The Market Perspective

Energy Prices and Stocks Calm

Friday June 24 2022

Energy Prices Calm, so do Stocks

Bring supply on-line to get more gas to the pump at lower prices

Energy Secretary Jennifer Granholm to Oi and Refining Executives

Secretary Granholm is yet another Harvard educated attorney with no direct experience in the energy industry.  Apparently she is not aware of the following.

• The last new refinery built in the US was in 1977
• The refinery industry is running at 94% capacity now
• Gulf Today reports there are seven refineries for sale today but no buyers.
• \ Valero is recording nice profits but most refiners has net income more like grocers than oil producers
• The crack spread, the difference in the crude oil price and the sale price of the refined product has zoomed to $53.  The average the last few years is a much slimmer $16, not much room for refining error there.
• Energy investors are asking for more share buy backs and dividends, less drilling amid triple digit oil prices. Investors are remembering the wild swings in price since the $12 level recorded in 
• Starting up a refinery can take a year given the need for safety precautions. So with drilling and pipelines Federally handicapped, who should be surprised at $5 gasoline?  Team Biden got just what it wanted.
• Allowing more offshore drilling w is finally under consideration by Team Biden. Neither that nor as predicted releasing oil form the National Reserve wil not rescue the November elections for Democrats.

And Team Biden has sent out every indication of its war on fossil fuels since inauguration day. From cancelling the Keystone Pipeline to limiting drilling permits on Federal Land to slow walking any and all permits.  

But market help is on the way. In our last two columns we suggested energy prices were more likely to come down than rise further. Sure enough, gasoline futures peaked at  $4.20 and are now $3.66. West Texas Intermediate peaked eight trading days ago around $125. It is now $104.

It will take a few weeks for those lower prices to work through the refining cycle.  Granholm also criticized conservative media outlets for getting the word out on the expense of taming climate change. The Secretary and AOC got what each wanted - high gasoline prices to discourage IC powered cars,

Our prediction of a peak in the two-year cycle of interest rates has also come true. The thirty-year yield peaked at 3.5% and is now 3.2%.  Closed end municipal bond funds have been trading at a discount to the actual bond they hold. This makes that sector a great buy now.

The stock market is not showing much bounce after its  18- 30% sell-off in various indexes. The Industrials would need a weekly close over 31,000 to turn the daily trend up. The index is  30,569 at the Thursday close.

Closed End Munis Rally

Thursday June 23, 2022 Green means an up close for the day

 

closed End Munis Trading at Discount

Thursday June 23m 2022

Check out the credit market column on page B12 of today's WSJ.  Closed end municipal bond funds are trading at  93% of the underlying value of bonds they hold.

As we have been noticing the prices of many such funds has fallen from around  $14 to $10 just this year.  That 20-30% drop in price has many retirees foolishly selling the bonds. Blackrock MYD is a typical example

Mondy flow at top appears to have reversed and now I patiently wait for PMO to pick up at bottom /with yields of  5-6% the tax free yield is much higher depending on your tax bracket. Say you are in the  20% braket, a hypothetical, the calculation is

6% / .8 =

7.5%, a great deal in  world of a 3% thirty year Treasury

 

Counter Trend Rally Should Extend a Bit Further

Wed June 22 2022

The Tuesday rally began a short counter trend move that should last a bit longer.

NASD over 50 day MA

The indicator has a higher low and PMO looks to be moving up.NYSE Advance

NYSE Advance Decline

PMO may be turning up the indicator is beaten up to the downside.

INDU

Looks like we are above the down trend line and PMO is surely not going to fall just yet from this over sold position.

Stock Markets Rise Globally

Monday June 20 2022

 

I clipped this from the online WSJ, looks like my suspicions are correct that the low may have occurred on the two 1,000 plus low days that last couple of wees.

 

_______

International stocks broadly rose in the absence of fresh news about inflation and interest rates, while U.S. markets were closed for the Juneteenth public holiday.

Stocks and bonds have been pummeled globally this year. Driving the selloff are the push by the Federal Reserve and other central banks to quell inflation, and concerns that higher borrowing costs will tip economies into recession.

This week, investors will parse comments from Fed Chairman Jerome Powell to Congress on Wednesday and Thursday. They will seek clues about the chances of a second consecutive three-quarter-point increase to interest rates in July. Data on housing, manufacturing output and consumer sentiment will help traders assess the strength of the economy, while inflation runs at its highest rate in more than 40 years.

Another March 2020 Low

Weekend June 20 2022

The charts of SPX stocks over respective  150 200 and  50 day MAs are re visiting the extreme of the March 2020  Covid low. This also osuggests the rubber band is stretched pretty far and due for a rebound.

A Few Divergences

Weekend June 20 2022

 

Every where I look someone is predicting a recession, per Bob Farrell' ten rules that suggests we won't have one yet.

The NASD made a new low in price Friday but the number of stocks above their  50 day MA did not do so, and that is the kind of divergence one sees at a bottom. Index at top indicator above the May low.

The Thursday June 16 post noted the number of new lows hi12

/t a new high.on Friday that number dropped bv over 400 from Thursday. PMO is peaking. And the number of new lows double topped around  1,000-1,100. 

while the news media is agog over gasoline prices, we noted the percent of energy stocks in bull fashion collapsed from  85% to under 30%.  and the price of gasoline futures declined all week.

While new lows in stocks double topped, new lows in muni bond prices double bottomed.

Here is a fund that has lost 1/3 of its prior high. We suspect bond yields have completed  five wave move from the March  220 lows and will have a counter trend rally in price for several months.

thirty Year Yield

Buying Opportunity in Muni Bonds

Friday June 17 2022

Tom McClellan sees corporate bonds oversold

https://www.mcoscillator.com/learning_center/weekly_chart/corporate_bonds_show_oversold_condition_for_t-bonds/

We have been anticipating a buy in muni bonds and it is here now as well as junk bonds, these are trades to hold into an expected bounce into Sept-Pct/

HYT Blackrock High Yield 4 Hour chart

 

BLE Muni Income Fund

BLE looks like it is re testing the previous low.

Markets are Closed Monday for National Holiday. My thinking is that markets will be finding a bottom and then beginning an advance over the next week or so.

Calm After the Storm

Friday June 17 2022

Calm After the Storm?

Two weeks ago this column predicted a pull-back in energy prices. This week the percent of energy stocks in bullish position fell from 85% to 19%.

 

Polls indicate that inflation is the major concern of the public. No wonder, gasoline futures have climbed from $2.00 a gallon to $4.20 a week ago and now down to $3.84.  Still the trend remains up.

Team Biden at first blamed Putin’s Ukraine war for rising oil prices.  Critics noted West Texas Intermediate WTIC had risen form $35 in October 2020 to $95 in February 2022 when the war began. Plan B is to blame oil and refining companies for ‘making more money than God’ (or perhaps Hunter Biden). Exxon Mobil did make $23 billion in 2021 but lost $20 billion the year before. Team Biden apparently does not give a pat on the back for losing money when prices are low.

Exxon Mobil XOM responded noting it had invested in refining capacity.   XOM asked for a clear and consistent policy on regulation and lease sales as well as streamlined regulatory approval.   

Biden doubled down with another letter demanding more refining capacity.  In fact the industry is operating at 94% capacity now. The last new refinery in the USA was built back in  1977.  AOC’s war on carbon fuels is working with the 35% that still approve of Team Bidden, what is the problem Joe?

Words matter, perhaps Team Biden is beginning to notice. His campaign promised a war on fossil fuels. Well, here we are with the highest prices since 2014.  Complying with every EPA imaginable only got the Bidden retort, ‘they pollute.’  Refiners responded that one does not make muti-billion dollar investments based on short term events.  Seriously given the negative rhetoric from Team Biden and already the threat of excess profits taxes, would any reader build a new refinery in this environment?

Crude hit $123 briefly this week and settled at $115.25 Thursday. The collapse in energy shares trading in bullish territory is the best indicator suggesting investors are taking profits on the run-up in energy shares.

It took from March 2000 until October 2002 for the NASD to lose 75% of its value.  In nine months that index has lost 31% of its November 2021 high.   The DJIA has dropped 19%, the Transports and SPX 23%.  This column has noted that individual stocks carry different weights in computing overall averages. Counting equal weights the NASD peaked in February 2021 with 85% in bullish position.  Now a mere 12.83% are in that rare category.

The number of new lows on the NYSE hit 1,092 Thursday which is the highest number so far in this sell-off. That suggests a bottom may be at hand. Major news media are making much that the stock market is in bear territory (they just now noticed) so that in itself is a contrary indicator.

Look for a market seeking a short-term low over the next couple of weeks. We expect a lower high in September or October.  But make no mistake, this is a bear market.

Dennis.elam@att.net

Looking Back

Thursday June 16 2022

 

Tech Stocks and the Dot-com "Echo"
"Downside surprises should become the norm"

By Elliott Wave International

The Wave Principle's basic pattern includes five waves in the direction of the larger trend, followed by three corrective waves, as illustrated in both bull and bear markets below:

You probably recall the bursting of the dot-com bubble when the tech-heavy Nasdaq 100 plummeted 78% between March 2000 and October 2002.

In recent months, a slew of financial articles compares today's "tech wreck" to that dot-com crash of about 20 years ago.

Here are just a couple of sample headlines:

• 'Tech wreck' looks more like another dotcom bubble bursting (March 9, The Financial Times)
• It's looking a lot like the dot-com crash again. ... (May 22, Fortune)

It's been said that history may not repeat exactly but it does often rhyme. And the current downturn in many tech names does remind of that dot-com bubble.

You may be interested in knowing that our Global Market Perspective, a monthly Elliott Wave International publication which covers 50-plus worldwide financial markets, provided this prescient warning as far back as November 2020:

Big tech is transitioning from a bull market to a bear market at a high degree of trend, so downside surprises should become the norm.

Price shocks across the tech sector began almost immediately after that analysis.

Here's the latest from our June 2022 Global Market Perspective:

French IT company Atos dropped 12% on January 7, 2021, and investors have sold the stock relentlessly ever since. Sweden's Spotify, the world's largest music streaming service, peaked in February 2021 and fell 70% to its current level. Switzerland's Logitech (computer peripherals) and Germany's Infineon Technologies (semiconductors) held up a bit longer, but the companies' bear-to-date losses have piled up to 50% and 36%, respectively.

So, yes, the current trend in the tech sector does rhyme with the dot-com bust -- or, call it an "echo." Here's more analysis from the June Global Market Perspective:

It took until November 2021 for the broader technology complex to reverse. The Stoxx 600 Technology Index peaked after failing to surpass its top from the dot-com mania, and, at this point, the "echo bubble" is producing a host of air pockets, flash crashes and general market disturbances.

Here's what you need to know: In addition to the European tech sector, our Global Market Perspective offers insights into U.S. and Asian-Pacific tech names and indexes.

You'll also find Elliott wave analysis of other stock market indexes, cryptocurrencies, forex, bonds, crude oil, gold, silver – all in all, more than 50 worldwide financial markets.

If you’re new to Elliott wave analysis or need a refresher, an ideal book to read is Frost & Prechter’s Elliott Wave Principle: Key to Market Behavior. Here’s a quote from the Wall Street classic:

Although it is the best forecasting tool in existence, the Wave Principle is not primarily a forecasting tool; it is a detailed description of how markets behave. Nevertheless, that description does impart an immense amount of knowledge about the market’s position within the behavioral continuum and therefore about its probable ensuing path. The primary value of the Wave Principle is that it provides a context for market analysis. This context provides both a basis for disciplined thinking and a perspective on the market’s general position and outlook. At times, its accuracy in identifying, and even anticipating, changes in direction is almost unbelievable. Many areas of mass human activity display the Wave Principle, but it is most popularly used in the stock market.

Here’s good news: You can read the entire online version of the book for free once you become a member of Club EWI, the world’s largest Elliott wave educational community.

A Club EWI membership is free and opens the door to instant access to a treasure trove of Elliott wave resources on investing and trading – all without obligation and 100% free.

Get started right away by following this link: Elliott Wave Principle: Key to Market Behavior – free and unlimited access.

This article was syndicated by Elliott Wave International and was originally published under the headline Tech Stocks and the Dot-com "Echo". EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.