The Market Perspective

A Top in the Making for Stocks, Important Low Ahead for Energy

Weekend Oct 13, 2019

Stocks will likely make a final top in the next few months as this distribution pattern plays out.

Transports

Transports  have made lower highs but did jump Friday once again on positive trade news. Is is possible the Chinese have decided Trump will win the election?  Would that be why they might be willing to make a deal now than face another four years with him?  I don't know yet if they plan to do anything other than talk.

Russell 2000 looks like the  Transports.

Energy

And as noted energy looks the same as Transports and Russell.  A cluster of cycle lows should occur in November, possibly re visiting the 425 low of last December. Will stocks and energy part company?  too soon to tell.

Gold

The commitment of traders  report shows the commercials are short gold suggesting topping action there.

PMO looks toppy on the weekly chart.

GLD Paper Gold

On balance volume at top looks stretched for paper gold GLD.

Social mood

Social mood continues to turn more and more negative around the world, from Syria / Turkey, Moscow, Hong Kong, Brexit, and the expanded Civil War here between Trump and the Democrats.And other world markets are much weaker than the US.

None of this is positive for markets. The potential low in crude prices and then a rise suggests more problems in the  Middle East.

Our warning of caution in the newspaper column weeks ago  seems to be validated, be careful now that we are at new highs.

 

Seasonal Lows Ahead?

Friday Oct 11 2019

Seasonal Weakness

 

OPEC and its allies are considering deeper oil output cuts ahead of their December meeting…:the narrative continues to be gloomy”

OPEC Secretary General Mohammed Barkindo

WSJ Today

 

We have noted the decline in the share prices of energy service stocks for months. And we warned this was telegraphing bad news ahead. The price of Brent oil has dropped 26% in the lasts 12 months.

 

But markets make bottoms amid the worst news and that may be the case this fall. Here are the reasons.

 

No one really knows if OPEC as ever cut production at least not since the second embargo of 1979.   There is no enforcement mechanism.   Oil is both an economic and a financial item, allowing for some supply and demand action but a great deal of speculation via futures and options.

 

Market lows in oil prices happen amid heavy discounts to book value for energy firms. Of the ten components of the Energy Service XES, seven were trading at a discount to book value earlier this week.  Transocean RIG is trading for 20% of book value.   Patterson PTEN, an energy service proxy for Texas, is trading a 50% of book value.   Shale producers have been heavily discounted as well.   Abraxas AXAS trades at 36 cents (not a typo) which is 40% of book value.   Recently departed Boone Pickens used to say it was a lot cheaper to buy oil on Wall Street than to drill for it.  Heavily discounted AXAS is a good example of just that. And the price of the 5% ARAMCO offering has dropped from $2 trillion to $1.5 trillion. So we have the appropriate gloom and doom and heavy discounts that accompany a market low in energy.

 

There is a cluster of cycles in the energy sector due to bottom in mid-November.   Look for a turn up in the XES or Continental Resources CLR (now 1.59 times book) as an early warning indicator.

 

For the stock market in general, we are at the seasonal low usually seen in October.   The DJIA has been testing 26,400 and despite all the negative news (protests, war, impeachment, California black outs) is up over 200 points today. Netflix has corrected about 50%. Other FANG stocks have pulled back as well. So the stage may be set for a surprise move to the upside in stock prices.

Mid November Low in Oil Likely

Tuesday Oct 8, 2019

There are numerous clues that a cluster of cycles will converge in the oil market at Mid November this next month.

I suspect that will see WTIC re visit $42. 

Such lows occur amid negative social mood. This is also typified by energy service stocks trading at discounts to book value.

Firm            Symbol           Share Price as a % of Book Value 100% =1.00

XES Energy Service Compoonents

Baker Hughes           BHGE            .64

Core Labs                  CLB                10.

Helemrich and Payne    HP               .99

Technip                        FTI                .92

Patterson                    PTEN                .49

Halliburton                    HAL            1.2

National Oilwell        NOV                .94

Schlumberger            SLB                 1.2

ProPetro                    PUMP            .41

Nabors                    NBR                    .24

Only three issues are trading above book value. PTEN is probably the best proxy for Texas Service at 49%.

Shale producer Abraxas is trading for 38 cents f 41% of book.

 

These low valuations are typical of what occurs at extreme market lows.

I suspect the triple bottom will not  hold here and we return to last December low at $42.  XES is trading under $7. Nabors is trading for a mere $1.59.

Markets Resilient Despite DC Rhetoric

Weekend Oct 6 2019

Despite all the negative rhetoric out  of Washington DC the markets had a nice bounce back Friday

Despite all the talk about an up market the markets have been sideways and range bound this year.  And they still are.

FANG

FANG stocks trending sideways.

fDJIA 200 day MA is holding so far

 

Transports

Energy

 

Energy has led stocks up and now down

About all we can do here is watch to see of 51 support holds, I doubt it.

 

Silver

Silver and gold have been correcting. Wave three begzn in june and topped it Sept, looks like wave four will bottom this month.

 

kWeekly Silver, Wave 4 should not overlap Wave1

October is a seasonal bottoming month. That appears to be the case for stocks. Oil may stretch out further, we need some snow and colder weather to shake off bearish bias in oil. Energy service still a train wreck.

Social Mood

I wonder how each week will manage to trump the previous week in terms of social mood.

First Maxine Waters wants Trump jailed in solitary cconfinement.

This week Trump  wants Romney impeached except Senators cannot be impeached only voted out by 2/3 of the Senate.

Voters will be really tired of this in another 13 moonths.

 

Wed Oct 2 2019 Minus 500 DJIA and Counting

Wed Oct 2, 2019

For weeks and months in my weekly newspaper I have urged caution. That recommendation is coming to fore of course during the worst historic month for the markets, October.

Browses the WSJ or any major newspaper and the negative mood jumps off the page.

Today

Trade Friction Weighs on US Factories

Hong Kong's Violent  Unrest Grows

Maxine Waters Calls for Trump to be Jailed in Solitary Confinement

Barr Giuliani Tensions Hinder Trump Defense

GM Walkout Spurs Parts Shortages

Oil Loses Gains Since Saudi Attack (contrary to the mainstream media, weak oil prices invariably mean a weak economy)

Schwab Eliminates Commissions for on line stock trades (how can they afford that) check the result in broker stocks

 

 

An initial theme of this weblog was that we are in a New Civil War.  If you compare maps of

North versus South States in 1861 War

Right to Work versus Union Shop States

Red and Blue Voter Map Today

 

they are all the same map

Red Blue Current Vote Map

Civil War Map

 

Right to Work Map

The South is right to work, Republican, and was Confederate.

Enough people are moving from high tax failed states of CA, IL, NY, CT, PA to Texas and bringing their voting habits with them.

All but one major city in  Texas has a Democrat mayor. Ted Cruz re election against a near nobody, Beto, was a lucky miracle.  I am not so sure it will happen this way next time.

At any rate this Civil War is now on display in Washing DC with fiction being read into the Congressional Record by Adam Schiff, Trump firing his staff every few months, each side demanding the other resign.

This is the way things got underway during Watergate. History may not repeat but it sure rhymes s Twain remarked.

Social Mood Lurches Negative

Weekend Sept 28 2019

Read the wiki article on Watergate. From the loss of DJIA of 41, stocks peaked at 1040 by 1973. In the next two years of Watergate, the market gave back about half that gain settling in Dec 1974 at 577. The potential for trouble via negative social mood here is quite large.

https://en.wikipedia.org/wiki/Watergate_scandal

Markets hate uncertainty. We now have loads of uncertainty.

The NYSE Advance Decline index is the most reliable indicator. It is topping.

 

While still high, the bullish percent index is topping now, rice MACD, and the index itself.

NFLX will have lost 50% of  its value since 2018 if it returns to its 2000 week MA. f This is a textbook A B C correction.

TLT exhibits the same sort of parabolic run up to its top at 147.5

Have interest rates finally bottomed?

XAU

The XAU could fall back to its moving averages around 80 . That would give back half of  its recent gains.

After jumping on the Iran attack, oil has returned to the mid 50s. Energy service stocks remain mired in a huge bear market.

XLE Energy ETF is failing at its moving averages, no lack of oil supply in the world.

Sept Oct is the weakest season of the year for the stock market. Gerry Seib's column in the weekend WSJ noted that two weeks ago none of the Dem candidates were talking impeachment. In a short two weeks, all the Trump derangement group has seized on a single phone call to the Ukraine President. Bad judgement yes but hardly a high crime.  But here we go.  Expect the non-stop anti-Trump media to go bonkers over these hearings. Peolosi is not doubt reluctant to call the roll call vote in the House which would surely show just how partisan this is.

The only winner here is Putin. His strategy is to sow chaos on America and  now has just that. Congress will likely do nothing on anything substantive. And that includes the Mexico Canada trade agreement.  I have no idea how that has changed NAFTA and I doubt Trump does either. The Chinese economy appears to be weakening. And so the world slows. .

It looks like Warren has taken out Biden. Biden is on record bragging ab out threatening the Ukraine prosecutor himself.

Warren is apparently too far left even for Wall Street. But all the others seem to be fading.

This only adds to the uncertainty of the next 13 months.

We have urged caution for months now. That seems better advice than ever.

 

Market Pulls back from Resistance

Tuesday Sept 24, 019

The Russell 2000 shown and Transports are the leaders and they are leading down.

All bank stocks are selling off today.

 

Markets At Seasonal Top

Weekend Sept 22 2019

Seasonal weakness typically sets in after Labor Day. Significant lows often occur in October. I am not predicting a 1929, 1987, 2008 crash low but it does appear markets are setting up for a pull back.

Transports

After ten years of advance the markets are not all going to turn on a dime.  Markets corrected last fall quite a bit. Then they rebounded into May. Since then it looks like a distribution to the late comers.  Transports were turned back on this third rally attempt. PMO is rolling over at bottom. Industrials have hit new highs but are not joined by Transports, that is not a Dow Theory Buy signal.  Russell 2000 looks like the Transports. At a minimum, prepare for a re-test of the bottom of this trading range.

Note this reversal Friday.

TLT Bonds

TLT failed to make a new high on the Wed rate cut by the FED, as Carl Swenlin predicted that was already baked into the market. we are surely making a multi-decade high in bond prices and low in interest rates.  The XLF bank ETF is rolling over to the downside as well.

FRAK

Crude oil made the front page of the WSJ Weekend after the attack on Saudi. But it does not seem to have legs.

Here is a week  long blip that did not exceed the previous high in June. Energy has been the weakest of the ten economy ETFs, I do not see that changing.

Silver

Gold and silver will continue to pullback and consolidate for the next few weeks.

Bottom Line

Look for lower stock prices in the near term.

Social Mood

Leaf through the paper and note the onslaught against Cavanaugh has been renewed. Ginsberg must be worsening health wise. Now Trump is accused of prompting an investigation  intoBiden's son, yet this is never a problem when Dems toss out unsubstantiated claims, see Cavanaugh.

Comparing this to 1973-74 it is really amazing the markets have stayed so high so long.

 

Oil and Stocks Looking Bullish

Thursday Sept 19 2019

 

Oil Pops on Attack, Bullish Mode Returns

 

Last week we noted that oil was just mired in the mid-50s, not showing any real action. Apparently that comment did not go unnoticed in Tehran. Iran launched an attack on a Saudi processing plant. That knocked the world production down about 5%. Recall that the United States has convinced most countries to embargo or refuse to buy Iranian oil. This is in retaliation for Iran’s backing of terrorists and our pulling out of the Iran nuke deal.

 

The motivation for Iran’s attack is two fold. One to increase the price of oil for what they can sell. And two, if enough production is taken off the market, some countries might be convinced to ignore the US sanction and buy from Iran anyway. As usual, Iran is the world’s worst diplomat as this comes before the start of the UN meetings.

 

But, it does appear that oil may resume a bullish trend. Momentum indicators are turning up. Three of the four moving averages I track are coming together. This usually is a prelude to a change in trend.

 

And there are other positives. Energy ETF XLE is challenging its downtrend line at $$62. Conoco COP has moved up nicely to 60 after falling from 78 to 50. The shale ETF FRAK is still sagging. The shale producers simply took on too much debt.

 

The refiners as previously mentioned bear watching. CRAK is at its 200 day resistance of $28.   The moving averages are coming together for Valero VLO and it has risen to $85.

 

While the energy sector is the weakest of the ten ETF sectors in the stock market, things are looking better there. Tech stocks, specifically Microsoft MSFT, are in the lead. Gee what a difference replacing Steve Ballmer with Sartya Nadella as CEO has made.   Small capitalization stocks represented by the Russell 2000 are challenging resistance at 1575.   The Dow Industrials are at new highs but need to be joined by the Transports for a Dow Theory buy signal. At 10,750, the previous high is 11,500.

 

I expect that will happen. This has been a better September than usual, and the pullback we expected only lasted a couple of days. Our overall outlook is positive into 2020. Yes there will be some more fall hesitation. A Dow Theory buy confirmation with a new high in the Transports will help. The NASD is already there.

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