The Market Perspective

Oil Under $60, Bear Market or a Bottom?

Friday Nov 16, 2018

Oil Below $60, Bear Market or a Bottom?

Wednesday natural gas had a meteoric 18% rise to $4.837 / mmBtu, the biggest one-day rally in14 years and the highest closing price since 2014.   Thursday the price fell 17% to $4.038, the sharpest one-day decline since February, 2003.

Nat Gas Plunges After Rally, Wall Street Journal Nov. 16, 2018

Dear Professor, how is it that such dramatic reversals happen in the energy markets?

That great question deserves and answer. The media is always fixated on the supply of oil or gas or whatever OPEC claims they are doing. This is false causality. The reasons for the dramatic swings in oil are that it is traded I in US Dollars and currencies are continually trading at different prices to one another. Next, oil possesses both a financial and an economic dynamic. Refiners turn oil into gasoline but speculators create more oil contracts gambling/hedging on the price than supply exists. The trading in nay item is driven by internal social mood which is subject to change at any time. But most important, is the number of investors on each side of the trade at market tops and bottoms.

The US Dollar peaked this past Tuesday Gold bottomed that day at under $1,200. Oil dropped the next day from about $59 to $55. Now gold is$1,221.90 and oil is $57.74. The over supply the media screamed about last Wednesday is apparently still with us, but the prices are up. Behold the influence of the US Dollar and social mood.

Let’s consider the mechanics of what happens in markets. Let’s use the recent run-up and reversal in the crowded FANG (Facebook, Apple, social media plays) trade rather than the more difficult to understand energy futures market.

Suppose we have fifty investors in a room or on the proverbial desert island.  At the start of 2017 FB is trading for $110. Word spreads that FB is really making money and has millions of world-wide users. Investors start bidding up FB shares. Now 35 of the 50 are long, owning FB shares. .More investors get on board and as the price rises over $20 40 of the 50 own FB. Finally 45 of the 50 own FB at prices over $215.. The number of shares is fixed. Owners of stock sold to the buyers. In the example, now a mere 5 investors are left, none of whom own FB. And then on July 26 a couple of investors become nervous and want to take profits. Aha, now there are only five investors left to buy. The first bid is $180, $40 under the market. FB has revers mot so an 18month rally now trading at $140. While there is a buyer and a seller for every trade, it is how the shares are distributed that drives reversals due to the limited number of buyers. Recall how Meathead and Archie Bunker were always trying to squeeze through the one door in the house, same thing here.

I suspect a bull market in metals is underway. Oil has probably made a bottom but needs a close over $62 to reverse the down-trend.

 

Get on Board for Gold and Silver

 

Thursday Nov 15, 2018

We suggested that Wave Two was ending and a much stronger Wave Three to the upside would soon begin.  That is exactly the case.

 

Here is a two hour or  120 minute chart with the wave labels shown previously on the daily chart.

Investors are catching a falling knife, buying the the morning only to see the market reverse to the downside later in the day.

 

Today is a typical example. And this is an example of socionomics in action. The switch was turned October 3.

Yesterday I put some headlines from the WSJ on the site. Even FB employees mood is sullen. Mood towards all the FANG stocks evaporated in February.

Weekly SPX

 

It's not the end of the week but the weekly chart of the SPX is not encouraging.  The rally from January  2016 appears to have ended in five waves up. SPX is trying best the 50 bar MA, I suspect this attempt will fail.

Here is social mood in action. From bull to bear in stocks in a month and a reversal in gold and the dollar on the same day.

 

 

Negative Mood at FB and Around the World

Thursday Nov 015, 218

 

Amid a plunge in the stock price, ongoing leadership turmoil and critical media coverage, just over half of employees said they were optimistic about Facebook’s future, down 32 percentage points from the year earlier, according to the survey, which was taken by nearly 29,000 employees. Fifty-three percent said Facebook was making the world better, down 19 percentage points from a year ago.

 

Gold Gains Strength as Stocks Falter, More Signs of a Stock Top

Wednesday November 14, 2018

Here is a ratio chart of the gold bug index, shares of gold mining companies to the spx. Wave One appears complete form the Sept low unfolding in five waves.

Wave Two correctly took an A B C pattern and did 

not fall below the previous small Wave 2 in larger Wave 1.

 

Note the ratio chart was up a strong  4.4% today. This comes as the WSJ featured a story on the last page of just how strong the USD has been. This is typical of the media, looking in the rear view mirror.  After falling under $1,200, gold rebounded up $10.30 today  and silver pulled back above $14. 

US Dollar via UUP

 

The US Dollar is weakening which is boosting gold silver and oil prices.

Stocks appear to have begun a bear market.   We have five waves down in the NYSE AD chart and an A wave up and possibly a B wave ending this week. That suggests Wave Two  is half way complete.

 

Evidence continues to mount that a significant top is in place in the stock market.

Dollar Completing Five Waves

Wed Nov 14 2018

 

Gold and oil are bottoming as the US Dollar completes a fifth wave of five to make a top. Sure enough the media are agog over the strong dollar but that makes a market top.

 

This is a textbook five wave pattern.

 

Gold is taking longer to bottom than I thought but it is happening. This should be a pullback before a more spirited advance begins, watch the chart of UUP.

 

Ratio chart of gold to the US Dollar via UUP

 

This chart falls when the USD is out performing gold. It rises when gold outperforms the USD. One can see the bottom was recorded in August.  The ratio is making a higher low now.

Patience.

DJIA Drops 600 PoInts

Monday After Market Close Nov 12, 2018

 

This weekend we warned that the Transports and Russell 2000 were not confirming the new high in the DJIA. We concluded that evidence was mounting that a significant top had occurred. Today only re enforces that idea.  WE also noted world wide deteriorating social mood which came on full force today.

DJIA Turns Down

Monday Nov12 2018

This weekend we noted the non confirmation by the Transports and Russell 2000. According to Dow Theory this is very negative. Sure enough the DJIA has begun the day down.

Negative mood continues with Trump angering Macron and not attending a ceremony this weekend with the other leaders.

The fraud continues in Florida, a negative mood holdover from the Gore Bush contest  not considering Obama's Supreme Court pick and the Kavanaugh hearing.

 

FANG Mania Ends

Weekend Nov 10, 2018

It is important to understand that the buying mania in the FANG stocks propelled the NASD to over 7,000. A look at the charts of those firms

shows the love affair has ended. The worst though not an official FANG is Yelp.

That is a 25% loss in ONE DAY! I suspect this is a warning of just how dangerous this overall market can be.

https://www.marketwatch.com/story/yelps-post-earnings-stock-plunge-exposes-a-fragile-business-model-yet-again-2018-11-08?siteid=yhoof2&yptr=yahoo

Facebook has lost a third of its value.

Dissatisfaction with FB editing of posts has no doubt contributed to its demise.

Social Media ETF SOCL

Social Mood Taking Negative Turn, Transports, RUT not Confirming DJIA

Weekend November 10, 2018

I am sending much better lawyers to expose the FRAUD (in Florida)

Trump on Twitter regarding Florida recount

I took a yellow highlighter to various articles in the Weekend WSJ, here are a few snippets

 

Florida repeats the heated 2000 election results

White House Tensionis  Grow over China

Gab to Reign in Calls for Violence

Trump Calls NMacron Comments Insultijhng ahead of Meeting

Trump Fires Sessions

Britain struggles with Knife Attacks

The Blue Wave Breaks Gently

America Could Use Some Deals

Eurozone's 19th Nervous Breakdown

 

All told social mood is trending negative world wide and it shows in the markets.  The New Civil War we have discussed so many times has taken on a renewed vigor.

While Nancy and Steny are no doubt savoring new found power again, they may be surprised at the community organizing efforts of the new Congressional Members. Look for an unforseen bid for power in the Dem ranks.

 

DJIA versus Transports

Dow Theory dictates that both indexes need to make new highs or lows to confirm a move in one direction.

But the Transports in purple are not confirming the move up in the Industrials

Note the downturn in the Transports in fact right at the DJIA 200 bar MA.

Russell 2000

The small cap Russell  2000 looks strikingly similar to the purple Transports above. Notice RUT did not even get close to challenging the  200 bar red MA, and the shortest MAs are already turning down.

%  Above 200 day MA

This indicator is hesitating right at the 52.5% level. And it is nowhere close to its Sept peak. 

I believe evidence is building that a market top of some significance has occurred.

TLT Bond Prices not Recovering

There was no rush to safety in bonds during the October sell off. This is another reason to doubt that the markets are AOK now.

Weekly TLT

The more important weekly chart looks worse. Price is well under all the MAS and the MAs are converging and about to turn down, the typical way trends change.

US Dollar

The USD is between 50 and 61.8% re tracement which suggests a top might well occur in the near future.

Gold via GLD to see 2 hour chart

The strong dollar beat gold down but it is still in an uptrend. I am still bullish on gold.

Crude Oil

Bullish Percent Energy

BPENER got whacked with the stock sell off just as it did last February. It has rebounded to those February lows which are now some resistance.

XLE versus XES in purple

Here is a graphic of what I mentioned in the column posted Friday. Energy Service in Purple is not confirming any recovery in XLE Energy producers. And XES has been falling since April. Somehow the market senses what might happen.

 

Crude Oil

Crude oil weekly has fallen below its 34 Exponential MA. And PMO shows no signs of bottoming

Did anyone notice the article about OPEC dissolving with the Saudis and Russia going it alone?  No doubt that would result in a production free for all, not that OPEC ever regulated anything anyway. No wonder price is falling just as in  2014.

Bottom Line

Evidence builds that a significant stock market top has occurred. No recovery has ever lasted longer than the ten years this has been in force.

Interest rates are rising, bond prices falling, and numerous cities and states are in serious trouble with pension obligations.

Gold and  the XAU need to hold these levels and recover. Hopefully that will happen amid a US Dollar top.

Finally oil, gasoline and heating oil appear to have broken down. Oil has fallen the  20% necessary to call it a bear market.

 

dennislelam@gmail.com

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.

 

 

 

 

 

Oil Prices Still Falling

Friday Nov 9, 2018

Oil Prices Decline Tenth Straight Day

The US just became the world’s largest crude oil producer, barely squeaking by Russia. That’s huge.

Mark Waggoner at Excel Futures Friday WSJ

October 3 marked the high in stock indexes and oil prices at $76.41. Since then both have fallen. Oil prices have fallen 20%, notching a lower low than last June at $64. As I write Friday Morning WTIC fell below $60 and has now recovered above that level to $60.42. There is no shortage of headlines proclaiming that this20% price decline means oil has entered a bear market.

Looking back there were plenty of clues a top was at hand.

• Bullish bets on crude oil futures were 26 to one for higher price in June and still four to one on October 30. That is a crowded one-side trade.
• A Bloomberg writer reported spending $200 for a night in a Super Eight Motel in West Texas. That is a contra-sign in itself.
• We have noted for months that the XES Energy Service ETF did not rally to significant new highs with Energy ETF XLE. That is a non-confirmation. The service sector should be confirming higher energy prices but it consistently did not.

So what to expect next? Share prices are showing some strength this morning. Apache is up 2.28%.   The bullish percent of S & P energy stocks dropped below 10% but has risen to 26% since October 29. Shale ETF FRAK is struggling but up from its October 29 low.

This is like the top of May 2014 in that there is no shortage of supply. Russia and the Saudis ramped up production on the notion that Iran production was constrained. Don’t expect any supply shortage to rescue falling prices.

Gasoline prices are apparently falling even faster than crude oil prices. The refiner ETF CRAK is down from its $36 October 3 high dropping 2% today to $30.82.

On the daily chart WTIC has fallen below its 200 day moving average MA. The 50, 87 and 125 day MAs are all turning down. Crude will need to rally quickly here or lower prices are all we can expect.

The talking heads on CNBC want us to believe the correction is over given the DJIA rally. But the Transports and the Russell 2000 are failing below their 200-day MA. Those are both Dow Theory non-confirmations.

Finally the Democrats takeover off the House assures that the legislative good news has ended. Pollster Frank Lutz just remarked that 2020 will be the most contentious election since 1968. See our weblog for more updates on developing negative mood.