wear investor confidence and dampen consumer spending during this slow recovery period. After the very deep 1973-74 bear market / recession, the S&P 500 traded in a sideways fashion for approximately 5 years.

Of course, there will be sectors or contries that will experience more than simply modest growth. From a technical perspective, several emerging market ETFs are still clearly in uptrends. The iShares Malaysia ETF (EWM) posted new 52-week highs today.