The Market Perspective

China Sinks Further US Stocks Congesting

Weekend Oct 20, 2018

 

This important indicator has yet to turn up.

 

Transports are sinking in an Dow Theory non confirmation.

Bullish Percent S & P

 

Shanghai in a steep bear market.

Stock Congestion Ten Years In

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.

Fifth Wave now in Progress

Thursday Oct18, 2018

My earlier guess that the 4th Wave had peaked was incorrect. Here Wave 4 stretched to 25,800 causing the talking heads on CNBC to declare the correction was over.

They were clearly wrong! A top in the Price Momentum PMO suggests that now with a  327 point dowj day, the DJIA is in a fifth wave of Wave One.

Transports

 

 

Transports always lead and Transports are under the 200day MA

 

 

This is as clear as Elliott Wave ever gets. When the mood is strong, the waves are evident. Transports are below the  200 day MA and in a fifth wave.

Dow Theory holds that one index needs to confirm the other. That is not happening to the upside. Transports are always the leaders.  And they are leading the way down.

Utilities

And confirming the idea that a ten year high is in place, Utilities REITS and Health Care, all defensive sectors are holding up.

Fifth Fractal Wave of Wave One Now in Progress

Monday Oct 15, 2018

Not to t a Bottom Yet

Monday Oct 15 2018

 

the charts speak for themselves.

 

Gregg Schnell on stockcharts.com compares markets around the world now as well as at past market highs. Looks like this is the HIGH.

Bottom Forming

Monday Oct 15 9 11 AM CST

 

The MA ribbons have not turned up yet or even flattened out. But expect choppy action. Some sort of low may form this week. This is a 30 minute bullish percent chart for the NYSE.

XAU

 

The XAU looks over bought short term but perhaps one should begin accumulating. I erred in giving up on this at the last moment but there is still time to get on board.

Other Oversold Indicators

Weekend Oct 14, 2018

Copyright and membership prevents me from re printing John Murphy's spot on comments in his last update.

But to paraphrase

bond yields re rising and home building stocks are falling fast

My take, 34 years of lower interest rates forced more and more investors into the stock market

As rates rise the risk of one week 8% corrections will cause many to go back to the bank, already newspaper ads tout .752% CDs, a pittance compared to 1981 but that

was an interest rate high.

Yes the economy is strong but the stock market anticipates chnge, at market tops talking heads always claim this is a correction not a change

The fact that so many indicators have reversed so hard below February lows is surely an early warning sign.

NASD A D

One week erased the entire advance in this indicator since April.

Bullish Percent 50 Day SPX

 

Here is an example of an indicator below the February low and again in one week's time. And the MACD has yet to bottom. Only 15% of SPX stocks are in bullish formation suggesting some sort of bottom is near.

 It really took until April for the February low to resolve to the upside. So expect some erratic behvior ups and downs in this typically seasonal weak period of October.

NASD New Highs New Lows

Here is another example of an indicator taking out the February low. The multiple examples of this suggest a fifth wave top.

Cullen Frost Bank

 

CFR has been falling since  its April top and now the entire year advance has been wiped out.  No bottom in MACD yet.

 

CFR tripled from its$40 low at book value. Banks should do better in a period of rising rates. This is one to watch.

Bottom Line

Watch the XAU and HUI for a sign of a bottom this week.

Expect choppy action in stocks but the low BP in SPX suggests an eventual bounce is possible.

Not sure of the wave count but should stocks tank again, evidence mounts this is a top of significance.

Social Mood

Mary O'Grady on the WSJ Editorial Board months ago noted that Trump was making a big mistake showcasing the stock market as evidence of his success. The stock market

will go where it wants.  If the market has topped, Trump will be hard poressed to explain why amid his early successes. And rest assured the Democrats will pounce on just that. Stock prices fall seven times faster than they rise. This is thelongest stock expansion on record, none have lasted longer. All this suggests the big correction may be looming.

If the one to seven ratio is correct that means we could have a repeat of  1973-74 meltdown. It has been two years since the DJIA visited its 200 week moving average . That now lies some 5,000 DJIA points lower at 20,000.

Such a move would simply correct the last fifth wave up.Social mood is at least as divisive s it was on Nixon's re election in 1972.  We are now seeing that negative mood  migrate into the stock market just as it did in  1973. Should the Democrats take the House or Senate expect the climate to worsen.

 

dennislelam@gmail.com

The Market Perspective bases its information on techniques and sources that have been found to be reliable in the past, and The Market Perspective tries to base opinions on sound judgment and research, however, we do not guarantee that future results will match past performance and no guarantee can be made that advice will be profitable. The Market Perspective accepts no money for stock recommendations and is purely motivated by its own research in recommending any stocks. Put another way, the responsibility for decisions made from information contained in this letter lies solely with the individuals making those decisions. The editor and persons affiliated with The Market Perspective may at times have positions in securities mentioned. Nothing contained herein represents an offer to buy or sell securities. The Market Perspective encourages investors to be diversified, and to maintain sell stops and risk control over their valuable investment capital. No guarantee can be made to the accuracy of text or predictions.

 

 

 

 

 

Posstible Ten Year Top Forming

Weekend Oct 13, 2018

Evidence is mounting that the bull market dating back to March 9 2009 is ending. Let's take it from the big picture to smaller fractals.

 EW Ten Year

 

This is a pretty clear five waves up. The fifth wave started with Trump's inauguration in Jan Feb 2016.

Again the five waves are pretty clear.

 

 

I amguessing we are in a fourth wave of the third wave which has completed its own third wave.If this is correct we have a fifth of three , then followed by a larger four up and final five down. That would make sense if this is the ten year top.

 NYSE Advance Decline Line

but the NYSE A D line suggests we have completed five down,and MACD and RSI are way oversold.

RSI Monthly Suggests we are Done!

 A final high in Relative Strength Index followed by a steep sell off suggests a terminal end to the rally.

Short the Bonds

This short bond ETF should pull back to 23.4-23.6 for a better entry.

XAU

Gold mining shares finally broke out. I suspect they pull back a bit this week.

 

Check back, more tomorrow

 

Third Wave of Large Wave One Complete?

Friday Oct 12, 2018

If my analysis is correct  the fifth wave of Wave Three completed Thursday. We should now see an A B C fourth wave backup to 25,600.  Then a final fifth wave would begin next week taking the market  below  25,000.

XAU

 

I gave up on gold one day too soon. The first target of 68 on XAU has been  achieved, now overbought short term.

Thursday Noon Central Time

 

IF this count is right we need a final fifth wave to end the larger Third Wave within the even larger Wave One down. Wave three is outlined in red.