The Market Perspective

Oil Prices Drop on Saudi Russia Announcement

Friday April 10 2020

Counter Trend Rally Ending, Oil Dips Again

Let’s begin with a few anecdotal statistics.

16.8 million former employed have filed for unemployment in the last three weeks.

On the news of the Saudi Russia production cuts, oil closed down -9.29% Thursday trading in a huge $5.79 range.

Commercial airline passenger count through all US airports a year ago declined from 2.2 million to 94,000 this past Wednesday, a drop of 96%.

Did anyone notice Ford Motor’s $36 billion in high yield debt was downgrade to BB+ March 25, attaining junk status. The FED announced plans to buy some, causing it to rally from 71 to 89 cents on the dollar.

Hog prices hit an 18-year low as chicken producers destroy eggs.

The plan by governments around the world is to borrow the way back to prosperity. Who is going to re-ay those ‘loans.’ And if the promised return to normal were announced, how long before those 2.2 million passengers show up at the airport? Can the government pay all the airline employees not to work?

Crude oil and stock prices have moved in tandem the last couple of years. And this year, crude oil prices have led stocks down. Crude peaked the first week of January around $62 (yes really). In Elliott Wave fashion it completed a down move at the end of March. As noted above, it posted a huge outside reversal day down Thursday.   Exxon Mobil dropped five dollars Thursday.

Stocks measured by the DJIA completed a 5,000 plus point rally from March 23. That is also an Elliott pattern. A counter-trend rally relieves what technicians call an oversold condition. Clearly investors bought the rally rather than selling into it as the index closed up 285 points Thursday. If the Elliott Wave pattern continues the sstock market should resume its downtrend shortly.

The fundamental reason for selling are the statistics cited above. With planes, trains, autos, and ships all idle there is no demand for the excess of oil and gas in world storage. Bankruptcies have begun among shale producers with Whiting Petroleum filing and Abraxas and Chesapeake not far behind, both trading as penny stocks already.

Readers may ask, if the FED is dumping trillions of dollars, well somewhere, why will there be more selling? The answer is that cash is king in a deflationary depression. We are already in a recession. Negative quarterly Gross Domestic Product will continue for some time.  

Low interest rates prolonged by Central Banks to raise real estate prices have a high cost. Too many businesses took on too much debt. Too many retirees ‘invested’ in REITs, junk bonds, and who knows what else to obtain yield. Now both issuer and borrower need their money back.

6.6 Million Jobless Claims

Thursday April 9, 2020

The jobless claims were estimated in the five million range and came in at  6.6 M.

to put that in perspective, I checked. among the 50 states, Indiana population is ranked 17th with about  6.7 M.  That means this number is greater than the population of any one of  the bottom 33 states in the USA.

Or 6.6 is about the population of the DFW metroplex. Imagine every single person in DFW being out of work. How long would any recovery take, answer, a long time.

Counter Trend Rally Completing

Thursday April 9, 2020

The first big move from Feb 12 top to March 23 low is complete.  Now a corrective A B C 22nd wave appears to be completing this week.

the A B C pattern covered five thousand points, typical of a bear market rally. This has assured all the 'long term investors' that they were correct in riding this out. Confidence among the 'advisors' who daily send me their life time buy ideas is high. But scan the headlines in the WSJ or even the San Antonio paper and the results of the lockdown are not yet grasped by most.

The next move should be a larger third wave down as the reality of what has happeened sets in.

30 minute chart

The first wave up off the March  23 low covered  4,500 points. PMO at bottom and RSI at top were robust.

The B wave toped right on the  200 bar MA.  The C Wave shows lower amplitude in the PMO at bottom and ending in RSI at top, as  it should.  That wave covered 2,500 points

Weekly

Today is thursday and tomorrow is Good Friday and trading is closed.  The market is flat in pre open trading.

Price has manged to regain the 200 week MA but will likely fail right there, if my analysis is correct that is precisely what should happen.

Cash oil prices are ten bucks or so below the futures markt, as one analyst observed there are simply no buyers.

 

We will update this weekend. Again as the vast majority of financial planners with little long term market history are assuring clients the worst is over, we think the worst probably lies ahead.

VIX taking off,stand by for an excting event

 

VIX is about to go througt the roof

brace yourself

wave three lies ahead

 

DLE

 

you  cannot say I did not warn you

\VIX is aboout to 

 

the markets are about to explode to the downside

A B C Fourth Wave Might Be Complete

Tuesday April 7 2020

We never know exactly how Elliott Wave Patterns will play out until they are over. But, there is some evidence here that a fourth wave or other counter trend wave has completed an A B C pattern. The fact that the market was up some  900 points intra-day but closed down 26, suggests this was a counter trend rally that may have run its course.

As mentioned here in previous posts. bear markets sport incredible rallies.  Investors believe a bottom is in place and rush to buy,  what are billed as once in a a lifetime opportunities.

Stock Prices Fizzle as Oil Prices Slide

https://finance.yahoo.com/news/stocks-extend-gains-hopes-coronavirus-134608379.html

Well things are unfolding as expected, more tomorrow morning, but expect that this stair step decline will continue

Here is the latest from  ZACKS

Problem is that this was written at 10 03 AM Tuesday. By the end of the day using Elliott Wave Analysis, we had predicted it would all be taken back.

And that is just what happened,  I have no idea who Kevin is but it is clear he has no template for what is happening. He wants and wishes stock prices to advance. So whenever we get an impressive bear market rally, he is enthused only to be proved wrong once again. This will be the case all the way to the eventual bottom.

We are already closing in on the worst of the  2009  market lows, billed then as the worst 'whatever' since the Great Depression. It that was true two months in what is this?

How can this be?  Two months and we are at or near the 2009 lows? We are in a cycle degree higher range than in 2009. The bull market from the  1932 low at DJIA 42 to  29,586 has ended.

Bear Market Rally in Progress

Monday April 6 2020

Bear market sport incredible short term rallies. We had another one today, wow  1600 points all the way to the close.

RSI is getting over done on the 30 minute chart.  The blue rectangle covers the last open gap. Prices are liable to fill that gap in yet another soon to bbe exhausted rally.

 

Crude oil closed down $2.03 today, the rally last week was a head fake just like the stock rally today.  Hard times in the oil patch.

 

https://uk.finance.yahoo.com/news/recent-rally-could-be-a-bear-market-trap-says-miller-tabak-strategist-184618023.html

VIX Bottoming in Fourth Wave

Weekend April 5 2020

The VIX is he converse of the market indexes.  Another wave up should shortly get underway taking the markets to a new closing low.

Market Ends WWeek on Down Note

Weekend April 4 2020

The last few days are a counter trend rally. It relieved the oversold condition on the PMO at bottom. Price turned back at the  38 % Fib re tracement.  That is also the  50 bar MA. And the fact that the DJIA still closed down  360 points Friday is not encouraging.   Either that was the latest short term top or the market might make another stab to the upside in a sort of C Wave attempt. That will probably  also fail eventually taking out the March low.

Real Estate

The ten Economy ETFs have pretty much the same shape as the DJIA, Staples is the strongest but consider real estate. In two months it lost 40% of its value and looks to have topped out again. A C Wave up this  week is possible but I doubt the previous March low will hold for long

The TESLA bubble bursts

One guy short TESLA describes it as an Elon Musk Vanity Project, looks like the bubble has burst.

Hedge

On balance volume is not expanding for most stocks. It is however for Hedge, I am accumulating shares in HDGE. OBV  is expanding.

Social Mood

The Elliott Wave model is a description of mass mood behavior which is modeled by the stock market.

It consists of three waves in the main direction and two alternate waves in the other direction.

In writing his original book, Bob Prechter described a bull market EW pattern. But it works in the opposite manner as well.

I may or may not have the waves correctly identified but looks like markets are finishing a fourth wave now.

The pattern is for Wave One to create disbelief.  Wave Two bounces back creating a belief that the worst may be over.   The initial wave down has been rapid and steep. Most if not all are writing this off to the virus. With a small bounce back, we are seeing comments like, prepare for the next bull market, stocks are a bargain,  the market looks like it is calming down.

This is the  function of a a wave two bounce back. The vast majority of investors are still long the stock market, suffering 25-30% losses already. Confident f buy the  dip mentality, near ll are long the market expecting a quick V Style recovery as the virus panic subsides.

But the surprises in a bear market are to the downside.  The bear market is still young.  Taking out the March lows will begin to test the  resolve of the Buy the Dip mentality.

Let me be clear. I believe the 90 year bull market dating from the low in  19332 at DJIA 42 is over. The run to 29,586 was spectacular. But the move back down will re arrange how the world runs. As well as who runs it. Recall only the US markets made a new high, emerging, Asia, and Europe did not. The FED in the US managed to goose real estate with zero interest rates. But as one can see by the XLRE chart, the real estate party has ended as well.

The best one can hope for is a  1972-1982 scenario. In that scenario the market dropped from  ,050 to 577 from  1973-1974.  It then moved in that range until 1982. That summer the bull market resumed.

Of we might have at worst a reprise of  1930-1948.This meant a 50% drop initially, we are down 27% already. Then a bounce back half way to the previous top.  That meant 390 to  200 to  3000 by the spring of 1930.  Then the market melted down for the next two years to 42. that sort of destruction is already evident in the energy markets. 

Tracking Crude Oil via Elliott

Weekend April  4 2020

 

We indicated any oil rally went kaput January 23 202, Here is the EWI take on it.

 

Crude Oil's 2020 Crash: See What Helped (Some) Traders Pivot Just in Time
The coronavirus wasn't the cause of oil's 70% collapse. This was

By Elliott Wave International

Let's start by establishing that the stock market is not driven by the news. Aggregate stock prices are driven by waves of optimism and pessimism -- which go from one extreme to another -- as reflected by the Elliott wave model. That's what makes the stock market predictable.

Hence, Elliott wave analysis is at the core of EWI's stock market forecasts.

Having said that, sentiment indicators are also valuable in providing clues about "what's next."

For example, Robert Prechter's book, Prechter's Perspective, made this observation:

No crowd buys stocks of other countries intelligently. For decades, heavy foreign buying in the U.S. stock market has served as an excellent indicator of major tops.

Since the start of 2020, crude oil has gone from "black gold" to "black days," plummeting 70% for its "worst quarter on record" (March 30, Bloomberg).

As of March 30, oil prices circled the drain of a two-DECADE low near $20 per barrel.

Is there any way an oil trader or active oil investor could look at the market's crash and NOT see what one March 12 CNN article coined "a nightmare scenario"?

That depends on one simple factor; i.e. did that trader/investor's methodology enable him/her to pivot in time to anticipate oil's downturn before it went from blip to "bloodbath" (March 10, Fortune)?

In his timeless Trader’s Classroom eBook "14 Critical Lessons Every Trader Should Know," Elliott Wave International's senior instructor Jeffrey Kennedy asserts that the #1 "fatal flaw" for any trader is a "lack of methodology." Writes Jeffrey:

"If you aim to be a consistently successful trader, then you must have a defined trading methodology, which is simply a clear and concise way of looking at markets.

"If you don't have a defined trading methodology, then you don't have a way to know what constitutes a buy or sell signal.

"Moreover, you can't even consistently correctly identify the trend."

So, it's not just about having a methodology. It's about having the right methodology.

In the case of crude oil, many oil participants rely on the mainstream methodology known as fundamental analysis. It says market trends are driven by external events related to that market. As of March 30, the event responsible for crude's 2020 crash is the coronavirus, and the substantial contraction in fuel demand that has resulted from the ongoing, virus-driven travel bans.

Said one March 30 BBC:

"Coronavirus: Oil price collapses to lowest level for 18 years... The price of oil has sunk to levels not seen since 2002 as demand for crude collapses amid the coronavirus pandemic."

That is now, March 30, 70% down and three months into crude's crash.

But what about then, in early January, when oil prices orbited an 8-month high near $70 per barrel?

The coronavirus was barely a dot on crude oil's radar, having taken just two lives and sickened 45 all overseas. As one health expert predicted in a January 17 New York Times:

"There will probably be cases in the United States at some point, but we believe the current risk from the virus to the general public is low."

COVID-19 wasn't the bearish news event oil experts were watching; the bullish escalating tensions in the Middle East -- set off by the January 3 US drone attack which killed the "second most powerful man in Iran" General Qassem Soleimani -- were. A series of retaliations by Iran followed, culminating in Iran's threat to block exports of oil through the vital gateway the Strait of Hormuz. Wrote one January 8 CNBC:

"Oil prices will climb above $100 a barrel if Iran blocks the Strait of Hormuz."

Added another news source: "An extended period of conflict in the region will support prices by fueling uncertainty, even as alternative suppliers step up." (Oil and Gas Journal)

Yet -- instead of the ongoing conflict supporting prices, oil turned down on January 6 and didn't look back. The fundamental methodology failed to prepare traders, either for the direction or the depth of that turn.

The methodology known as the Wave Principle did both.

Meet the Elliott Wave Principle, Esquire

In his Trader's Classroom eBook "14 Critical Lessons Every Trader Should Know," Jeffrey half-jokes that the best trading methodologies are so simple, they can "fit on the back of a business card."

And in his January 17 Commodity Junctures Service, Jeffrey used the tools and rules of the Wave Principle to identify an alternate bearish wave count for crude oil that called for prices to be slashed in half from current levels. In Jeffrey's words:

"The big narrative when you start looking at the weekly and monthly crude oil charts is -- any strength we see is going to fail."

The basis of Jeffrey's bearish analysis was the possibility that wave 2 was over, setting the stage for a third wave decline. Pictured below: Jeffrey's January 17 Commodity Juncture Service chart of crude oil followed by an idealized diagram of an Elliott third wave.

Note the timing of Jeffrey's January 17 bearish oil forecast. It occurred before the very first coronavirus travel restrictions were enforced on January 23, and before the OPEC+ "price war" began on March 6.

Soon after, on February 7, Jeffrey's near-term sister service Daily Commodity Junctures confirmed that oil's trend was now down and said,

"It's basically telling us that the high of the year is in place in crude oil and we will fall to $33 a barrel -- at minimum."

The next chart captures the action: Oil prices took the downside in earnest, plunging below $33 per barrel as anticipated by Jeffrey's January 17 bearish wave count.

The crude oil crash is just one real-world example of the danger of not having a methodology that leads trend changes, rather than follows them.

In his Trader's Classroom eBook "14 Critical Lessons Every Trader Should Know," Jeffrey expounds on all 5 "fatal flaws" of trading and offers original charts and lessons that stand the test of time.

In Jeffrey's words:

"Trading successfully is not easy. It's hard work...damn hard. And if anyone leads you to believe otherwise, run the other way, and fast.

"But this hard work can be rewarding, above-average gains are possible and the sense of satisfaction one feels after a few nice trades is absolutely priceless."

Get instant access to the complete, 45-page eBook today by joining the rapidly growing Club EWI community -- absolutely FREE. Get started now!

 

Counter Trend Rally Probably Ending Today

Friday April 3, 2020

The four hour chart suggests the current counter trend rally in the indexes is ending today.

Whether this is a wave four or some thing  else it is clearly counter trend.   PMO has been relieved of the harsh over sold condition brought by a previous wave three. At top RSI is not surprisingly failing right where you would think, at the  50%  level. Officially we have  6.6 million applying for unemployment. That of course does not count the Mom and Pop business probably already in trouble. As the ripple effect of forced closures sinks in the market is surely headed lower, no matter when the Treasury Secy sends out checks.

 

The Exponential Moving Averages are arrayed in a Fib format of  8,13,21,34 bar periods.