The Market Perspective

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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Hysteria on the Rise

Monday Sept 16 2019

Iran apparently strikes Saudi

Oil up $5+, gold and silver as well

GM workers to strike, never content that the firm is back in business

Chicago teachers consider strike

Stocks  experience  100 point modest pullback

Let things settle down a bit

WSJ notes Bolton was right about Venezuela and Iran

Energy and Financials Bouncing on a Slow Day

Tuesday Sept 10 2019

We noted Tom McClellan's suggestion that energy and financials were due for a bounce this past weekend. And Monday it happened.

XLE

The XLE bounced 2% yesterday but it has failed three times at the 200 day MA.  At bottom the down trend is clear.

So hard to get really excited until we have a reversal of trend.

XLF

XLF looks quite a bit better. We have three higher lows in price marked by green arrows. And the PMO is turning up at bottom.

I believe we have seen the low in interest rats. Another FED cut is already in the market, that has been announced on the front page of the WSJ.

 

Cullen Frost

CFR has been beaten down  on low interest rates when the FED  was talking raising rates.  The final parabolic rise in TLT looks terminal to me. And the faact that Alan Greenspan predicted negative rates for American Treaueries, well that is the kind of comment we get at market lows.

TLT

TLT has had a 30% rise this year. Considering how low rates already were, this is incredible. Incredible that so many would grab for such low yields risking being trapped in low yielding securities when rates reverse.

I suspect XLF and CFR are worth a buy here.

Finance and Energy May Have Bottomed

Monday

Sept  9 2019

This weekend and lasts i suggested that banks might be ready to take off, interest rates have surely hit bottom.

We know maximum mod occurs at the end of a move. TLT  chart is straight up moving from 100 to 148.

And for months we have noted the poor performance of energy service stocks.

Looks like all that is about to change.

More tomorrow morning

Interest Rate 4,000 Year Low

Weekend Sept  8 2019

Weekly

Look rally hard and you will see the reversal, bar reversal at right

Monthly

The bon rally dated from  1982 has finally ended.

No less than Alan Greenspan predicted negative interest rates in the USA ion CNBC,this is the kind of comment that occurs at points  like this.

 

Higher rates ahead.

 

Bullish Percent Stocks Participating Falls

Weekend Sept 8 2019

Yes the DJIA made a new high Thursday on  the usual promise that something would happen on trade. See my column in previous post. I suspect the Chinese wait this out till the election  14 months from now.

The NYSE includes all the  stocks on the New York so it is a much broader picture.  The index is in green. But the bullish percent has been falling since may and is now under 50%. This is true across the various indexes. This means declining breadth with the smaller stocks not participating. FANG is holding  this market up.

 

All e other major indexes in Europe and China have been in downtrends for months. That is not good and reflects the lack of resolution of trade and negative mood in protests  in Moscow and Hong Kong as well as new governments in Britain and Italy (like what else is new in Italy).

Even if the FED cults another quarter point, that expectation is already in the market. My guess is that we have essentially seen the low in interest rates. That would be confirmed by  a low and rally in bank stocks.

XLF

INdeed it looks like that is happening. I also like Cullen Frost CFR here.

CRAK Refiner ETF

CRAK is still in a downtrend but rallying from a lower low. It needs to clear that last high at 28.5 to reverse the trend.

Support for gold is 1375 now trading at 1515, I doubt it goes anywhere near that low.

Silver at 18..12 is correcting, 16.5 - 17 looks like support.

 

A low in Rates and Oil Prices May Be on Tap

Friday Sept 6 2019

 

 

China and the United States on Thursday agreed to hold high-level talks in early October in Washington, cheering investors hoping for a trade war thaw as new U.S. tariffs on Chinese consumer goods chip away at global growth.

Reuters

 

The DJIA rose over 400 points on that news. But markets have been rising and falling in a broad range on positive and then negative news on what might happen trade wise. And there is an entire month left until October. The most encouraging thing is the lack of Presidential tweets threatening this and that across our range of trading partners. The most reliable indicator is the advance decline line of the New York Stock Exchange index. This is simply a graph of the number of stocks advancing minus the number declining. It rose to a new high which is the technical reason for the market advances this week.

 

The tariffs have replaced China with Mexico as our largest trading partner. No doubt Chinese leaders want to show something to their people that some progress is taking place. Still, it is hard to believe they won’t wait Trump out until the 2020 elections rather than agree to finally honor intellectual property rights. Until now they have trampled them, refusing to pay royalties on music and movies.

 

Last week I mentioned that the refiners were worth watching. Indeed I am cautiously optimistic on this sector.   The refining ETF is CRAK. It is turning up as its i momentum indicator. But it really needs to take out $27.50-28 to turn the trend bullish.   Valero VLO is a better chart forming a second higher low since June. Since 2016 it rose from 44 to 120. It has given back half that gain now trading around $75. It is a well managed firm trading at a modest 12.77 price earnings ratio.   And the forward dividend is 4.69%, well more than the banks are paying.

 

I also suggested looking at Cullen Frost Bank. Lower interest rates have beaten down bank share prices.   This past year Frost has fallen from 111.70 to 79.869, now at 83.25. If the stock market has corrected, it follow that yields on ten year treasuries should be advancing and indeed they are.   Surely we are as James Grant put it, at a 4,000 year low for interest rates.   Frost pays a 3.42% dividend and is quite profitable.  Our bottom line is to look for a low in interest rates leading to stronger bank stock prices. And in t turn, this should firm oil prices.

 

Gold and silver have corrected a bit after a nice run from multi-year lows.   Let’s look for a good re-entry point here. The XAU index of gold miners is holding onto its recent gains.

 

Another Bad Day for Stocks

Wed Sept 4, 2019

The DJIA fell over  400 before recovering to less than 300 down. And it is up in pre market trading this morning. But the down then lighter bounce up is

a frequent pattern. I was clearly wrong on Frost Bnk which fell 2.5% Tuesday. It iis backk to the Dec 24 2018 lows and probably headed lower.

Manufacturing continues to slow and energy is leading all sectors to the down side.

Monthly CFR Chart still falling

26,400 Still Resistance

Labor Day Weekend Sept 2 2019

Tom McClellan believes the stock market mimics the oil market ten years lataer.

if that is true let's look at the oil market form  2009 to  2011

the pattern suggests a lot of sideways activity until the election slated for Nov 2020. Then oil took off. In classic socionomic fashion the  big part of the move occurred at the end. And then apparently once the new President has been in office two or three months, some reality sets in and the market reverses.

Our friends at Elliott Wave predict  an E Wave down from here. Carl Swenlin at Decision Point does not like what he sees and sold most of his position.

Weekly NYSE Advance Decline

This indicator however remains strong.

Transports

The Transports look pretty good.Trannsports have now bounced twice at  9700/  The PPMO is attempting to turn up.

Russell  2000

Russell 2000 looks the same as the Transports. These two are the leaders so all the worry here may be over done.

Cullen Frost

As James Grant put it, the 4,000 year low in interest rates has caused the bank stocks to sell off. CFR has retraced 50% of its advance. It  closed upt  2.23% for the week. This is the best managed independent bank in Texas making millions of dollars. The P/E is 11..65 with 7.13 E{S amd a  3.46% forward dividend. Anad it is trying to bounce at the  200 week MA.

what's not to like?

Amazon

Amazon on the other hand is trading at 58 times earnings.

CFR versus price of Ten Year note

Theese have moved in opposite directions, is the rubber band fully stretched?