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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Disclaimer: The informationcontainedon thisnewsletter is formarketingpurposesonly. Nothing contained in thisnewsletter isintendedtobe,norshallitbeconstruedas,investmentadvicebyPhoenixCapitalResearchoranyofitsaffiliates,norisittoberelieduponinmakinganyinvestmentorotherdecision.Neithertheinformationnoranyopinionexpressedonthisnewsletterconstitutesandoffertobuyorsellanysecurityorinstrumentorparticipateinanyparticulartradingstrategy.Theinformationinthenewsletterisnotacompletedescriptionofthesecurities,marketsordevelopmentsdiscussed.Informationandopinionsregardingindividualsecuritiesdonotmeanthatasecurityisrecommendedorsuitableforaparticularinvestor.Priortomakinganyinvestmentdecision,youareadvisedtoconsultwithyourbroker,investmentadvisororotherappropriatetaxorfinancialprofessionaltodeterminethesuitabilityofanyinvestment.OpinionsandestimatesexpressedonthisnewsletterconstitutePhoenixCapitalResearch'sjudgmentasofthedateappearingontheopinionorestimateandaresubjecttochangewithoutnotice.Thisinformationmaynotreflecteventsoccurringafterthedateortimeofpublication.PhoenixCapitalResearchisnotobligatedtocontinuetoofferinformationoropinionsregardinganysecurity,instrumentorservice.Informationhasbeenobtainedfromsourcesconsideredreliable,butitsaccuracyandcompletenessarenotguaranteed.PhoenixCapitalResearchanditsofficers,directors,employees,agentsand/oraffiliatesmayhaveexecuted, or may in the future execute, transactions in any of the securities or derivatives of any securities discussed on thisnewsletter. Past performance is not necessarily a guide to future performance and is no guarantee of future results. SecuritiesproductsarenotFDICinsured,arenotguaranteedbyanybankandinvolveinvestmentrisk, includingpossiblelossofentirevalue.Phoenix Capital Research, OmniSans Publishing LLC and Graham Summers shall not be responsible or have any liability forinvestment decisions based upon, or the results obtained from, the information provided. Phoenix Capital Research is notresponsibleforthecontentofothernewsletterstowhichthisonemaybelinkedandreservestherighttoremovesuchlinks.OmniSansPublishingLLCandthePhoenixCapitalResearchLogoareregisteredtrademarksofPhoenixCapitalResearch.OmniSansPublishingLLC-POBOX2912,Alexandria,VA22301
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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%