Should We Be Worried About The Lack of Confirmation in Semiconductors?

There seems to be a lot of discussion on Twitter and StockTwits about the lack of confirmation breadth after the rise in equities last week. Some even noting some fairly bearish charts for the Nasdaq going back to the dot-com bubble peak. While it seems many other great traders and bloggers have discussed the breadth issue, most notably my good friend Ryan Detrick. One piece of data that’s also lacking a confirmation signal is one I’ve referenced a couple of times in the past – semiconductors.

While the S&P 500 ($SPX) got within spitting distance of its prior closing high, we did not see the same level of bullishness in the Semiconductors Index. Back in December I wrote an article titled, “Dr. Copper Has Been Replaced” in which I made the argument that Copper has been replaced by Semiconductors as a better barometer of market risk taking. While I don’t expect Semi’s to go in lock-step with the overall equity market, the current lack of confirmation is quite discouraging.

The news today will largely be focused on Apple’s earnings and the large gap down that the stock appears (as of the time of this writing) to be taking. While many great traders were pointing to the lack of breadth confirmation earlier in the week others were pointing to the strength in tech names like Apple and Google as a sign that the sky is still clear. As Apple experiences a kick in the teeth, I wonder if this increase in weakness in semiconductors was a bit of foreshadowing for the tech giant…

Semiconductor

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

One Of The Largest Single Day Advances in Volatility History

Yesterday was full of news out of Greece and whether the country could pay its debts while its citizens lined up to take a small maximum amount out of their checking accounts. As far as the equity market was concerned, the world was crashing! At least that’s what you would have thought by seeing how far the Volatility Index ($VIX) had risen.

On Twitter last week I mentioned that the way price and certain pieces of price-related data/indicators were acting, it seemed like we were setting up for a rise . Since then the $VIX has spiked over 55%.

In fact, this was the 11th largest rise in Volatility in 20 years! Only twice during the 2008 Financial Crisis did we see the $VIX advance by a greater amount in a single day. We finished up trading on Monday with the ‘fear index’ up nearly 40%. I’ve been discussing the decline breadth and momentum on both the blog and on Twitter, the number of stocks rising just hasn’t been able to keep up with the overall index. When this type of thing happens, a spark of international drama can be the needle that breaks the equity camel’s back, at least in the short-term, sending fear soaring like we did today.

So when were the most recent times this measure of trader concern rose at such a fast pace? 2011 and 2013. From those large pops in the the $VIX we saw Volatility mean-revert, falling 70% and 30%, respectively over the next days/weeks. I’m not calling for an immediate decline in Volatility, but historically it does tend to lose steam after such a strong rally, we’ll see if this time is any different.

VIX

 Full Disclosure: Certain client accounts may have positions in Volatility-related ETPs upon the time of this writing

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

Has Industrial Production Peaked & Does it Matter?

While my main focus is technical analysis and analyzing and monitoring price action, part of my job as a Portfolio Manager at the asset management firm I work for is to also monitor economic changes. I have two economic models that I track which have done a fairly good job at measuring the economy and forecasting recessions. Neither of my models are suggesting we are on the brink of a recession and if they did it would still take a backseat to price action as I form my market opinion.

However, I do find it interesting that Industrial Production peaked (so far) back in late 2014. This set of data is not very volatile and remains in well-established trends most of the time. So the fact that it’s been declining for the bulk of 2015 is interesting to me.

Below is a chart of Industrial Production going back to 1988 along with a 20-period Moving Average and I’ve included the S&P 500 in the top panel just for fun. You can see what I mean when I said that Industrial Production, at least for the last almost 30 years has stayed in some kind of trend – up or down – most of the time. I took the data back to ’88 to show there has been instances where the data began to whipsaw without a trend to remind you that nothing is perfect or trends 100% of the time.

I’ve put the 20-MA to help define the trend and also because it’s interesting how the market ‘reacts’ when industrial production declines below this Moving Average. We saw this happen in March ’08, Jan ’01, and Oct. ’90. Now we obviously are still above the long-term Moving Average at the moment. But it does seem like we may be seeing the start to a change in trend for this piece of economic data which has previously lead to some rough periods in the past. Making the conversation about the Fed raising rates that much more interesting.

The next question we must ask, and it’s the million dollar question, is does Industrial Production still matter? This reminds me of a post I wrote about semiconductors replacing copper as an indicator of risk-taking. Does the same idea apply here? Has our economy shifted enough away from being an industrial powerhouse that we can still see solid economic growth without the industrial complex? That’s the question we must ask and it’s the question we do not have an answer for. I think if we see a continuation of deterioration in this data set it will jump on many fund manager’s radar and if enough people deem it important, the market will likely grant their wish and make it so. Time shall tell and luckily those that follow price will be the first to know. Nonetheless, the chart of Industrial Production declining peaked my interest and thought it worthwhile to share.

Industrial Production

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.