Weekend October 27 2012
TMP examines crude oil, the dollar, bonds, and internal indicators. We take note of how much weakeer the NASD is than the NYSE.
Consumer sentiment is the highest in five years. Therefore the stock market, that laboratory of public opinion, is at its highest point in five years.
Everybody's Bailing on Commodities This can be viewed as a great contrarian play and is the sort of headline that prcedes market lows. See our longer term gold chart later in this update.
Let's begin with the oil market.
Crude Oil Monthly
We received a lengthy look back at the oil markets from our friends at Elliott Wave. Drop me an e mail if you would like a copy. The upshot of the article is that crude oil traced out a long 5 wave pattern topping at $145 in 2008/ An A Wave bottomed right on the 200 month MA. A B Wave took crude to $110. Since then it has been stair stepping down in what will become a familiar pattern for other risk assets the next few years. Crude oil was the last to top in 2008 but looks like the first to have peaked in this topping cycle.
Crude Oil Weekly
Now that I think about it, crude oil topped a few months after Shanghai and Bombay, both of which topped in the Fall of 2010. There is plenty of supply and I suspect a bit less demand, and so the price falls. This as Bob observes in his update will be a a developing wave of deflation which is what the FED should really be worried about.
The US Dollar
We sold positions six weeks ago very near the September 14 top in stock, actually exiting Sept18. Since then the US Dollar has rallied. look a the chart above, what do you see? I see a pattern of higher lows. The RSI needs to be above 50, it is not, but MACD appears to be flattening. Of all the charts, I have the hardest time believing this one will get weaker. It is of course possible the dollar moves sideways while gold and silver decide to rally here. The Dollar appears poised to make a major low here, possibly in November.
Bonds have not moved over the 50 day MA. On the other hand TLT has not fallen below its 200 day MA either. Once again we have the markets on hold, apparently waiting for the election results.
While GDXJ fell from 25.5 to 23.5, SIL pretty well stuck to the 25 level. This suggests a prefernce for silver minvers over gold miners.
Gold Longer Term
Gold now exhibits two characterisitcs of note.
an uptrend from 2010 and a recent downtrend off the last high
two moving averages of 50 and 87.5 days
are all about to converge. This is happening over a year after a significant top August 2011. My take is that the gold market has been consolidating ever since. The world currency situation will not change dramatically with the election. It is simply that one party, the Dems, spend even more money than the other party, the Republicans. Given the strength of the silver miners, it seems that we are setting up for a significant low in gold, silver, mining stocks in November.
Internal Indicators Weekly High Low
The weekly high low indicator has returned to the zero line, six weeks on the nose into its correction. I can see a rough Wave One, Two, Three ( the recent high in Sept) and now a Wave Four correction. Yes it overlaps Wave Two but this is after all an internal indicator.
NASD A/D Volume
Let's look at the same indicator for both the NASD and then the NYSE. The NASD is a good deal weaker, just ask Mike Dell about that. But it at least looks to be putting in a higher low here. Note this indicator has fallen below all its moving averages. This is the toll the move to mobile and tablets is taking on the semi conductor and computer makers. The uptrend was broken here but not so much for the NYSE shown next, (please take some time to compare the chart of the NASD above with the NYSE same indicator below, the large caps have already left the smaller ones behind, this is a significant divergence as we move to the 40th anniversary of the 1973-74 Bear Market).
NYSE A /D Volume
One can make the case that the uptrend is still very much intact for the NYSE. LIke the Weekly High Low indicator two charts back, this looks like a logical place to make a stand for this NYSE indicator.
NASD Summation Index
Frankly it looks like we need to get past the next week before the elections, that explains why the indicators look weak but none have bottomed and turned yet.
The Rasmussen Polls have Romney Ahead. One wins the election by taking states not the popular vote. One scenario outlined by Brett Baier last night had the Democrats taking Ohio and Wisconsin becoming the deciding state with its ten electoral votes.
Iowa Electronic Market
The Really Big Picture
This is the bulish percent of stocks above their 200 week moving average. Two things stand out here. With each successive high, both amplitude and duration are shorter.
1. The indicator is putting in a series of lower highs since the 2009 recovery. This is consistent with an overall weakening market. This is why the FED has begun QE 3, Bernanke is well aware of what is happening.
2. The market is also failing in the duration of the highs. Each high lasts for a shorter length of time thatn the previous high. This last high in September was there for about one week.
Metals and metal miners look ready to make an important low in the next few weeks. One might start placing orders expecting weakness this last week before the election. Watch the Dollar this week, it was down against the yen and euro on Friday. it now seems logical to expect a low in gold and possibly the same in the Dollar. It may well be that in the continuing weakness of Europe, and the violence in the mid East that the world prefers Dollars and Gold as currencies.
Socionomics and the News
My long standing prediction that Student Loan Debt will be an even worse debacle than the sub prime mortgage crisis is on the front page of the Weekend WSJ, again. Somehow a librarian managed to rack up an $80,000 student loan debt. Librarians at my university make a about $48,000 a year, so the risk reward here does not make sense. The women had co signed for her daughter's $55,000 student loan, and of course the daughter is not paying. She has sold her home and taken a second job. What was she thinking in taking out such a large loan? This exactly parallels the no money down interest only loans that presaged the collapse in real estate. This is already front page news but no one seems to be taking note, they soon will.
Periods of economic stagnation and public sour mood are also marked by former 'star' types losing their reputations. Tiger Woods and Arnold S certainly fit the bill for the same reason. But we have an even more extreme example of rejecting success in sports. Not only is the International Cycling Union UCI stripping Lance Armstrong of his seven Tour de France titles, no one else is being declared the winner either! So even if you came in second, and are not guilty, so far of doping, you still don't win anything. If I have this right it means that the Tour was then run for seven years with no winners whatsoever. I personally declare the UCI to have won the Shoot Yourself in the Foot Award for the Decade. Who would want to participate in a race with no winners?
Just a few weeks back Apple appeared unstoppable. Now after a 100 point drop in the stock, writers are already wondering if Apple will become another Microsoft.
Bull market end amid failed expectations. This is the reason I outlined the failure of duPont Glore Forgan/Walston in 1974. This is the reason I explained how Century Development managed to lose Greenway Plaza with out sized bets on un leased buildings. This is the reason we spotlighted the Kingdom Tower (the tallest building ever) and a proposed tallest building on the West Coast, perhaps to be built without signed leases. Facebook was supposed to be one of the hottest IPOs ever. Not only is it down about 50% from its offer price, now Citi pays a $2M fine and fires the analyst causing the problem.
On page B 16 cut throat pro\ice competition is on the rise. MSFT cannibalizes its own Dell and HPQ customers with its Surface Tablet. Samsung girds for more price competition. While good for consumers this is also deflationary leading to lower profits and lower stock prices.
We have suggested that municipalities would eventually default in multiple ways, expanding on Meredith Whitney's suggestion. Already citizens are starting their own cost saving think tanks like this one, www.smarttowns.org. Expect more of this to come. Bear markets exist to reign in the excess of the prior bull market. Smart Towns reveals plenty of excess to be reigned in.
Thanks for reading The Market Perspective
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