The Market Perspective

Wall Street Has a Breadth Problem

Friday Dec 14 2018

Wall Street Has a Breadth Problem

 

There are a multitude of technical and fundamental indicators regarding the stock market.   Here are two which are easy to understand and cut through the clutter of the focus on FANG, Boeing, and Apple.

 

One t indicator would be the list of new highs and new lows printed daily in the Wall Street Journal. While the talking heads on CNBC have been more positive on the early December reversal, the new highs to lows indicator is flashing the real story.

 

The indicator is just what it seems. It lists those stocks making either new highs or new lows for the year. The ratios for the last three days starting Tuesday are lows to highs 8 to 2, 9 to 1, and 9 to 1. So the new low list is nine times that of the new highs. How can that be when stock indexes have recently seemingly turned up?

 

The answer is that most indexes weight some stocks more than others.   A big drop in Boeing for example can account for a big drop in say the DJIA.

 

Another simple indicator is the relative position of the exponential 50 day moving average EMA to the 200 day. A buy signal occurs when the shorter rises above the longer. A sell signal occurs when the shorter 50 falls below the longer 200. Such a sell signal just occurred for the S & P 500, the Dow Transports, and the Russell 2000 small cap stocks.

 

Worse, the Russell and the Transports both hit new lows Thursday.   As I write this Friday morning, the DJIA has dropped another 200 points. I had thought we would have more of an upward correction but it is not happening yet.   The crash of 2008-09 is a distant memory to most ‘long term investors.’ But the new high new low indicator is flashing warnings that the selling should probably be done now rather than later.

 

 

Last week I was skeptical that OPEC (Saudi) and Russia would cut productions 1.2 MBD. And sure enough, OPEC increased its output in November. Today the story is that OPEC will simply ship less oil to the USA.   It is difficult to imagine two countries with nothing to sell but oil, will cut production.

 

Crude oil needs a close over $54.77 to turn its trend up and is trading below that level now.

 

Meanwhile negative mood towards politicians continues around the world. British PM Theresa May survived a no confidence vote, the French riot in the streets, and India’s PM Modi may get the boot in elections this spring.

Breadth Still in Decline

Thursday Dec 13, 2018

The stats sound great for yesterday, Dow up 157 and the NASD up 49
but

look at the list of new highs and new lows  in the WSJ today Thursday on the NYSE

two columns of new highs

eight columns of new lows

and that is the real story, the internals and breadth continue to crumble

 

 

Surprising Gold and Dollar correlation

Wednesday Dec 12, 2018

 

Apparently gold and the dollar are moving inthe same  direction check out the correlation.

 

 

At bottom correlation is approaching the zero line. This suggests the world markets are moving to the USD and gold as safe havens.

 

50 EMA crosses below 200

 

New York Stock Exchange, a much broader index

 

Transports lead the Industrials

 

So the SPX, NYSE, Transports all show the death cross, the 50 day EMA going under the 200 day.  All of this continues to suggest the ten year bull market is ending.

 

Stocks very choppy but the waves are continuing to unfold in textbook fashion

 

Looks like Wave 2 of the larger Wave 3 is starting to the upside Expect resistance at the MAs  This move should be very instructive as to whether

this count is correct or all the charts above are wrong and happy days are here again as the bull resumes.

DJIA completes five wave Down in Wave One of Larger Wave Three

Tuesday Dec 11, 2018

The DJIA 2 hour chart appears to have completed Wave One of larger Wave Three.

PMO is poised for a re bound at bottom but the real test will be the attack on the 200 bar MA at top in red.Note that is where Wave C failed.

Yesterday's WSJ noted that buying the dips is drying up though the market reversed hundreds of points yesterday and is up 250 today. But gee look at this volatility.

The better idea would be to use this rally to ease out of stock positions.  Apple has fallen to  168 and is banned from selling some of its iPhones in China. All the problems in Europe continue, and if there are riots in relatively good times as an op ed in the WSJwonders today, what happens if things really slow down?

The indicator to watch

I am guessing this indicator willl top out in Wave 2 around  52.5%.  This correction will probably last the month given the slow trading the last two weeks of the Holidays. Christmas and New Year's are on Tuesday which will slow trading as well. Why doesn't Congress mandate This holiday as successive three day weekends?

Market Ends Week Erasing most 2018 Gains

Weekend Dec 8 2018

 

All the Moving Averages MAs are now pointing down.  The A/D line is below al the MAs. MACD at bottom is about to roll over.

Weekly Charts are More Important

Note the complete reversal in RSI at top.

A/D line is now below all the weekly MAs.

At bottom MACD is still falling.

Transports

When mood is strong the wave pattern is clear. Transports traced out a clear five waves down in October. November featured a textbook A B C corrective pattern. Now The very strong three days in a row down suggest a powerful Wave 3 has begun.

Russell 200 Small Cap Stocks

The small cap Russell 2000 breached the October low. This is yet another negative sign that this is not a  correction as many still claim but the making of at least an intermediate top.

Gold

The only market that is advancing is gold

Social Mood Negatives

Paris on Fire, Macron backs down on fuel tax

Trump and Tillerson exchange insults on CBS

Kelly out as Chief of Staff, Trump calls for jail time for Cohen

May cannot seem to put the Humpty Dumpty Brexit back on the wall

British leaders disagree with the voters

Shanghai Exchange down 50% since 2014

Trump in tariff war with China and Canada

Kevin Hart out as Oscar Host

US Warships in Black Sea and China Sea

Canada arrests Huawei CEO to extradite to US, China furious

All this follows Lauer, Weinstein, Cosby, Spacey, all gone now

Manafort and Cohen facing jail time

Democrats splinter on various issues even as they take the House

Qatar exits OPEC

Crude Oil price collapse

Gold rallies

US Dollar peaking

 

 

 

Time Lapse Fractals

Friday Dec 7 2018

Monthly

The long bull market from 1982

Bull Market since 2000

Bull Market Since  2009

The fractals keep re-occurring

notice that each division of the move up has five waves, this is the concept of fractals.

2016 to Present

Markets on the Brink

Friday Dec 7 2018

Markets on the Brink

 

Friday Dec 7, 2018 6 40 AM CST

 

The 617 point advance in the DJIA Wednesday generated a lot of positive buzz in the media. But there are reasons to remain cautious.

 

The Dow Transports are re-testing the 200 day moving average. That is not far from 10,679 today but markets are trading lower as I write.

 

If stocks turn down next week, which I suspect they will, the specter of a bear market reality looms.

 

This Column Dec 2, 2018

 

That was a better than average prediction. Now what?

 

Yesterday Thursday Dec. 6, the DJIA had a huge 709 point intra-day move. It managed to come back to close only 79 ponts down from Wednesday. One might have thought a bit of rally today but in pre market trading, DJIA is down 175 points again.

 

The low October 26 was 24,122 closing at 24,442.   The low yesterday was right at that prior close, 24,442. If those levels are taken out, the market is likely to head even lower. The DJIA has dropped 1,750 points just this week.   The Transports are signaling economic weakness. A break below 9,800 would signal much lower prices.

 

It may be that stock U S stock markets manage to stay above their October lows. The Advance Decline lines have turned down which is significant. Overall expect lower prices into the new year.

 

WTIC dropped 3.3% while Brent slid 2% Thursday. Unleaded gasoline and heating oil fell as well. The most watched 200 week moving average is $52.27 with a close of $51.49.  Crude needs to hold this level.   XLE Energy ETF is also testing its 200 week MA at $66.11 closing at $64.43 yesterday. XES Energy Service ETF is most discouraging at $10.98 well below its 200 week MA of $18.16. The market is suggesting it will be really difficult for the service industry to prosper in this environment.

 

Energy prices will not likely turn on OPEC or Russia or Trump or the Kashoggi murder in Istanbul.   The most important thing, as always, is the direction of the US Dollar Index.  

 

The Dollar hs been tracing out a top around 97 since its high November 12 at 97.53. As oil is priced in dollars, a drop in the dollar could raise oil prices.

 

Virtually unreported, other than in this column, has been the one market embarking on a new bull phase. That market is gold. Gold has steadily advanced from its August low of $1,167. It is now $1,244 just under its 200 day MA of $1,261.

 

The Dollar index is probably topping now. This should lead to a rally in gold and silver this next week. And that just might prop up weak energy prices.

 

Dennis.elam@gmail.com

 

 

 

 

 

Market to Re Test October Low

Thursday Dec 6 2018

The broader based NYSE actually internally peaked in late August.  Again this is our most reliable single indicator.  It is re testing the October an November lows.

A break below those lows on a weekly basis will again signal more market weakness.

NYSE

Notice the gap down in the NYSE today. It has taken out the November low and will shortly test the October low.

PMO is rolling over which suggests the October low will not hold, Not labelled but notice the five waves down in Otober and then a A up B down C up that ended Monday.

Now a third, the most powerful of the three down waves is kicking off big time.

Major Market Idex

 

The XMI Major Market Index is under its 200 day MA already.  PMO is rolling over. Notice the MAs are beginning to converge which is always the preliminary to a change in market direction.

DJIA

 

 

Evidence Builds the Bear Has Arrived

Wed Dec 4 02018

Evidence Builds the Bear Has Arrived

 

The 617 point advance in the DJIA Wednesday generated a lot of positive buzz in the media. But there are reasons to remain cautious. This move up looks like a normal Wave C rebound, A up, B down C up, after the October collapse.

 

The Dow Transports are re-testing the 200 day moving average and need a close over 11,000 to turn the turned up. That is not far from 10,679 today but markets are trading lower as I write.

 

If stocks turn down next week, which I suspect they will, the specter of a bear market reality looms.

 

This Column Dec 2, 2018

 

And that is precisely what happened Tuesday Dec 4. The DJIA plunged 799 points to erase most of its 2018 gains. The economically sensitive Transports dropped 4.5% on Tuesday. Bank, energy, and energy service stocks were all hammered.

 

An accountant named Ralph N. Elliott devised his Elliott Wave Pattern of social energy and stock price movement in the 1930s. A complete discussion is beyond the bounds of this newspaper column. Learn more at

https://stockcharts.com/school/doku.php?id=chart_school:market_analysis:introduction_to_elliott_wave_theory.

 

It is more and more probable that a final fifth of a fifth wave on a monthly, weekly, and daily (fractals) basis occurred October 3, 2018. The DJIA dropped 2,500 points in October. A textbook recovery took place in November with an up down up pattern into Monday December 3. That pattern completed and the larger Wave 3 down began in earnest with an 800 point drop.

 

Politicians, fund managers, and most media types will not accept the inevitability of such a pattern, but it is plain to see. The markets are now probably starting a third wave down the strongest in the series, evidenced by the 800 one day drop.

 

If that analysis does not appeal to you, here are some other clues.

 

• No stock market recovery has ever lasted more than ten years. This recovery is in its tenth year.
• Interest rates were rising but fell significantly Tuesday. The ten-year note yield is 2.925, the five year is 2.972. We are in danger of inversion, the ten year rate falling below the five year rate. This is usually an indication of an economic slow down ahead.
• Few are noticing but the ratio of gold mining stocks is outperforming the SPX, it jumped markedly Tuesday. This is another indicator of trouble ahead. Gold shares are ending a two-year period of correction.
• This column has warned of serious trouble from a tariff war for the last year. Now Trump declares he is Mr. Tariff.
• Finally energy shares have been hit hard, once again Trump does not get it, that is an indication of economic slow down.

 

 

Perspective on Gold

Wed Dec 4 2018

Gold shares compared to the SPX have been correcting for two year.A slightly higher low was notched this summer. The new bull market in gold shares is beginning.

Daily

 

The 800 point drop in the DJIA and whatever it was in the SPX jumped the ratio over the  50 and  87 day MAs leaving a gap.

This is happening as the US Dollar  is topping.

GLD ETF versus UUP ETF for US Dollar

Gold shares are advancing relative to the US Dollar.

The world is awash in weak currencies from Russia to Argentina to Venezuela. Gold is coming back.