Weekly Market Update

Transcription

1 1 Weekly Market Update Phoenix Capital Research, Phoenix Capital Management Inc. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This newsletter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Phoenix Capital Management Inc. All Rights Reserved.

2 Disclaimer: The information contained on this newsletter is for marketing purposes only. Nothing contained in this newsletter is intended to be, nor shall it be construed as, investment advice by Phoenix Capital Research or any of its affiliates, nor is it to be relied upon in making any investment or other decision. Neither the information nor any opinion expressed on this newsletter constitutes and offer to buy or sell any security or instrument or participate in any particular trading strategy. The information in the newsletter is not a complete description of the securities, markets or developments discussed. Information and opinions regarding individual securities do not mean that a security is recommended or suitable for a particular investor. Prior to making any investment decision, you are advised to consult with your broker, investment advisor or other appropriate tax or financial professional to determine the suitability of any investment. Opinions and estimates expressed on this newsletter constitute Phoenix Capital Research's judgment as of the date appearing on the opinion or estimate and are subject to change without notice. This information may not reflect events occurring after the date or time of publication. Phoenix Capital Research is not obligated to continue to offer information or opinions regarding any security, instrument or service. Information has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. Phoenix Capital Research and its officers, directors, employees, agents and/or affiliates may have executed, or may in the future execute, transactions in any of the securities or derivatives of any securities discussed on this newsletter. Past performance is not necessarily a guide to future performance and is no guarantee of future results. Securities products are not FDIC insured, are not guaranteed by any bank and involve investment risk, including possible loss of entire value. Phoenix Capital Research, OmniSans Publishing LLC and Graham Summers shall not be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided. Phoenix Capital Research is not responsible for the content of other newsletters to which this one may be linked and reserves the right to remove such links. OmniSans Publishing LLC and the Phoenix Capital Research Logo are registered trademarks of Phoenix Capital Research. OmniSans Publishing LLC - PO BOX 2912, Alexandria, VA 22301

3 WEEKLY MARKET UPDATE Happy New Year! I hope all of you had a wonderful holiday season. Over the next few days, I m going to be putting together a complete review of 2016 as well as a forecast for Today, however, I wanted to simply focus on what the markets are telling us. As a brief recap, the driving force for the markets after the November 8 US Presidential election was one thing and one thing only: The $USD/Yen pair. This currency pair has driven the US stock market move almost tick for tick. Meanwhile, the inverse of this (the Yen/ $USD pair) has collapsed Gold: 3

4 As well as US Treasuries: 4

5 However this appears to be ending As you can see in those last two charts, both Gold and Long-Term Treasuries appear to have finally bottomed and are now breaking free of the Yen/$USD s control. I believe that these assets classes are sensing that the Yen/$USD fix is about to end. As you can see, this currency pair is putting in a base. Here s a close-up of the last month s action: 5

6 We ve been roughly flat here since December 17 th. This is incredibly bullish when you consider that the Bank of Japan (BoJ) is intervening on a daily and sometimes hourly basis. Indeed, in the Big Picture, the Yen/ $USD pair is now at MASSIVE multi-year resistance. 6

7 The odds of the Bank of Japan getting past this are small (I put them at less than 20%). The reason being that IF this were to happen, the financial system could very quickly find itself moving into a 2008-type crisis, first in China and then spreading globally. For certain, the Yen devaluation has already unleashed a high degree of deflation. The most notable case is China where the US Dollar rally has resulted in that country having to halt trading on its bonds in late December Beijing is learning about bond vigilantes. Last Thursday, after the U.S. Federal Reserve raised interest rates and projected more rises next year, China s bond market fell out of bed. Investors are realizing that despite the government s best efforts to prepare and isolate the domestic economy, China remains vulnerable to a stronger dollar. Bond trading had to be suspended briefly on Thursday until the People s Bank of China injected about $22 billion into the money markets to calm nerves. The PBOC also extended emergency loans to financial firms to encourage them to keep trading, a positive sign that the authorities have learned from their mistake of suspending stock trading after the June 2015 stock-market crash. But corporate-bond yields continue to rise and new issuances have been cancelled. The situation has not improved. If anything, the $USD s strength is now beginning to put pressure on China s large pile of $USD-denominated debts. The large pile of foreign debt owed by Chinese companies, from state-owned banks to airlines, is giving added impetus to Beijing s efforts to keep the yuan from falling too steeply against the rallying dollar. The yuan dropped by 4% over the past three months, as the dollar recently hit a 14-year high against 16 currencies. The faster-than-expected depreciation is causing more businesses and individuals to try to get out of yuan, further pressuring the currency. To bolster the yuan, the central bank and other agencies have ratcheted up controls on Chinese companies as well as citizens investing offshore. In the latest move, banks were ordered over the weekend to step up scrutiny of individuals purchases of foreign currency. 7

8 China is not alone here. The $USD s strength, combined with the Fed s recent hawkishness (Yellen and cohorts claim they will raise rates three times in 2017, possibly at a faster than expected pace), is now beginning to impact the US economy as well, most notably the US housing market: Higher rates have hit the mortgage refinance business particularly hard. Applications to refinance a home loan fell 22 percent, seasonally adjusted, during the two-week period. They dropped by more than half in the last four weeks and ended the year 13 percent lower compared to a year ago. Mortgage rates rose sharply following the presidential election of Donald Trump and have hovered near two-year highs ever since. Moreover, the strong $USD will be annihilating 1Q17 results for corporates. EPS guidance for 4Q16 already has a negative average. As it is, Financials and Tech are the only two sectors in which greater than 50% of firms have issued positive guidance! Indeed, we are now seeing references to currency headwinds (read: the impact of a strong $USD) showing in multiple industries. The below items are just a small snapshot of what will soon be an economy-wide issue. 8

9 Abercrombie & Fitch (ANF): Retail Shares of apparel and shoe retailer, Abercrombie & Fitch Co. ANF plunged to a 52-week low of $11.52 in the very first trading session of calendar year In fact, this Zacks Rank #5 (Strong Sell) has been displaying a miserable performance for quite some time, owing to foreign currency headwinds, negative earnings surprise history and a tough retail landscape. McDonald's (MCD): Fast Food The price target has been reduced from $139 to $137. The EPS estimates for McDonald's for 2016 and 2017 have been reduced by $0.03 to $5.73 and by $0.08 to $6.23, respectively, based purely on currency headwinds The EPS estimate for 2018 has been reduced by $0.08 to $6.83 to reflect the lower anticipated base of earnings coming off 2017E, Kalinowski wrote. Marriot (MAR) and Hotels: Tourism/ Hospitality On the other hand, Marriott's considerable international presence makes it highly vulnerable to fluctuations in exchange rates. Significant currency headwinds are also affecting most of the other hoteliers across the world, including Hyatt Hotels Corporation H, Hilton Worldwide Holdings HLT, Wyndham Worldwide Corporation WYN, etc. This volatility is expected to prevail in the near term. AVON Products (AVP): Beauty Products Moreover, the company anticipates results in 2016 to continue being impacted by currency headwinds, owing to which the Zacks Consensus Estimate for 2016 and 2017 has been trending down in the past 30 days. Estimates for both the periods have fallen 1 cent each to 13 cents and 37 cents, respectively

10 I expect that both 4Q16 and 1Q17 results are going to be horrific due to the US Dollar s strength. This will begin to impact stocks shortly. Indeed, as it stands, even a small reversal in the USD/Yen pair will send stocks down hard. We have the makings of a VERY sharp correction in bond the $USD/Yen pair and the S&P 500. The $USD/Yen pair is SEVERELY overbought on a weekly basis, touching the upper band of its weekly Bollinger bands. It is also moving towards staging a bearish crossover (when the 200- wma breaks below the 50-wma). We could easily see the $USD/Yen pair unwind this move in a matter of weeks. I m talking about a move to 1.05 within 5-10 trading sessions. 10

11 Put simply, the driving force for the rally in stocks (the $USD/Yen pair) is now running into major resistance. At the same time, the impact of the $USD remaining above 100 is now rippling throughout the US s economy. Stocks have broken their upwards trading channel and could move to 2,050 relatively quickly. 11

12 This is why we have a number of shorts open. Once this correction hits, we ll have a solid buying opportunity to move aggressively into stocks, particularly emerging market stocks. Indeed, I believe that the period of US stocks outperforming Emerging markets (2011 onwards) might be ending. The below chart shows the S&P 500 priced relative to Emerging Markets. So when this chart rallies, US stocks outperform Emerging Markets; when it falls, Emerging Markets outperform US stocks. This looks a LOT like a major top is forming. If we get confirmation of it with a breakdown here, we could be at the start of a multi-year period in which Emerging markets outperform US stocks. Elsewhere in the markets, Coal looks to have bottomed. We ve been waiting for a buying opportunity. It s here. 12

13 Action To Take: Buy the Coal ETF (KOL). I m putting this in our Stocks portfolio as it is largely composed of Coal companies. Uranium is another sector that interests me. Regardless of one s political views, nuclear energy remains a major source of power for the world. And there is little indication that this will change. Currently there are 57 nuclear reactors under construction. Of this 57, some 20 are in China, which has committed billions of Dollars towards nuclear development in a bid to reduce the country s pollution. The chart suggests Uranium is ripe for a MASSIVE move higher. We ve just broken out of a multi-year downtrend and wedge pattern. This predicts a move to $20 is coming in the next year or so. 13

14 Action to Take: Buy the Uranium ETF (URA) if you have not already done so. I m moving this position to our Stocks portfolio as it is largely composed of Uranium companies. In terms of individual plays, Cameco (CCJ) has just broken out of a multiyear downtrend. 14

15 CCJ is a large Uranium miner with properties in Canada, the US and Kazakhstan. Asset-wise, CCJ s properties have 185,000 tons or uranium. The company accounts for roughly 18% of global uranium production. It also trades at the absurdly cheap Enterprise Value/ EBITDA of 8.7. And it yields 2.8%. Put simply, this is a solid macro play, with a great valuation. Time to buy! Action to Take: Buy Cameco (CCJ) I m adding this to our Stocks Portfolio. To conclude, the prevailing trend of the last two months of 2016 ($USD up, US Stocks up, Bonds down, Precious Metals down), looks to be exhausted. Already we are seeing Bonds and Gold begin to move higher. Indeed, you wouldn t guess it from media coverage/ sentiment but the entire Gold mining complex is up OVER 15% since December 20 th!!! The turn we ve been waiting for is finally at hand. I expect Bonds and Precious Metals to begin to rally hard now. And I expect stocks will get it HARD within the next two weeks. 15

16 This concludes this week s Weekly Market Update for Private Wealth Advisory. I m working on a 2016 review and 2017 forecast, which I hope to get to you early next week. In the meantime, I m watching the markets closely and will issue updates as needed. Until early next week Best Regards, Graham Summers Chief Market Strategist Phoenix Capital Research 16

17 OPEN POSITIONS STOCKS PORTFOLIO POSITION SYMBOL DATE CURRENT GAIN/ LOSS Exxon XOM 9/24/14 $95.82 $ % RPX Corp RPXC 8/5/15 $15.48 $ % Ambev ABEV 11/25/16 $4.96 $5.11 4% Cemex CX 11/25/16 $8.07 $7.96-1% Enterprise Products 4% EPD 11/31/16 $25.93 Partners $27.05 Peru ETF EPU 12/7/16 $33.23 $ % Uranium ETF URA 6/8/16 $15.49 $ % Coal ETF KOL 1/4/17 $12.59 NEW! Cameco CCJ 1/4/17 $10.69 NEW! BONDS PORTFOLIO POSITION SYMBOL DATE CURRENT GAIN/ LOSS Nuveen Muni. Fund NVG 1/2/14 Emerging Market Bonds EMB 11/21/16 Long US Treasuries TLT 11/21/16 $13.12 $ $ $ % $ % $ % Prices as of market s close on 1/4/17 at market s close Price include dividends 17

18 PRECIOUS METALS/ MINERS PORTFOLIO POSITION SYMBOL DATE CURRENT GAIN/ LOSS Gold Silver* 3/17/10 3/17/10 $1,120 $16.23 $1, $16.49 Gold Miners ETF GDX 10/5/16 $22.83 $21.92 Gold Mining Juniors GDXJ ETF 10/5/16 $37.52 $34.20 Silver Wheaton SLW 10/5/16 $22.59 $19.94 Silver Standard SSRI Resources 10/5/16 $10.30 $9.58 Barrick Gold ABX 10/5/16 $15.54 $16.40 New Gold NGD 10/5/16 $3.88 $3.64 4% 2% -4% -5% -11% -7% 6% -6% Prices as of market s close on 1/4/17 at market s close Returns include dividends *Average price of $17.50 and $

19 SPECIAL SITUATIONS/HEDGES/SHORTS PORTFOLIO POSITION SYMBOL DATE CURRENT GAIN/ LOSS France ETF (SHORT) EWQ 9/16/16 $23.38 $ % Italy ETF (SHORT) EWI 9/16/16 $21.56 $ % American Eagle Outfitters AEO 5/26/16 $15.36 (SHORT) $ % Russell 2000 ETF IWM 12/14/16 $ $ % Financials ETF XLF 12/21/16 $23.61 $ % Brazil EWZ 12/21/16 $31.25 $ % CASH/ CURRENCIES PORTFOLIO POSITION SYMBOL DATE CURRENT GAIN/ LOSS Euro Trust FXE 10/5/16 $ $ % Prices as of market s close on 1/4/17 at market s close Price include dividends 19