The Market Perspective

Tom McClellan - NASD is not Diverging

Friday June 5 2020

Tom McCellan offers this view of the NASD 100

As he shares this service for free, here is the chart he is showing.

His point is that the NASD is climbing while the number or stocks moving over their 100 day  moving average is also STILL climbing .

The conclusion being there is no divergence between the two indicators. Of course this chart was drawn before today's huge, now up  90 DJIA points.

It is of course possible the number of NASD stocks hit their highs today in a throw over. I am now out of the market. Sometimes it is just best to step aside and see what happens.  Which is to say

 

“The market can stay irrational a lot longer than you can stay solvent!”

Stocks Soar on Jobs Report, Make that FED Stimulus

Friday June 5 2020

Markets Make New Highs, Forget All Theories

The jobs report indicated a 13.3% unemployment rate, a 60% labor participation rate, and 2.5 million jobs ‘created’ in May. The market zoomed 650 DJIA points higher.

 

Friday June 5, 2020 8:05 AM CST

A couple of columns back I quoted Wall Street Week Elf, Dr. Marty Zweig, saying, ‘Don’t fight the FED. That can surely be the only explanation for what is going on here.   The FED is buying billions of dollars of all kinds of bonds from Treasury to junk, and that money is being recycled back into stocks. Never mind that quarantine stocks like Carvana are not making money, or that FANG stocks are trading at nose-bleed multiples. One new acronym for this is TRINA, there is no alternative. Translated that means not matter how over valued they might be, stocks are the only asset class for investing. Another is FOMO, the fear of missing out. To answer that siren call, Schwab is offering slices of FANG stocks as well as the E Mini Futures contract for as little as $5 each. This is advertised as a ‘great way to begin investing.’ Years ago, such trades were known as odd lots, when less than 10 shares, a round lot, were traded. Usually those small traders were wrong, we will see if that is the case again.

Specifically, the intra-month trends have turned up on the Dow Industrials, and SPX.   This morning the DJIA and SPX blew through 26,337 and 3,118. I can cite numerous technical and fundamental models but all are being tossed out the window. All hail the FED.

This is an election year. Notice how Trump has ceased his criticism of the FED, which was according to Trump, the one barrier to economic success.   The FED will continue pouring money into the markets until it is certain the job is done. After 20009, this was called Quantitative Easing. And each time the FED ceased, it had to come back into the market with more money to boost stocks. It lowered interest rates to zero to boost real estate. The same formulas are at work now.

Crude oil and stock prices have moved in tandem. And despite the claims of over supply, the price of oil has soared along with stocks. Crude oil is up $1.69 to $39.07. There is a plethora of futures, options, and off exchange derivatives in the energy complex. Do not discount the possibility that all sorts of machinations are present in these complex derivative markets to boost the price of oil, no matter what supply and demand are doing.

So despite watching our cities burn down on the evening news reports, the stock and oil markets follow their own course. Markets are soaring despite the negative mood on television and lost businesses to mob violence. This is a dangerous combination in defiance of social mood theory.   Be careful out there.

Will the US Follow Japan Three Decades Ago?

Thursday June 4 2020

Note to Readers

Be sure to click o  2020 Foresight at the end of article it offers some interesting insights from recent EWFF and EWT publications

Dennis

 

Deflation: Why the "Japanification" of the U.S. Looms Large

By Elliott Wave International

The U.S. faces the prospect of a Japan-like deflation.

Let's begin with a brief review of Japan.

Here's a chart and commentary from the 2020 edition of Robert Prechter's Conquer the Crash:

Japan had one of the strongest economies in the entire world, growing at a 9% rate for 20 years up to 1973, and then a pretty strong rate of about 4.5% through 1994. From there, it';s averaged about 1%. …

Economic growth in the United States today is weaker than Japan's was in 1989 when its bull market ended. The U.S. economy is dramatically weak relative to the amount of central-bank inflating.

Speaking of the U.S., here's a May 18 headline and sub-headline from Bloomberg:

America Is Becoming Japan, Not in a Good Way

The country could be on the brink of its own deflationary era.

Bloomberg referred to this prospect as the "Japanification" of the U.S.

But, getting back to that phrase "deflationary era" – what would that look like? What is deflation?

Well, many people erroneously believe that deflation simply means "falling prices." Yet, it goes well beyond that.

Let's return to the 2020 edition of Conquer the Crash for a fuller explanation:

A deflationary crash is characterized in part by a persistent, sustained, deep, general decline in people's desire and ability to lend and borrow. A depression is characterized in part by a persistent, sustained, deep, general decline in production. … Because both credit and production support prices for financial assets, their prices fall in a deflationary depression. As asset prices fall, people lose wealth, which reduces their ability to offer credit, service debt and support production.

Well, the U.S. has already experienced falling asset prices. Consider oil and other commodities, as well as the stock market – which, despite the recent rally, is still well off the highs.

Plus, and most importantly, there's been a credit market contraction and slackening production.

In April, manufacturing output declined 6.3%, according to the Federal Reserve. Moreover, industrial production dropped 5.4% and Q1 GDP fell 4.6%. The Q2 GDP number could show a much bigger drop. Current estimates range from a decline of 25% to 40%.

Also in April, the Credit Managers' Index from the National Association of Credit Management slid 8.3 points. That's after a drop of 7.2 in March.

Other deflationary pressures are also in place. As examples, producer prices have been sluggish, and according to the Atlanta Fed's U.S. wage growth tracker, wage growth peaked at 3.9% in July 2019 and fell to 3.3% in April 2020.

There's only been two major deflationary depressions in U.S. history. The first one extended from 1835 to 1843. The second one – known as "The Great Depression" – followed the 1929 stock market crash and stretched into 1933.

As you may know, other nations also suffered through the Great Depression.

Is another deflationary depression on our doorstep?

Get a 2020 Foresight and learn about 5 Market Trends 99% of Investors Will Miss, which is a 1-week, 5-insight series pulled directly from our flagship Financial Forecast Service.

It's premium, subscriber-level content -- 100% free to you when you join Club EWI. Membership is also free.

You get our latest forecasts for U.S. stocks, the economy, gold and more.

Follow this link now -- 2020 Foresight: 5 Market Trends 99% of Investors Will Miss.

This article was syndicated by Elliott Wave International and was originally published under the headline Deflation: Why the "Japanification" of the U.S. Looms Largey. 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.

 

Wave One and now Wave Two Apparently Compete, Probably , Pretty Much, I Think so.....

Thursday June 4 2020

9 45 AM CST

The KJIA market  exhibits a throwover to the .618 FIB retracement.  NASD pretty much came all the way back to Feb 12 and a 100% re trace is allowed under Elliott rules.

Notice the arrows show the gaps that were filled on the way back up.

So here it the big picture of  2020 so far. A few high Feb 12, a one-third loss of value in five-six  weeks, then a whew am I glad that is over Wave Two of reassurance. That sets the stage for the next sell off.

DJIA last Wave Up

 

SPX last Wave Up

Can't Get Enough Tech Stock!

Tech stocks put on a final stunning rally from  +6750 to 9698. It is said that if one wants to learn a topic, attempt to teach it to someone else. After decades of following markets, this year has certainly been instructive to me. I apologize for getting  so caught up in Wave One that I did  not see the possibility of re capturing years of advance  in just over two months in Wave Two.

And the  importance of hedging a new position is also paramount, In taking short positions on the way up, those should have been balanced with equal long  positions  assuring no loss until the new direction was clear.  I promised to remember that in the future.

The next big question is how low this next Wave will take us. Theory has it that DJIA 18,000, see below, and NASD 6750, see above, should fall. But given  the involvement of the government I am definitely in the wait and see camp. I am not going to assume any targets!

Gold and Silver

Again I missed a terrific rally in gold form the March low. Let's remember bear markets display stunning rallies which turn into failures. I think that is the case here.  MACD and RSI are trending down. For the moment euphoric mood over the re open of America and the world has investors shunning Gold. The return to a deflationary environment may be the next reason not to own gold. And I expect the US Dollar will soon rally diminishing gold's allure.

Silver - an even better percentage rally

Like the NASD silver returned 100% to its February high but not higher. The reversal at these levels suggests a return to the March low.  And if in fact cash is king in a bear market, why own silver.

So now what?

HDGE

 

Hedge is not only dirt cheap, about the  price of a near term option on a $100 stock, with no expiration,  it is the cheapest it has ever been.  We can watch 18,000 on the DJIA and $8.00 on Hedge for just how far the next Wave may take us.

Prudent Bear BEARX

One can start easing into these two bear market choices which advance as the market declines.

Anecdotal

So how and why will markets turn down as all are so positive on opening the economy back up?

Well the realization that

many small bbusiness will not survive or have already been lost. See the WSJ today on black owned business in Minneapolis and elsewhere destroyed by rioters

I just went to Lowe's for some salt for the RO machine. One  cannot roam the aisles. Instead tell the cashier what you want and they ring it up and bring it up front.  This slows shopping and eliminates iimpulse shopping.

Two thirds to three fourths of the tables have been removed from the  50 Bill  Miler bar be que restaurants in SA. This will result if fractional sales for most restaurants laboring under such constraints.

And  40 Million are out of work. This is an incredible strain on the unemployment coffers. Then add in the Zombie  municipalities of CA, IL, NY, NJ and their cities with unfunded pensions et al, and you have a real mess.

Thee City and County here have announced 're training' programs for displaced workers. When has that ever worked?  And you are going to train the female waitress to do what, operate a fork lift?  This is a feel good band aid. What is needed is a re thinking of  high school so that all exit with some real skill other than carrying luggage (tourism here) or waiting tables (all over SA and other tourist spots).

It is unlikely that many will  learn a new life long skill in a few weeks. My experience is that sure the top  15-20% of students are motivated and have study skills, the rest, not so much. Most of them being 're trained' never liked school to begin with which is another reason they are now floundering, Sorry but that is reality.

Eddie Lampert is an  Idiot

Years ago Lampert was hailed as the next Warren Buffett. He bought K Mart out of bankruptcy for about the price of the land and got the business for nothing. He then managed to snare Sears and formed SHLD. He then ignored every rule of god retail management, failing to improve the stores. it now trades as SHLDQ, bankruptcy underway or near by.

As mentioned I just went to Lowe. Lowe bought the brand name Craftsman to add to its line of Kobalt tools. Now the traditional red Craftsman grand is all over the front of the store. Consider the ad campaigns that established

Craftsman tools

Sears Weatherbeater paint

Sears Die Hard Batteries

Sears Radial Tires

One would have to work hard to go out of business while offering such successful products, but Eddie managed to do it. Adding to the irony Sears created catalog shopping back in the  1990s remember the Sears good better best branding? And really that was the print version of Amazon on line shopping.  An  American icon, gone, shame on you Eddie.

Final Verdict

Wednesday June 3 2020

If Hedge has bottomed this is the TOP>

The High is In

Wed June 3 2020

Yes I  know I had about given up but, I suspect we had a throw over today.

The put call ratio is fear versus confidence. At low levels confidence is winning. Here the ratio  has returned to the Feb 12 high but several thousand points below that level. Note the low level of PMO.

Bullish Percent

Notice that PMO is declining while the index is peaking

Believe it or not this market should reverse in the next day or two.

Up Against Resistance

Wed Morning Pre Market 7 11 AM CST

The riots and arrests have not stopped the juggernaut stock rally one whit.  DJIA up another 180 to 25,875 which according to severall sites I follow is 'resistance.'  Nothing resists the FED's attempts to drive up the market.

 

 

Seriously I have double checked and resistance levels are pegged at

Mini   S & P        3101                 Now         3091

 

DJIA                25,872                Now    25,883

 

NASD            9,698-9,776                Now        9,680

 

So it seems safe to say that today is the day,  either stocks make a final spike high or we can toss most of the theories that this has been a counter trend rally.  And frankly I see no signs of let up this morning.  The FED must be purchasing bonds and billions are going into stocks.

 

Facebook

The tech indicators of PMO and OBV look topped out but so what?  Clearly I am puzzled, more this afternoon.

Another Spike High Tuesday June 2

Tuesday June 2

The Transorts did not make a new high but the DJIA pretty much tied its late April  high, and the SPXX made a slight new high at 3081.

 

All hail the power of the FED to make the market last longer irrationally than I imagined.

While over bought and in the time frame for a pull back , it has yet to happen. 

Page B 11 in today's WSJ, Heard on the Street

 

It's no Illusion,Stocks are Pricey

 

But apparently the FED keeps buying bonds and the money is re cycled into the stock market.

PMO is as high as it can be without  breaking over. RSI could be higher but is surely fully priced at  70 and price is up  50% i tow months.

 

I follow other reliable forecasters saying we should have a sell off into mid month but it has not happened yet.

 

If the FED keeps this up and they will in an election year,  it seems unlikely that the March 23 low at  18,000 will be taken out.

IU have a medical procedure and will literally be under sedation tomorrow morning, update tomorrow afternoon.

 

 

 

Could the US Experience a Long Term Japanese Deflationary Period?

Monday June 1 2020

 

Deflation: Why the "Japanification" of the U.S. Looms Large

By Elliott Wave International

The U.S. faces the prospect of a Japan-like deflation.

Let's begin with a brief review of Japan.

Here's a chart and commentary from the 2020 edition of Robert Prechter's Conquer the Crash:

Japan had one of the strongest economies in the entire world, growing at a 9% rate for 20 years up to 1973, and then a pretty strong rate of about 4.5% through 1994. From there, it';s averaged about 1%. …

Economic growth in the United States today is weaker than Japan's was in 1989 when its bull market ended. The U.S. economy is dramatically weak relative to the amount of central-bank inflating.

Speaking of the U.S., here's a May 18 headline and sub-headline from Bloomberg:

America Is Becoming Japan, Not in a Good Way

The country could be on the brink of its own deflationary era.

Bloomberg referred to this prospect as the "Japanification" of the U.S.

But, getting back to that phrase "deflationary era" – what would that look like? What is deflation?

Well, many people erroneously believe that deflation simply means "falling prices." Yet, it goes well beyond that.

Let's return to the 2020 edition of Conquer the Crash for a fuller explanation:

A deflationary crash is characterized in part by a persistent, sustained, deep, general decline in people's desire and ability to lend and borrow. A depression is characterized in part by a persistent, sustained, deep, general decline in production. … Because both credit and production support prices for financial assets, their prices fall in a deflationary depression. As asset prices fall, people lose wealth, which reduces their ability to offer credit, service debt and support production.

Well, the U.S. has already experienced falling asset prices. Consider oil and other commodities, as well as the stock market – which, despite the recent rally, is still well off the highs.

Plus, and most importantly, there's been a credit market contraction and slackening production.

In April, manufacturing output declined 6.3%, according to the Federal Reserve. Moreover, industrial production dropped 5.4% and Q1 GDP fell 4.6%. The Q2 GDP number could show a much bigger drop. Current estimates range from a decline of 25% to 40%.

Also in April, the Credit Managers' Index from the National Association of Credit Management slid 8.3 points. That's after a drop of 7.2 in March.

Other deflationary pressures are also in place. As examples, producer prices have been sluggish, and according to the Atlanta Fed's U.S. wage growth tracker, wage growth peaked at 3.9% in July 2019 and fell to 3.3% in April 2020.

There's only been two major deflationary depressions in U.S. history. The first one extended from 1835 to 1843. The second one – known as "The Great Depression" – followed the 1929 stock market crash and stretched into 1933.

As you may know, other nations also suffered through the Great Depression.

Is another deflationary depression on our doorstep?

Get a 2020 Foresight and learn about 5 Market Trends 99% of Investors Will Miss, which is a 1-week, 5-insight series pulled directly from our flagship Financial Forecast Service.

It's premium, subscriber-level content -- 100% free to you when you join Club EWI. Membership is also free.

You get our latest forecasts for U.S. stocks, the economy, gold and more.

Follow this link now -- 2020 Foresight: 5 Market Trends 99% of Investors Will Miss.

This article was syndicated by Elliott Wave International and was originally published under the headline Deflation: Why the "Japanification" of the U.S. Looms Largey. 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.

 

VIX up near 3%

Monday  June 1 2020

 

Despite the indexes being up today, the VIX was up as well. The VIX typically tracks opposite the index, the VIX is a fear not confidence index.

Something wrong with my copy, but the PMO is trending up on VIX. Another puzzle piece that a top is approaching.