Friday Oct 19, 2018
World Stock Exchanges Sag Along with Oil Price
On the close Thursday October 18 the New York Stock Exchange recorded nine times as many lows versus highs.
October is the most volatile of all trading months. Four years ago there was a sell off on an Ebola scare and then the rally resumed. There are several reasons to believe that may not be the case this time. Yes several indicators are now back to the same lows recorded last February but…..so let’s examine the buts.
The sell-off is not confined to just the US. In fact as noted last week, the US markets continued to gain as other world markets have not. How long could that last? China in particular is exhibiting serious weakness. The last high on the Shanghai Index was recorded after a parabolic run-up in 2014-2015. That high was just over 5,000. Today the Index is half that at 2,486 and still falling. China is in a serious bear market. There are numerous articles questioning the real strength of China with its questionable accounting system, government bank loans to prop up construction, and ghost cities. The Europe Asia Far East Index EAFE peaked with the US in February at 2175 but now continues falling at 1852.
Charles Dow created his Dow Theory in 1896. He created the Industrial Index, manufacturing and sales firms, and a Transport Index, then railroads which transport the goods. The idea is that one index has to confirm the other. To validate new highs, both need to be in lock step making new highs. The problem is that the Transports have fallen well below its widely watched 200 day moving average. The Industrials are testing their 200 day support at 25,157. Worse, the defensive sectors of Utilities and Healthcare, which rally late in a bull market, are the strongest market sectors.
We are ten years in to the longest stock rally in history. We have detailed the negative social mood both in the US, see Cavanaugh and the elections, as well as around the world. Putin dispatches assassins to London and a Saudi journalist disappears. Political discord is surely the worst since Watergate and the Nixon resignation. Again should that mood spread to the markets, we may have seen the top of the ten year run.
Our prediction that precious metals are forming an important bottom appears to be correct. Gold finally jumped over resistance at1,212. Silver needs a weekly close over 15 but that will eventually happen. The reason for strength in metals may well be weaker currencies around the world. The US Dollar may be topping now.
Finally oil prices have pulled back below $70 but are still in an uptrend.