The Market Perspective

Correcting into late August mid Sept

Weekend Augusts 18, 2019

The weekly charts indicators usggest we have further to go on the down side.

 

MACD is just breaking down at bottom.The MAs in the main chart have come together which is usually a sign of a change in direction.  ANd with multiple varying signals on th tariff trade wars, riots in Hong Kong and Moscow, collapse in Argentina and Venezuela, crisis on the border, and ten years after the low of March  2009, Xi will surely wait for the elections before agreeing to anything, well, stand by.

Transports were actually down for the week.

Russell 2000 looks very much the same. And given the seasonal weakness of summer, here is best guess for a low.

DJIA

Crude Oil and Stocks have traded together with oil leading the pair lower.

Note the  similarity of the oil and then the DJIA chart above it.

RIG just made another new low, AXAS is trading at 50 cents,    

Hard to get bullish on oil and here is why

weakness in energy and energy service shares, XES at new ten year low

plenty of world supply

economies slowing, less demand

new laws against carbon auto emissions in European cities by  2025.

cold weather months away

natural gas still making new lows.

Gold

How bullish is the new bull market in gold?

Gold could certainly correct here. This may be a Wave three following a Wave one and then corrective Two into the May low.

So expect a fourth wave correction but this all may be stronger than most think.

Silver

Silver has finally broken out of tis downtrend. Looks like good support at 16..25-16.50. Add there on any pullback.

Social mood remains negative world wide not just in the USA.

Germany

 

Unlike the USA, German stocks did not make a new high on the re  -bound from December.

Hong Kong

Needless to say none of this is playing out well in Hong Kong.

This past week a 92 year old told  Kamala not to mess with her heallth care.

 

Dems have been  completely tone deaf to the 170 M who like their plans.

Biden's bid is likely to fail just as his pas efforts have failed.

Which leaves no Adult Dem in the race. 

Insults are exchanged regularly between Trump and various Dem candidates. The two Squad members headed to Israel were denied entry.

Trump told no on Greenland.  (?)

All in all look for more correction in markets  until some bottom forms.

 

 

 

Deflation

Weekend August 18, 2019

Deflation on Hand

 

The yield on the thirty-year Treasury bond fell below 2% yesterday. J C Penny is trading at 59 cents, may be de-listed from the New York Stock Exchange, and will begin selling second hand clothes with thredUp. Energy Service XES not only fell below $8 as predicted, it traded under $7 yesterday, a new low.

 

What’s going on? The correct answer is disinflation possibly leading to outright deflation. We noted that oil prices have been falling since the $140 high in 2008.    The fracking revolution has simply been too successful. The world is awash in producers from Russia to Saudi Arabia to Iran to the Eagle Ford wanting to sell for higher prices. But oil is one-half of Russia’s economy. And so the selling and weak prices have continued. Take notice of the demonstrations not only in Hong Kong but in Moscow.

 

The Commodity Research Bureau index of 19 commodities hit a new low last week.   Copper, palladium, and agriculture prices in particular have all made new lows. Amid headlines expecting lower natural gas prices for years, natural gas rallied from $2..05 to $2.23   on lower than expected supply. That does not signal a bottom but the hysteria over lower prices does suggest enough negative social mood to look for firming natural gas prices as cooler weather approaches.

 

But the most ridiculous valuation is a thirty-year Treasury bond yielding but 2%. I started trading bonds in 1984 when yields were 12-14%. And should the economy sag, the FED will find itself out of ammunition,, there is just nothing to be gained when by lowering rates already at, as Jim Grant put it, 4,000 year lows.  FRAK the shale ETF and CRAK the refiner ETF both appear to be approaching some sort of August low.

 

The New York Stock Exchange Advance Decline line is bouncing back today.  The most positive thing about the economy is that retail sales rose .7% in July The biggest uncertainty is not our economy but the tariff wars and whether China will crack down on what it terms as terrorism inn Hong Kong.

 

Crashes can take different forms. Lakefront property along the Guadalupe River has soared to the high six figures. ] The dams creating several ‘lakes’ out of the river date back to 1931. There have been two recent spillgate failures the last two years. Fearing a more failures at the four dams, the Guadalupe -Blanco River Authority has decided to drain the lakes, letting the lake levels drop twelve feet. Residents now have a mud bank frontal. Property tax revenue will be decimated. It is not known if there is a way to raise the estimated $180 M to repair 90 year old dams or when that might even happen.   How far prices will now fall or whether sales are possible is unknown.

 

As with any speculation, the buyer needs to beware.

Breakdown

Wed Augusts 14, 219

 

the A/D line is the most consistently reliable indicator. We are headed to teh late My low at a minimum and possibly back to the late Dec 2018 low.

Banks and energy service is already testing or near the Dec 2018 low, that is probably our lead indicator of where the rest of the market is headed.  XES Energy Service closed at 6.999 welll under the 2009 panic low.

 

Transports lead as we have said so many times and they are near the June low. And TRAN has closed under all the MAs, an ominous sign. Should China send troops into Hong Kong, the result would be a world wide melt down.

Stocks and Oil Begion the Week to the Downside

Monday August 12, 2019

Crude oil, black line, and stocks have had a pretty high orrelation. Crude looks like it is headed back to the December low.  Breadth in  the overall stock market continues to narrow with the inverted bond yield flashing a warning. Weekly  PMO looks about ready to break down at bottom as well as RSI at top.

Caution

Inverted yield Curve Prediicting Recession

Wed August 7, 2019

The ten year note now yields less that the 3 month T Bill. Normally investors demand a higher yield for assuming a longer holding period, most anything can happen in ten years.

The black line is  IRX the three month yield.  The red bars are the ten year yield, now beneath the three month yield.

Since 1974, 45 years, an inverted yield curve has always predicted a recession. Given the 700+ point drop i the DJIA, weakness in world stock markets, a trade war spinning out of control, riots in the streets of Moscow and Hong Kong, a new low in the British pound, soaring gold and silver prices, there is reason for concern.

The XES Energy Service ETF broke below 8.00 yesterday continuing to telegraph weakness in the energy sector.

XLE Energy

I suspect thee 58 level falls today, oil is trading down pre market this morning. That suggests a re test of the December lows.

 

Stocks and Gold Top, XES makes New Low

Weekend August 4 2019

Still recovering from hand surgery so very difficult to type.

Stocks topped this past week. Now looking for sell off similar to the last three since Feb 2018.  That should bring a good entry in late August to mid Sept.

Gold probably topped around 1460, support at  13 60 - 1380.

Silver may be finally making a final low as we have higher lows and higher highs. Again let's judge the pullback the next 45 days. This is particularly important as silver is just now breaking out.

Crude oil has dropped below all four MAs with XES service ETF making a new low for the last ten years.

The news says natural gas may take years to recover.  This is similar to headlines in 2016 at $1.90 which declared nat gas would have to go to zero  or free to ever work off the supply. Indeed the way gas is being flared it is free, there is just not enough ways to get it to market. At 2..12 we are probably within 25 cents of a bottom.   Social mood is just too uniformly negativee.

 

So for now be patient waiting for late August to mid Sept.  That should b be a great opportunity.

 

Stocks Begin Correction

Weekend August 4 2019

Oil and Stocks Tank, Gold Soars

 

Energy service companies continue to struggle. The XES ETF already trades beneath its 2009 panic low. Now trading at a mere $8.79, it looks to re-test its May low of $8.50.

 

The one area that is bullish is precious metals. Gold has soared from $1,280 to $1,420 in the last couple of months. It has spent July working off the over bought condition by moving mostly sideways. This has finally ignited interest in silver which has jumped form $14.40 to $16.60.

 

Our bottom line is for further energy share price correction the next two months. Metals may well get a boost from lower FED funds rates.

 

July 26 Column, spot on predictions

 

This column has warned that the weakness in the Energy Service XES ETF was telegraphing real problems in the energy sector. That reality really hit home Thursday. Energy stocks are down 19.5% and crude oil 27.2% since June 2018j. Thursday crude fell 7.9% to $53.95. The XLE Energy ETF cratered 2.26% now trading below all four moving averages I track.

 

The headlines on natural gas are as bad as they were at the last low around $1.90 in 2016. But apparently mood will need to become more negative. Natural gas and oil are in abundant supply world-wide.

 

We have been looking for a low in stock prices in late August to mid-September. That move down officially got underway as well this week. The DJIA is down from 27,400 to 26,583.   There was tepid activity leading to the FED rate cut this week. But Trump’s tweet threatening further tariffs on China knocked 611 points off the DJIA. So much for the FED rescuing the stock market.

 

Lowe’s is laying off thousands of assemblers at its stores.   The retail ETF XRT was slammed from $43.4 ot $41.21 as investors fled those stocks the last couple of days.

 

What does all this mean? I suspect lower energy and in particular retail share prices is predicting a big slowdown in what has been 3% quarter over quarter growth. We warned a year ago that trade wars were not easily won. Now firms departing China are not necessarily coming back to the USA.   This past quarter growth was under 3%.

 

Finally, as predicted, gold prices are soaring.   Despite recent strong gains gold is up over $17.30 this Friday morning. This is predicting further currency wars world wide, another a consequence of ‘easy to win’ trade wars.

 

As I write Friday morning in pre-market trading, the DJIA is down another 61 points. Brace for further decline amid world-wide negative social mood.

 

Refiners Rolling Over, Metals Chug Upwards

Friday July 26, 2019

Refiners Rolling over, Metals Chug Upward

 

Valero reports a 27% drop in second quarter earnings. The refiner was fored to process more expensive crude, cutting into margins.

 

That was the headline for Valero. The stock dropped $2.32 Thursday. But geez, VLO recorded a profit of $632 M, down from $845 M in the same quarter last year.   That sounds like good money in the bank to me. But overall we are looking for a correction in stock prices into late August or mid-September.   The charts of the five refiners as well as CRAK, the refiner ETF, all appear to be peaking now. That should set up a nice pull back over the next two months.   Plan on keeping an eye on this group for later acquisition.

 

We have noted that energy share prices have been falling. That continues to be the case this Friday Morning as XLE and XOP ETFs are both falling. Each of these ETFs is trading below all four daily moving averages of 50, 87, 125 and 200 duration. Benchmark Apache APA is currently not earning a profit. The share price is falling faster than the price of crude oil. APA now trades at $23.93. Chevron CVX is down 1.78% today again suggesting lower share prices across the energy board.

 

Energy service companies continue to struggle. The XES ETF already trades beneath its 2009 panic low Trading at a mere $8.79, it looks to re-test its May low of $8.50.

 

. Higher shipping costs broke a string of higher earnings for Amazon, down 2.41% today.   Better earnings boosted Google 9.9% today.

 

Despite all the publicity the FED Chair receives, a chart of the FED funds rate versus the two year Treasury Note rate shows the FED simply follows the two-year rate. And it lags that. Expect lower two year and FED rates for the next few months.   The FED will probably only drop rates a quarter point this month meaning they will be playing catch-up with the Treasury Note.

 

The one area that is bullish is precious metals. Gold has soared from $1,280 to $1,420 in the last couple of months. It has spent July working off the over bought condition by moving mostly sideways. This has finally ignited interest in silver which has jumped form $14.40 to $16.60.

 

Our bottom line is for further energy share price correction the next two months. Metals may well get a boost from lower FED funds rates.

FED follows the Two Year Treasury Note

Friday July 26, 2019

Despite all the coverage the FED receives, the group just follows the trend of the two year note, and even lags that!

Check out this article authored by our friends at Eliott Wave International

Stocks Topping, Gold and Silver Spiike

Weekend

July  21, 2019

NFLX announced a loss of  130,000 subscribers.

Global Social media Turned Down

 

As tech stocks have led this suggests the start of another correction into late August or mid Sept.

Transports look similar to SOCL.

Major indexes have not turned down yet but are getting to that point.

I  don't have a feel for how far indexes are liable to drop but with six weeks to go, it might surprise us.

The seizure of the British tanker by Iran did not really move oil up much.

XAU

Metals are now over bought very short term but are really breaking out on the weekly chart, the action of the XAU this weeek may provide some clues

Social mood continues negative world wide and

especially in the US

France wants to tax US Tech

Iran seizes a Brit tanker

Trump and he Squad square off, CNN calling Trump a racist dozens of times

Biden popularity dropping

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.

dennislelam@gmail.com