What I'm Watching ( Week of 12.29.14 )

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This week it's simple. I'm watching/waiting for volume to reenter the market and confirm or reject last week's holiday action. 

Last week ( SPY, DIA, QQQ ) all traded to new 52 week highs with my short target ( EWC ) bouncing significantly in sympathy.

( OIL ) price action appears to have moderated a little in terms of downside volatility; buyers and sellers that remained haven't shown conviction one way or the other yet.

There is good reason to be skeptical of last week's broad market moves. See the disparity between relative volume and average volume across the board. Below I've highlighted the lack of volume of some popular ETF's I'm tracking. 

Except for ( OIL ) which traded at 1.7x average volume the other ETF's experienced anywhere from 0.5x to 0.2x their average volume during the last session. With this week's market open minutes away we will find out if conviction has returned via volume/relative volume throughout the week.  

What I'm Watching ( Week of 12.15.14 )

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Canada iShares ( EWC )

Canadian assets are facing major headwinds in the current environment. 

1. The fall in global oil prices hurt producers' bottom line. Alberta is bracing for a decline in GDP into next year as a result. Click for links to articles.

Quarter of new Canadian oil projects vulnerable if oil falls below US$80: IEA 

With oil trading below US$60, provinces brace for impact of global oil price shock

The above chart shows that there are some producers' breakeven Oil price as low as $45. That estimate may well be tested. My concern is that Canada has the lowest return on net cumulative capital cost according to Barclays et al. 

Bottom line, low prices make new projects uneconomic and projects with a higher cost basis return even less than before. This is a net negative. 

2. The $USD continues to strengthen relative to other global currencies. This is especially true for the commodity currencies of Australian and Canadian dollars. 

Therefore $1 USD will in effect be able to buy more Oil when priced in CAD effectively increasing U.S. purchasing power for Canadian production. 

I'm actively looking for a trading opportunity here to the short side. Oil prices are weak, and the producers' currency is declining in relative value. Here are the setups I'm watching in charts. 

What I'm Watching ( Week of 12-8-14 )

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How long does equity optimism last without correction?

Over the weekend I examined the market internals and came away mildly bearish at these levels. Extreme optimism and lack of participation among the broad indexes make this a week ripe for profit taking and I've been aggressive with my trailing stops etc during the last 2 trading sessions. 

When will OIL finally bounce? Have investors finally capitulated?

I'm short oil via the Inverse ETF SCO ( wish I had more size ) however this has been a profitable position ever since OPEC's decision not to lower production targets. Clearly this is an example of geopolitics setting up incredible trade opportunities. However the contrarian value hunter in me knows the devastation in energy producers' stocks is likely a case of throwing the baby out with the bath water. There are plenty of firms out there able to produce at a profit even in today's low oil price environment. I will be looking to rotate into those as soon as it's prudent to do so. 

If you bought SCO the day after the OPEC decision you would be sitting on an approximate 17% gain based on today's levels!

What I Saw ( Week of 12.1.14 )

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1. Do the airline stocks and oil continue to trend strongly in opposite directions?

ANSWER: Simply put, mostly yes. The below chart shows the following stocks  ( OIL, AAL, ALK, JBLU, UAL ) relative to the broader market ( SPY ) over the last 5 days. Out of the 4 airline stocks chosen here, only ALK underperformed the market. Using OIL as a proxy for oil, investor sentiment is still negative, and some airlines stocks are continuing to benefit from the plunging price. 

2. Do we see a continuation of last week's sell off in small caps and does that translate to a mini correction?

ANSWER: No. Overall equity risk ( SPY, IWM ) had a bid throughout the week. However I think another trend is more important to note. The strength of the  ( $USD ) relative to other assets is clear. This is a trend that needs to be incorporated into every investment thesis moving forward if it has not already. 

3. When risk (high beta small caps/high yield) is sold do we see a continued bid in Utilities and Consumer Staples?

ANSWER: Not yet. The below chart is confirmation of the previous observation that higher beta stocks were bought more aggressively. Both utilities ( XLU ) and consumer staples ( XLP ) underperformed both ( SPY, IWM ).

Overall a somewhat mixed week with the only clear dominant trend being $USD strength, and a somewhat mixed appetite for stock risk... to be continued...

What I'm Watching ( Week of 12.1.2014 )

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1. Do the airline stocks and oil continue to trend strongly in opposite directions?

2. Do we see a continuation of last week's sell off in small caps and does that translate to a mini correction?

3. When risk (high beta small caps/high yield) is sold do we see a continued bid in Utilities and Consumer Staples?

4. Keeping an eye out on high yield bonds ( HYG ) and Investment grade corporate bonds ( LQD ) for clues...

What are you watching this week?