The Market Perspective

best Rally Since 2022

12/1/2023

Best Rally Since 2022

 

China has a difficult economic problem. I don’t think it will cause China to invade Taiwan.

President Joe Biden after meeting with President Xi

 

As a matter of fact, just the opposite is far more likely.  This column has detailed the difficulties of Chinese property developers. Sales continue to slow and debt payments have been missed. World economies were never worse than in the 1930s. Still, Japan  invaded China in  1931. Hitler came to power at the dead low of the Depression in 1932 but launched a successful offensive in 1936. When times are bad (think Putin’s foray into Ukraine) nothing diverts attention like a war.  The Chinese government \is no doubt reading the President’s mindset.

The SPX has almost matched the July high of 4,584.  It now stands just below that at 4,554.  The big rally from late October has carried momentum indicators like Relative Strength to match  its same high from July. This is to say the major averages are quite overbought on the daily charts. But recall the SPX is weighted for what is now termed the Magnificent Seven, the tech favorites which have carried the SPX to match the July high. The Equal Weight SPC where all stocks count the same is much lower than its July high.  July saw 6,300 and now we have  6,047. This is more in keeping with our idea that this second wave from October of 2022 is over done

This rising tide has lifted many boats and broadened the advance. Real estate XLRE and Financial XLF have easily cleared their 200 day moving averages.  Industrials XLI and Materials XLB have also joined the parade posting solid rallies.

Cuts by the Saudis and Russia one million barrels per day have been met with a yawn in the crude oil market.   The October high of  90 is now trading at  $76.02.  Gasoline futures peaked in  September over  $2.50. Now it trades at $2.17.  I noticed pollster Daniel Schoen  reporting the public is not taken with Bidenomics. If you have dined out for lunch lately you can see why.  The ten-dollar lunch is disappearing.

The three moth Treasury bill has fallen to 5.45% and still represents great value. The ten-year note trades a full point lower at 4.265%.  This represents a great value and can be rolled every ninety days.

For now the stock market looks extended.  Park you funds  in Treasury Bills.

TLT still Topping

11/2/2023

TLT is stil topping and I still expect a pullback, note PMO and RSI both extended.

Two Years of No Progress

11/28/2023

 

We are coming into the 2yuear anniverwary of the all time INDU high, and the market is bumpingup against that trendline

 

It appears the ABC form of wave two of five is at or near complete

December is usually an up month for the markets but this chart does not make that argument. It argues for upside  pattern completion

TLT Long dated bonds

the five waves up are clear, my guess is that TLT corrects to 86-87 before resuming an advance

Turning Point

1/25/2023

Poositive Mood Returns to 2022 Market Top

Weekend 11/25/2023

 

The NDX is the top 100 tech stocks which have been much in demand. That reflects a big desire to own the most speculative stocks. The Utility Index is the more conservative paying reliable dividends and having far less volatility. A ratio chart of the NDX to UTIL shows the propensity for risk.

NDX versus UTIL

The weekly chart show demand for NDX versus safe Utilities peaked with the other indexes Nov 2021-Jan 222 With COVID the ratio fell as investors retreated from NDX and embraced UTIL.   That ended in Jan 2023. Now if you llook closely, mood is elevated above Jan 2022! The ratio has recorded a higher high in this second wave up in the market. This is remarkable and shows the FOMO Fear of Missing Out is higher than ever.

195 Min

This  195 Minute chart may have topped but has not turned down, this is worth monitoring.

Inidustrials versus commodities CRB

This ratio chart shows the preference for stocks versus commodities. The CRB is an index of commodities with the heaviest weight to oil. IT peaked along with the market in lat  2021, fell in a first wave bottoming before the other indexes ini JUneand has now rallied in a wave two.

 

Intraday data is not available for  CRB vbut on the daily chart the ratio is still rising. This explains the under performmance of oil despite two shooting wars. I talso explains the temporary cooling of iinflation which Biden had no input. It seems reasonable that as Wave 2 in stocks fades, this ratio turns down as commodity prices gain ground.  I wonder what the admin will say then?

 

Holiday Update

Thanksgiving Day 11/23/2023

 

The Russel 2000 of small cap stocks has lead the way down, It looks to have competed five waves dow from Julyto Oct  27 and already three waves A B C up

The July top  was large Wave  2 topping.  Below is the large picture

The top in the first daily chart is the top of Wave 2 shown above.  I labeled wave three unfolding in blue numbers. One of three down was Oct 27, Two of three is topping now note below all the moving averages.

The recovery of Wave 2 DJA or INDU has been far stronger but so far is below the July high

Higher Rates

11/22/2023

Higher Rates Are Here to Stay

Governments are expected to paya newt $2 trillion paying debt interest above 2022.

Wall Street Journal   today 11/22/2023

Abd it is going to get far worse than anyone imagines. That is anyone who was not around in 1981.   Let’s review as this is part of a larget story.

Interest rates and corresponding bond prices move in a  39 year cycle.

Interest rates bottomed in 1942 as the US entered WW II They peaked amid  wild inflation in  1981.  Then mortgage rates were  14% and Treasury Bills paid more tha that.   Fed Chair Paul Volcker raised rates to the ‘uncle point’ and that was it. Rates declined rapidly to around  7% by  1987.  The 39 -ear cycle ended March 2020 with short rates near zero.     The rapid reversal brought three-month Treasury Bills to 5% this year.  That caught bankers who were not around in 1981 flat footed. And poof Silicon Valley and Signature banks folded  with so many low interest rate bonds  now worth less than purchase price.  With Mortgage rates already over 7%,  existing home sales are now at a  13 year low.

With CDs at double digit returns who needed the stock market in  1981?  And given the technology of that day buying and selling was uber expensive. One hundred shares of anything over  $25 a share could run to hundreds of dollars.  As rates came down, stock prices rose.  The DJIA traded around  800 in the summer of   1982. By 1987 it had tripled to 2,500. 

Over time rates and the cost of trading shares both plummeted.  Discount firms shed the requirement of a human broker altogether.  You could be your own broker and quotes became free on-line rather than watching at the brokerage house.  Finally, rates have bottomed and reversed. Have stocks done the same?

Not yet. Only  15% f the S & P stocks were trading over respective  50 day  moving averages October 27, Now the number has raced to  50% in just four weeks. This is called short term  over-bought.  I would expect a slow down and then the traditional Santa Claus Rally.

Interest rates should fall from current 4.4% on the Ten Year to below 4%.  Crude oil is range bound between $70 and $85.

Social Mood is deteriorating even faster than I expected. Protestors taunted Johnson with  Hey LBJ, how many kids did you kill today?  Now  protestors have labeled the current  President at Genocide Joe.  Mr. Biden is trying to ‘support’ Israel while offering Palestinian aid. That angers both sides. Biden’s approval rate has fallen to its lowest ever at 40 %, The Democrat party looks  to be headed to a repeat of its disastrous 1968 convention once again in Chicago.

TLT Looks to Bottom, SPX Outperforms Equal Weight

Weekend Nov 19 2023

Here is the weekly chart  of TLT, I  marked off five waves down, which seems confirmed by  PMO and RSI

 TLT up  close         daily

Here RSI and PMO extended let's wait for a pullback to buy. Thee fourth wave high at  104  on the weekly chart is a good target.

SPX versus SPXEW

The dark line is the weighted SPX where the seven tech stocks cominate the performance. The red black bars are the equal weight SPX where each stock counts the same, it is underperforming, this will not last and is a precursor to a downturn.  But it is only up from the seasonal low in late Oct so it can easily last into the new year.

 

Oil Gets Walloped

11/16/2023

Oil Gets Walloped

Crude oil and gasoline prices this morning are sharply lower, with crude falling to a 4-month low and gasoline sinking to an 11-month low.

Barchart.com

Thursday November 165, 2023

At 12:26 CST December crude futures are down $4.04 or a full 5%+ from yesterday’s range.  That makes the current price for December $72.44.  December gasoline futures were $2.60  as recently as September  Today prices dropped eleven cents to $2.09.  No doubt Team Biden will claim credit where no credit is due. Were the election next week he would have a good talking point. But the election is a year off. With two wars underway, the oil market must be seeing declining demand ahead, which  means a weaker US and world economy.

World Wide crude oil is priced in dollars The US dollar has risen from  99 in July to over 106 ii October. Today it is trading at 104. This means the energy sector is falling even with a falling dollar. That translates to a lot of weakness.

Speaking of weakness, here is another headline warning against betting on a turn in China’s housing bust.  China Oct new home prices fell -0.38% m/m, the biggest decline in 8-1/2 years and the fifth consecutive month that home prices have fallen.  Lower mortgage rates and interest free loans to builders to deliver unfinished apartments has not done the trick either.  The last resort is the Chinese government itself. Estimates are that it would take more than twice what the government has committed thus far.  Autocrats in trouble always blame an outside party, never themselves. If this continues Xi is likely to blame the US for whatever reason as support for a move against Taiwan, wars divert attention from real problems.

The Dow Industrials are about 750 points below their July high. That high was 35,750 so keep that in mind.     The percent of stocks over their 150-day moving average has risen to over 50%.  So stocks as well as bonds continue to ride that famous fence.

Bonds have rallied since short rates ht 5%. The ETF TLT, a long dated bond fund, is up about 8% since then.  The December long bond is 115.11. Watch for a weekly close over 115.24 to better assure a bottom in price has occurred.

Stocks and Bonds On the Fence, Oil Walloped Again

11/16/2023

Crude oil was taken down again today over $2. If the two wars widen this will not last otherwise the trend in oil price is down.

The chart post function is not working in typepad so sorry no charts today.

DJIA remains about  750 points below the July high which we still think is significant. The major indexes are in retreat today.

Bond prices  from March  20245 are  115 12. We really need a weekly close over 115.16-116 to be more confident a bottom in price has been seen.

I have a endodontic apointment this afternoon so may be out of commission the next few days