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Weekly Market Update 5-24-17

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TheFedannouncementtodayindicatedthat:

1) TheFedhasnoticedtheeconomyweakeningbutviewsthisweaknessas“transitory.”

2) TheFedstillbelievesthe“continuedgradualremovalofmonetarypolicyaccommodationremainedappropriate.”

3) TheFedisawarethatthemarketsarebubbly(“assetvaluationpressures”)butnot

enoughtowarranttheFedviewingtheriskofthisas“elevated.”Bottomline:theFedisgoingtobehikingratesagainsoon,regardlessofwhatthedatasuggests.ThisfallsinlinewithmyviewthattheacademicsrunningtheFedhaverealizedPresidentTrumpwilllikelybefiringmostofthemandsoareintentonactingtonormalizepolicypriortothis(foracompleterundownofouranalysisonthissubjectseeourweeklyupdatefrom4-12-17).Indeed,wegotthissurprisingtidbitfromtheFed’sminutestoday:

Fedsetsprocesstowinddown$4.5trillionbalancesheet

FederalReserveofficialsappeartobeinsynconhowtheyplantounravelthemammothstimulusimplementedduringthefinancialcrisis…Inrecentdays,officialshavebeenindicatingthatthebalancesheetwillbeunwound,likelystartinglaterintheyear,raisingquestionsfrominvestorsabouthowtheprocesswillworkandwhatimpactitwillhave.AccordingtominutesreleasedWednesdayfromtheFederalOpenMarketCommitteemeetingearlierthismonth,thecentralbankseesasystemwhereitwillannouncecaplimitsonhowmuchitwillallowtorolloffeachmonthwithoutreinvesting.Anyamountitreceivesinrepaymentsthatexceedsthecaplimitwillbereinvested."Nearlyallpolicymakersexpressedafavorableviewofthisgeneralapproach,"theminutesstated.http://www.cnbc.com/2017/05/24/fed-sets-process-to-unravel-4-point-5-trillion-balance-sheet.html

Weekly Market Update 5-24-17

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So…theFedisnotonlyhell-bentonraisingrates…but“nearlyallpolicymakers”attheFedwantittostartshrinkingitsbalancesheetthisyear.ThisisaTREMENDOUSmistakeonthepartoftheFed.Indeed,whiletheFedcontinuestomoveforwardwithitsratehikes,thebondmarketisflashingamajorwarningregardingtheUSeconomy.Bywayonintroduction,youshouldknowthatbondsarethe“smartmoney”forthefinancialsystem.Thebondmarketislarger,moreliquid,andinvolvesmoresophisticatedinvestorsthanstocks.Forthisreason,bondsusuallypickuponmajorshiftsintheeconomybeforestocksdo.Onthatnote,whenthebondmarketyieldcurveflattensitsignalseconomicweakness.Andasthebelowchartshows,thebondyieldcurvehasbegunflatteningaggressively.

Asfarasthe“smartmoney”isconcerned,theentireelectionbumpineconomicactivityisover.TheyieldcurvehaserasedALLofthepostelectiongainsandisnowcrashingdownwardtowardstheBREXITlowsof2016.Putsimply:bondsareasworriedabouttheeconomyastheywerewhenBREXIThappened.

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Bondsarenottheonlyones.Inflationexpectationsarealsocrashing.

Thisisamajorwarningtous.Thefinancialsystemisrapidlyshiftingawayfromthe“growthnarrative”tooneofpronouncedeconomicweakness/deflation.However,secondaryassetclasseshaveyettoadjusttothisreality.Usingtheabovechartsasaproxyforwhereeconomicallysensitiveassetsshouldbetradingsuggeststhat…Oilshouldbetradingaround$40perbarrel.

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Coppershouldbetradingaround$2.05.

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TheIndustrialMetalsindexshouldbearound$92.50.

ThisisaMAJORwarningsigntous.Themarketsarespeaking.Fewarelistening.Why?Becausetheridiculousmarketrigscontinue.Justtoday,theVIXwassmashedtoinduceRisk-ParityfundstobuyApple,GoogleandAmazon,whichinturnpushedtheS&P500higher.

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HowdoIknowthisisamarketrigandnotrealbuyers?Becausewearenotgettinganyconfirmationofthismovefrommarketinternals.Firstofall,theS&P500reliesheavilyonahandfulofstockstomoveit.WhenyouremovetheinfluenceofFANGstocks(Facebook,Apple,Netflix,andGoogle)bygivingeverycompanyintheindexequalweighting,youfindthatthemarkethasyettoreclaimitsformerpeakMaypeak.

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Indeed,thenumberofS&P500companiesabovetheir50-daymovingaveragesisn’tconfirmingthismovehigheratall(yetmoreevidencethattheFANGstocksarewhat’sdrivingthemove).

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Moreover,thenumberofS&P500companiesestablishingnewlowshasalreadybounceddespitestockssoaringtonewhighs.

Andfinally,perhapstheclearestevidencethatthismoveisbeingdrivenbymarketingrigging,theRussell2000,whichisn’tbeingrigged,andwhichnormallyLEADStheS&P500duringlegitimaterallies,hasbarelyretraced60%ofitsmid-Maydrop.

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So…ifweignoreallofthis,thenYESstockslookgreatrightnow.Butthatwouldbelikeclaimingsomeoneisingreatshapeaslongasyouignorehisorherweight,bodyfatpercentage,cardiovascularhealth,andfitnesslevel.Indeedtoprovidealittlecontexttothis“incrediblemarketrally,”stocksareup0.4%fromtheirFebruaryhighs.Putanotherway,stockshaveeffectivelygoneNOWHEREforalmostthreemonthsnow.

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Ok,myranthereisover.Butyougetmypoint:anyonewhoisproclaimingstockstobeinaragingbullmarketisn’tpayingattention.Stockbullshaven’tmadeanymoneysincelateFebruary.Atsomepointthiswholemessisgoingtocorrectinanastymove.Thelong-termbullmarkettrendlinebeckons.Stockswillberevisitingitbeforetheendoftheyear.Andthelongertheramperscontinuetopropthemarketsup,themorelikelyitisthatwhenstockDOcorrect,theywillCRASHala1987.

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Elsewhereinthemarkets,I’mveryconcernedbyhowourenergyplaysareacting.SouthwesternEnergyhasfailedtobreakoutofitsfallingwedgepattern.

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GulfportEnergy(GPOR)isfailingtobreakouttotheupsidetoo.

Moreover,theOilFundhasfailedtoreclaimitstrendline.

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EvenExxonMobil(XOM)isfailingtobreakouttotheupside.

Let’sgetoutofallofthese.WecanrevisitthemlateronceOilisdowninthe30s.ActiontoTake:SellSouthwesternEnergy(SWN)ActiontoTake:SellGulfportEnergy(GPOR)ActiontoTake:SelltheUSOilFund(USO)ActiontoTake:SellExxonMobil(XOM)Nowlet’smakesomemoneyfromthecomingOilcarnage.Indeed,theEnergyETF(XLE)looksHORRIBLE.

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ActiontoTake:ShorttheEnergyETF(XLE)Outsideofthis,ifyou’relookingtoputnewcapitaltowork,we’regoingtohaveanabsolutelyunbelievableopportunitytoloaduponpreciousmetalsminerswithinthenexttwoweeks.Indeed,theGDX:GLDratiosuggestswehavealittlefurthertodropbeforeit’stimetobuy.Butoncewehitthatlevel,we’regoingtobeginoneofthegreatestralliesinGoldminerhistory.

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ThesameistruefortheSIL:SLVratio:

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ThesinglemostimportantpartforinvestingisPATIENCE.Thisiswhatseparatesthosewhoseemassivereturnsfromthosewhosimplyrunaroundlosingmoney.WhileCNBCandtheinvestingherdcontinuetotrumpet“bullmarket!”thoseofuswhoarepatientwillbemassivelyrewardedwhenthisstockmarketrigfinallyblowsup.ThekeyareasI’mlookingforustoputmorecapitaltoworkwillbe:

1) PreciousMetalsandPreciousMetalsMiners(within2-3weeks)2) Energystocks(within2-3weeks)3) Multiplestocklongs(oncethemarketcorrects)

Butrightnow,weneedtobepatientandwaitforthetimetobuy.Thisconcludesthisweek’sweeklymarketupdate.I’mwatchingthemarketscloselyandwillissueupdatesasneeded.Barringanynewdevelopmentsyou’llnexthearfrommenextWednesdayinourlongermonthlyissue.Untilthen…

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 $15.00 38% EmergingMarketBonds EMB 11/21/16

$109.82$115.38 7%

LongUSTreasuries TLT 11/21/16 $121.05 $123.23 3%

Pricesasofmarket’scloseon5/24/17.Gainsincludedividends

POSITION SYMBOL BUY DATE

BUY PRICE

CURRENT PRICE

GAIN/ LOSS

RPXCorp RPXC 8/5/15 $15.48 $13.57 -12% AgriculturalCommoditiesETF RJA 1/12/17 $6.46 $6.21

-4%

ChinaETF ASHR 2/1/17 $24.98 $24.82 -1%

PublicStorage PSA 3/23/17 $225.92 $217.57 -4%

ClearEnergyETF PBW 4/19/17 $4.06 $4.14 2%

BiotechETF IBB 4/26/17 $296.15 $291.16 -2%

Verizon VZ 4/26/17 $47.17 $45.04 -5%

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POSITION SYMBOL BUY DATE

BUY PRICE

CURRENT

PRICE

GAIN/ LOSS

Gold 3/17/10 $1,120 $1,258.00 12% Silver* 3/17/10 $16.23 $17.23 6%

GoldMinersETF** GDX 10/5/16 $22.45 $22.97 2% GoldMiningJuniorsETF*** GDXJ 10/5/16 $34.72 $32.21

-3%

WheatonPreciousMetalsCorp WPM 10/5/16 $22.59 $20.77

-8%

NewGold NGD 10/5/16 $3.88 $2.91 -25%

BarrickGold ABX 4/26/17 $16.92 $16.71 -1%

SilverMiningETF SIL 4/26/17 $34.44 $35.89 4%

SilverStandard SSRI 4/26/17 $9.94 $9.86 -1%

FirstMajesticSilver AG 5/12/17 $8.70 $8.89 2% RandgoldResources GOLD 5/12/17 $93.25 $93.30 0%

PRECIOUS METALS/ MINERS PORTFOLIO

Pricesasofmarket’scloseon5/24/17.Gainsincludedividends*Averagepriceof$17.50and$14.97**Averagepriceof$22.83and$22.07***Averagepriceof$37.52and$31.92

SPECIAL SITUATIONS/HEDGES/SHORTS PORTFOLIO

POSITION SYMBOL BUY DATE

BUY PRICE

CURRENT PRICE

GAIN/ LOSS

FranceETF(SHORT) EWQ 9/16/16 $23.38 $29.45 -26% ItalyETF(SHORT) EWI 9/16/16 $21.56 $28.62 -33% Russell2000ETF(SHORT) IWM 12/14/16 $135.37 $137.49 -2% Apple(SHORT) AAPL 3/23/17 $140.92 $153.34 -9% EnergyETF(SHORT) XLE 5/24/17 $67.63 NEW SHORT

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CASH/ CURRENCIES PORTFOLIO

POSITION SYMBOL BUYDATE

BUYPRICE

CURRENTPRICE

GAIN/ LOSS

EuroTrust FXE 10/5/16 $108.80 $108.60 0%

Pricesasofmarket’scloseon5/24/17.Gainsincludedividends

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POSITION SYMBOL BUYDATE

BUYPRICE

SELLDATE

SELLPRICE

GAIN/ LOSS

AmericanEagleOutfitters(SHORT) AEO 5/26/16 $15.36 1/31/17 $14.59 5%CliffsNatResources(FIRSTHALF) CLF 2/8/17 $10.15 2/13/17 $12.10 19%

Ambev ABEV 11/25/16 $4.96 2/23/17 $5.93 21%Cemex CX 11/25/16 $8.07 2/23/17 $8.69 8%CliffsNatResources(SECONDHALF) CLF 2/8/17 $10.15 2/23/17 $11.13 10%

Exxon XOM 9/24/14 $95.82 3/8/17 $81.28 -8% EnterpriseProductsPartners EPD 11/31/16 $25.93 3/8/17 $27.83

9%

NaturalGasETF UNG 2/22/17 $6.57 3/8/17 $7.11 8%

EmergingmarketsETF EEM 1/12/17 $36.60 4/10/17 $39.20 7%

BarrickGold ABX 10/5/16 $15.54 4/10/17 $19.04 23%

UraniumETF URA 6/8/16 $15.49 4/12/17 $15.90 9% Cameco CCJ 1/4/17 $10.69 4/12/17 $11.48 7% CoalETF KOL 1/4/17 $12.59 4/12/17 $14.51 15% SilverStandardResources SSRI 10/5/16 $10.30 4/12/17 $11.32

10%

RoyalGold RGLD 2/8/17 $71.50 4/12/17 $74.14 4%

SilverMiners SIL 3/15/17 $35.81 4/12/17 $37.60 5%

USSteel(SHORT) X 2/1/17 $31.97 4/13/17 $29.42 8% CopperMinersETF(SHORT) COPX 3/23/17 $22.64 4/18/17 $21.02 7%

FinancialsETF(SHORT) XLF 12/21/16 $23.61 4/26/17 $24.06 -2%

RECENTLY CLOSED POSITIONS

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RECENTLY CLOSED POSITIONS CONTINUED

POSITION SYMBOL BUYDATE

BUYPRICE

SELLDATE

SELLPRICE

GAIN/ LOSS

PeruETF EPU 12/7/16 $33.23 5/17/17 $34.775%

BrazilETF EWZ 2/8/17 $37.53 5/17/17 $39.90 6%UtilitiesETF XLU 2/8/17 $49.35 5/17/17 $51.58 5%SolarEnergyETF TAN 4/19/17 $17.20 5/17/17 $18.00 5%RoyalGold RGLD 4/26/17 $69.92 5/17/17 $79.90 14% SouthwesternEnergy SWN 3/30/17 $8.15 5/24/17 $6.76 -17% GulfportEnergy GPOR 3/30/17 $17.17 5/24/17 $15.47 -10% USOilFund USO 4/26/17 $10.37 5/24/17 $10.60 2% ExxonMobil XOM 5/3/17 $82.70 5/24/17 $82.29 0%