weekly market update 1-4-17phoenixcapitalmarketing.com/pwa1-4-17.pdf · this is why we have a...

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Weekly Market Update 1-4-17

©2017·PhoenixCapitalResearch,PhoenixCapitalManagementInc.AllRightsReserved.Protectedbycopyright laws of the United States and international treaties. This newsletter may only be usedpursuanttothesubscriptionagreementandanyreproduction,copying,orredistribution(electronicorotherwise, including on theworld wideweb), inwhole or in part, is strictly prohibited without theexpresswrittenpermissionofPhoenixCapitalManagementInc.·AllRightsReserved.

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HappyNewYear!Ihopeallofyouhadawonderfulholidayseason.Overthenextfewdays,I’mgoingtobeputtingtogetheracompletereviewof2016aswellasaforecastfor2017.Today,however,Iwantedtosimplyfocusonwhatthemarketsaretellingus.Asabriefrecap,thedrivingforceforthemarketsaftertheNovember8USPresidentialelectionwasonethingandonethingonly:The$USD/Yenpair.ThiscurrencypairhasdriventheUSstockmarketmovealmosttickfortick.

Meanwhile,theinverseofthis(theYen/$USDpair)hascollapsedGold:

WEEKLY MARKET UPDATE 1-4-17

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AswellasUSTreasuries:

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Howeverthisappearstobeending…Asyoucanseeinthoselasttwocharts,bothGoldandLong-TermTreasuriesappeartohavefinallybottomedandarenowbreakingfreeoftheYen/$USD’scontrol.IbelievethattheseassetsclassesaresensingthattheYen/$USDfixisabouttoend.Asyoucansee,thiscurrencypairisputtinginabase.

Here’saclose-upofthelastmonth’saction:

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We’vebeenroughlyflatheresinceDecember17th.ThisisincrediblybullishwhenyouconsiderthattheBankofJapan(BoJ)isinterveningonadailyandsometimeshourlybasis.Indeed,intheBigPicture,theYen/$USDpairisnowatMASSIVEmulti-yearresistance.

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TheoddsoftheBankofJapangettingpastthisaresmall(Iputthematlessthan20%).ThereasonbeingthatIFthisweretohappen,thefinancialsystemcouldveryquicklyfinditselfmovingintoa2008-typecrisis,firstinChinaandthenspreadingglobally.Forcertain,theYendevaluationhasalreadyunleashedahighdegreeofdeflation.ThemostnotablecaseisChinawheretheUSDollarrallyhasresultedinthatcountryhavingtohalttradingonitsbondsinlateDecember2016.

Beijingislearningaboutbondvigilantes.LastThursday,aftertheU.S.FederalReserveraisedinterestratesandprojectedmorerisesnextyear,China’sbondmarketfelloutofbed.Investorsarerealizingthatdespitethegovernment’sbesteffortstoprepareandisolatethedomesticeconomy,Chinaremainsvulnerabletoastrongerdollar.BondtradinghadtobesuspendedbrieflyonThursdayuntilthePeople’sBankofChinainjectedabout$22billionintothemoneymarketstocalmnerves.ThePBOCalsoextendedemergencyloanstofinancialfirmstoencouragethemtokeeptrading,apositivesignthattheauthoritieshavelearnedfromtheirmistakeofsuspendingstocktradingaftertheJune2015stock-marketcrash.Butcorporate-bondyieldscontinuetoriseandnewissuanceshavebeencancelled.http://www.wsj.com/articles/chinas-bond-warning-1482278331

Thesituationhasnotimproved.Ifanything,the$USD’sstrengthisnowbeginningtoputpressureonChina’slargepileof$USD-denominateddebts.

ThelargepileofforeigndebtowedbyChinesecompanies,fromstate-ownedbankstoairlines,isgivingaddedimpetustoBeijing’seffortstokeeptheyuanfromfallingtoosteeplyagainsttherallyingdollar.Theyuandroppedby4%overthepastthreemonths,asthedollarrecentlyhita14-yearhighagainst16currencies.Thefaster-than-expecteddepreciationiscausingmorebusinessesandindividualstotrytogetoutofyuan,furtherpressuringthecurrency.Tobolstertheyuan,thecentralbankandotheragencieshaveratchetedupcontrolsonChinesecompaniesaswellascitizensinvestingoffshore.Inthelatestmove,bankswereorderedovertheweekendtostepupscrutinyofindividuals’purchasesofforeigncurrency.http://www.wsj.com/articles/china-inc-s-large-dollar-debts-fuel-beijings-efforts-to-curb-yuan-plunge-1483468681

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Chinaisnotalonehere.The$USD’sstrength,combinedwiththeFed’srecenthawkishness(Yellenandcohortsclaimtheywillraiseratesthreetimesin2017,possiblyatafasterthanexpectedpace),isnowbeginningtoimpacttheUSeconomyaswell,mostnotablytheUShousingmarket:

Higherrateshavehitthemortgagerefinancebusinessparticularlyhard.Applicationstorefinanceahomeloanfell22percent,seasonallyadjusted,duringthetwo-weekperiod.Theydroppedbymorethanhalfinthelastfourweeksandendedtheyear13percentlowercomparedtoayearago.MortgageratesrosesharplyfollowingthepresidentialelectionofDonaldTrumpandhavehoveredneartwo-yearhighseversince.http://www.cnbc.com/2017/01/04/mortgage-applications-tank-to-end-2016.html

Moreover,thestrong$USDwillbeannihilating1Q17resultsforcorporates.EPSguidancefor4Q16alreadyhasanegativeaverage.Asitis,FinancialsandTecharetheonlytwosectorsinwhichgreaterthan50%offirmshaveissuedpositiveguidance!

Indeed,wearenowseeingreferencesto“currencyheadwinds”(read:theimpactofastrong$USD)showinginmultipleindustries.Thebelowitemsarejustasmallsnapshotofwhatwillsoonbeaneconomy-wideissue.

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Abercrombie&Fitch(ANF):Retail

Sharesofapparelandshoeretailer,Abercrombie&FitchCo.ANFplungedtoa52-weeklowof$11.52intheveryfirsttradingsessionofcalendaryear2017.Infact,thisZacksRank#5(StrongSell)hasbeendisplayingamiserableperformanceforquitesometime,owingtoforeigncurrencyheadwinds,negativeearningssurprisehistoryandatoughretaillandscape.

http://sports.yahoo.com/news/abercrombie-anf-whats-behind-stocks-131101737.html

McDonald's(MCD):FastFoodThepricetargethasbeenreducedfrom$139to$137.TheEPSestimatesforMcDonald'sfor2016and2017havebeenreducedby$0.03to$5.73andby$0.08to$6.23,respectively,basedpurelyoncurrencyheadwinds…TheEPSestimatefor2018hasbeenreducedby$0.08to$6.83toreflectthe“loweranticipatedbaseofearningscomingoff2017E,”Kalinowskiwrote.

Marriot(MAR)andHotels:Tourism/Hospitality

Ontheotherhand,Marriott'sconsiderableinternationalpresencemakesithighlyvulnerabletofluctuationsinexchangerates.Significantcurrencyheadwindsarealsoaffectingmostoftheotherhoteliersacrosstheworld,includingHyattHotelsCorporationH,HiltonWorldwideHoldingsHLT,WyndhamWorldwideCorporationWYN,etc.Thisvolatilityisexpectedtoprevailinthenearterm.

http://www.nasdaq.com/article/marriott-mar-long-term-view-bright-despite-headwinds-cm728364#ixzz4UpCAXkPqAVONProducts(AVP):BeautyProductsMoreover,thecompanyanticipatesresultsin2016tocontinuebeingimpactedbycurrencyheadwinds,owingtowhichtheZacksConsensusEstimatefor2016and2017hasbeentrendingdowninthepast30days.Estimatesforboththeperiodshavefallen1centeachto13centsand37cents,respectively.

http://www.nasdaq.com/article/avon-avp-can-it-draw-investors-attention-this-year-cm728463#ixzz4UpCcgbkM

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Iexpectthatboth4Q16and1Q17resultsaregoingtobehorrificduetotheUSDollar’sstrength.Thiswillbegintoimpactstocksshortly.Indeed,asitstands,evenasmallreversalintheUSD/Yenpairwillsendstocksdownhard.WehavethemakingsofaVERYsharpcorrectioninbondthe$USD/YenpairandtheS&P500.The$USD/YenpairisSEVERELYoverboughtonaweeklybasis,touchingtheupperbandofitsweeklyBollingerbands.Itisalsomovingtowardsstagingabearishcrossover(whenthe200-wmabreaksbelowthe50-wma).

Wecouldeasilyseethe$USD/Yenpairunwindthismoveinamatterofweeks.I’mtalkingaboutamoveto1.05within5-10tradingsessions.

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Putsimply,thedrivingforcefortherallyinstocks(the$USD/Yenpair)isnowrunningintomajorresistance.Atthesametime,theimpactofthe$USDremainingabove100isnowripplingthroughouttheUS’seconomy.Stockshavebrokentheirupwardstradingchannelandcouldmoveto2,050relativelyquickly.

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Thisiswhywehaveanumberofshortsopen.Oncethiscorrectionhits,we’llhaveasolidbuyingopportunitytomoveaggressivelyintostocks,particularlyemergingmarketstocks.Indeed,IbelievethattheperiodofUSstocksoutperformingEmergingmarkets(2011onwards)mightbeending.ThebelowchartshowstheS&P500pricedrelativetoEmergingMarkets.Sowhenthischartrallies,USstocksoutperformEmergingMarkets;whenitfalls,EmergingMarketsoutperformUSstocks.

ThislooksaLOTlikeamajortopisforming.Ifwegetconfirmationofitwithabreakdownhere,wecouldbeatthestartofamulti-yearperiodinwhichEmergingmarketsoutperformUSstocks.Elsewhereinthemarkets,Coallookstohavebottomed.We’vebeenwaitingforabuyingopportunity.It’shere.

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ActionToTake:BuytheCoalETF(KOL).I’mputtingthisinourStocksportfolioasitislargelycomposedofCoalcompanies.Uraniumisanothersectorthatinterestsme.Regardlessofone’spoliticalviews,nuclearenergyremainsamajorsourceofpowerfortheworld.Andthereislittleindicationthatthiswillchange.Currentlythereare57nuclearreactorsunderconstruction.Ofthis57,some20areinChina,whichhascommittedbillionsofDollarstowardsnucleardevelopmentinabidtoreducethecountry’spollution.ThechartsuggestsUraniumisripeforaMASSIVEmovehigher.We’vejustbrokenoutofamulti-yeardowntrendandwedgepattern.Thispredictsamoveto$20iscominginthenextyearorso.

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ActiontoTake:BuytheUraniumETF(URA)ifyouhavenotalreadydoneso.I’mmovingthispositiontoourStocksportfolioasitislargelycomposedofUraniumcompanies.Intermsofindividualplays,Cameco(CCJ)hasjustbrokenoutofamultiyeardowntrend.

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CCJisalargeUraniumminerwithpropertiesinCanada,theUSandKazakhstan.Asset-wise,CCJ’spropertieshave185,000tonsoruranium.Thecompanyaccountsforroughly18%ofglobaluraniumproduction.ItalsotradesattheabsurdlycheapEnterpriseValue/EBITDAof8.7.Andityields2.8%.Putsimply,thisisasolidmacroplay,withagreatvaluation.Timetobuy!ActiontoTake:BuyCameco(CCJ)I’maddingthistoourStocksPortfolio.Toconclude,theprevailingtrendofthelasttwomonthsof2016($USDup,USStocksup,Bondsdown,PreciousMetalsdown),lookstobeexhausted.AlreadyweareseeingBondsandGoldbegintomovehigher.Indeed,youwouldn’tguessitfrommediacoverage/sentimentbuttheentireGoldminingcomplexisupOVER15%sinceDecember20th!!!

Theturnwe’vebeenwaitingforisfinallyathand.IexpectBondsandPreciousMetalstobegintorallyhardnow.AndIexpectstockswillgetitHARDwithinthenexttwoweeks.

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Thisconcludesthisweek’sWeeklyMarketUpdateforPrivateWealthAdvisory.I’mworkingona2016reviewand2017forecast,whichIhopetogettoyouearlynextweek.Inthemeantime,I’mwatchingthemarketscloselyandwillissueupdatesasneeded.Untilearlynextweek…

GrahamSummersChiefMarketStrategistPhoenixCapitalResearch

BestRegards,

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OPEN POSITIONS

STOCKS PORTFOLIO

BONDS PORTFOLIO

POSITION SYMBOL BUY DATE

BUY PRICE

CURRENT

PRICE

GAIN/ LOSS

NuveenMuni.Fund NVG 1/2/14 $13.12 $14.60 32% EmergingMarketBonds EMB 11/21/16

$109.82$111.29 2%

LongUSTreasuries TLT 11/21/16 $121.05 $120.10 0%

Pricesasofmarket’scloseon1/4/17atmarket’sclosePriceincludedividends

POSITION SYMBOL BUY DATE

BUY PRICE

CURRENT PRICE

GAIN/ LOSS

Exxon XOM 9/24/14 $95.82 $89.89 1% RPXCorp RPXC 8/5/15 $15.48 $10.77 -30%

Ambev ABEV 11/25/16 $4.96 $5.11 4%

Cemex CX 11/25/16 $8.07 $7.96 -1% EnterpriseProductsPartners EPD 11/31/16 $25.93 $27.05

4%

PeruETF EPU 12/7/16 $33.23 $33.60 1%

UraniumETF URA 6/8/16 $15.49 $13.69 -6%

CoalETF KOL 1/4/17 $12.59 NEW BUY!

Cameco CCJ 1/4/17 $10.69 NEW BUY!

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POSITION SYMBOL BUY DATE

BUY PRICE

CURRENT

PRICE

GAIN/ LOSS

Gold 3/17/10 $1,120 $1,164.00 4% Silver* 3/17/10 $16.23 $16.49 2%

GoldMinersETF GDX 10/5/16 $22.83 $21.92 -4% GoldMiningJuniorsETF GDXJ 10/5/16 $37.52 $34.20

-5%

SilverWheaton SLW 10/5/16 $22.59 $19.94 -11% SilverStandardResources SSRI 10/5/16 $10.30 $9.58

-7%

BarrickGold ABX 10/5/16 $15.54 $16.40 6%

NewGold NGD 10/5/16 $3.88 $3.64 -6%

PRECIOUS METALS/ MINERS PORTFOLIO

Pricesasofmarket’scloseon1/4/17atmarket’scloseReturnsincludedividends*Averagepriceof$17.50and$14.97

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SPECIAL SITUATIONS/HEDGES/SHORTS PORTFOLIO

POSITION SYMBOL BUY DATE

BUY PRICE

CURRENT PRICE

GAIN/ LOSS

FranceETF(SHORT) EWQ 9/16/16 $23.38 $24.83 -6% ItalyETF(SHORT) EWI 9/16/16 $21.56 $24.66 -14% AmericanEagleOutfitters(SHORT) AEO 5/26/16 $15.36 $15.64 -2% Russell2000ETF IWM 12/14/16 $135.37 $137.78 -2% FinancialsETF XLF 12/21/16 $23.61 $23.70 0% Brazil EWZ 12/21/16 $31.25 $34.81 -11%

Pricesasofmarket’scloseon1/4/17atmarket’sclosePriceincludedividends

CASH/ CURRENCIES PORTFOLIO

POSITION SYMBOL BUY DATE

BUY PRICE

CURRENT

PRICE

GAIN/ LOSS

EuroTrust FXE 10/5/16 $108.80 $101.87 -6%