The Market Perspective

More Clues that a Top is Forming

July  31 2021 Weekend

Social media and FANG stocks have been all the rage. Let's take a look that the best performance for the time being may have peaked in those sectors.

 

this is  the ETF for global social media.. It peaked in February and is now following a pretty well defined downtrend channel.

AMZN

Investors did not like the AMZN earnings or it was just time for a correction after the giant run up of the last few years.

NFLX

NFLX exhibits the same pattern  in a defined downtrend chanel.

 

 

 

Significatn Top at Hand

Potential Significant Market Tops Underway

The years 2014-2016 saw the price of crude drop from $110 to just under $30. There is a six-year cycle in various markets. Crude has now reached the high last seen in the last six years occurring in 2018 at $75. That is expected to hold for some time.

This is affirmed with the action of significant energy stocks. Exxon Mobil doubled from $30 to $65. Chevron Texaco moved form $65 to $110. Both stocks are already off those highs.   After a good deal of bad news, Apache soared from $8 to $24 and is already off to $19.

Far East demand has boosted natural gas from $2.50 to $4.10. We previously noted that Team Biden has stopped the Keystone Pioeline construction. This makes shipping oil by truck or rail slower and far more dangerous. Yet the same Team approved a Russian Pipeline to Germany, go figure.

Expect topping action in the energy sector.

That same six-year cycle exists in the stock market. In 2015 Chinese stocks peaked early in the year and sold off into the fall. The same thing is occurring now. The China Fund CHN peaked in February at $35 and is now at $27.70. In the US markets, the Transports lead the way. That index is already down form a May peak of 16,000 to 14,473. Our expectations are that we will see corrective lows in August and September. That also coincides with the usual Fall Seasonal low.   So expect a recovery into the spring probably registering a lower high.

It may well be that negative social mood is finally settling in on the markets. All major Democrat run cities are experiencing serious increases in crime. Homeless numbers are out of control in San Francisco. (How’s that defund the police program working?) Liberal Austin, Texas has crime rates 38% higher than the Texas mean and 49% higher than the nation’s mean.   There is no Southern Border and the Taliban are making significant gains amid our withdrawal from Afghanistan. Protests have been stifled in Hong Kong and Cuba.

Former CA Senator Barbara Boxer 80 was mugged in broad daylight in her home state. Apparently shoplifting less than $1,000 is no longer a crime in that state.

Brace for a near term market correction.

/similarities to 2015

Friday July 30, 2021

In 2015, six years agao, the Chinese stock markets sold off in decisive fashion from March into October. Now look at what has happened this year.

Gee looks much the same, recall there is a six year stock cycle as well. 

Hong Kong has also sold off this year, no surprise there.

transports

We suspect this is setting up a similar sell off into August and Sept for indexes now setting new highs, the DJIa,  NDX, NASD.

TBF inverse interest rate fund

this is slowly turning again we need a weekly close under162.3 for sept bonds, and 133.14 for Sept notes

 

 

Bond UpDate

Thursday July 29, 2021

Sept T Bond five day chart

 

We have expected the counter trend rally in bonds from march to be at or near an end. This appears to be the cast with the spike high at left side of this chart  Since then we had  lower high and now a slow drop to re test the  previous low. At least this is headed in the right direction.

I found this intra day update for charts at www.barchart.com for free!

30 Year Bond

Looks like the bond is being turned back at the  200 day MA which figures. a slight over throw and then a second failure right on the line. Perhaps we are slowly turning the corner to lower bond prices, there is not lack of inflation news.

An Abundance of Bulllish Sentiment

Wed July 28, 2021

 

 

Next Time You See "4 Times as Many Bulls as There Are Bears," Remember This
See how stock investors' "historic optimism" served as a warning

By Elliott Wave International

After a 12-year uptrend, just when caution might be in order, investor psychology has remained highly and stubbornly optimistic.

As the July Elliott Wave Financial Forecast, a monthly publication which provides Elliott wave analysis of major U.S. financial markets, said:

Large traders are more exuberant than ever. On June 11, large trader buy-to-open call purchases jumped to 45%, a new record.

A highly bullish outlook was also expressed in this July 10 Marketwatch headline:

The bull market in stocks may last up to five years -- here are six reasons why

Notice that the headline's suggestion is that the bull market has just started.

That five-year forecast might turn out to be correct -- but then again, keep this in mind from an earlier 2021 Financial Forecast:

A top never feels like a top. The bigger they are, the more permanent they seem.

And here's yet another recent look at sentiment via a chart and commentary from the July 14 U.S. Short Term Update, a thrice weekly Elliott Wave International publication which provides near-term analysis of key U.S. financial markets:

The most recent result of the weekly Investors Intelligence Advisors' Survey (InvestorsIntelligence.com) shows that the percentage of bulls rose to 61.2%. ... With the percentage of bears dropping to just 15.3%, there are now four times as many bulls as there are bears. Since the stock market crash of 1987, a span of a Fibonacci 34 years, only 1.5% of the total weekly readings in the II bull/bear ratio have been higher than the 4-to-1 ratio of this past week.

Interestingly, just two days after this analysis published, the Dow Industrials dropped nearly 300 points on Friday (July 16) and on the following Monday, as of this writing, the Dow has tumbled more than 900 points.

To stay independent from the sentiment of the crowd, it's a good idea to employ Elliott wave analysis and other technical indicators. They will help you stay on track -- objectively, independently from the "bullish" news that inevitably fools the crowd.

If you'd like to learn about Elliott wave analysis, or need to brush up on the subject, there's great news: You can access the online version of Frost & Prechter's Elliott Wave Principle: Key to Market Behavior -- 100% free.

All that's required for free access to the book is a Club EWI membership. You can join this Elliott wave educational community for free, and membership allows you free access to a wealth of Elliott wave resources on financial markets, investing and trading.

Getting back to the book, here's a paragraph from the first page of Chapter 1:

In the 1930s, Ralph Nelson Elliott discovered that stock market prices trend and reverse in recognizable patterns. The patterns he discerned are repetitive in form but not necessarily in time or amplitude. Elliott isolated five such patterns, or "waves," that recur in market price data. He named, defined and illustrated these patterns and their variations. He then described how they link together to form larger versions of themselves, how they in turn link to form the same patterns of the next larger size, and so on, producing a structured progression. He called this phenomenon The Wave Principle.

Get more insights by following this link: Elliott Wave Principle: Key to Market Behavior -- free access.

This article was syndicated by Elliott Wave International and was originally published under the headline Next Time You See "4 Times as Many Bulls as There Are Bears," Remember This. 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.

 

A Bad Day for Transports

Tuesday July 27, 2021

Transports typically lead other indexes, and TRAN is not having a good day don 2.5%.  The seasonal slide into the Fall appears to be well under way. 

Bonds still refuse to sell off, the FED is certainly supporting that market.

debt Ceiling raise in Doubt

Weekend July 24, 2021

No to raising the debt ceiling - McConnell.

Passing the Dem multi trillion dollar spending extravaganza would require a hike in the debt ceiling. Republicans are apparently planning to vote no. This means the US might default on its debt, a bad idea.  Oddly I did not   see anything on this in the WSJ and only one article in buried in many pages of the SA newspaper.

Stocks should be topping this week, the Transports have led the way down.

I think my wave 2 label is wrong, that was probably last August but for sure the top in bonds, 39 year high in price was March  2020.

the fourth wave stopped under the  38% re tracement level but looks like it has finally topped, I admit I was early in calling a top for this wave. But the WSJ and other media are chock a block full of inflation stories. And with the debt ceiling in jeopardy, of not being raised, bond prices may well begin falling this week.

 

Crude oil has bunced  half way back from its Monday meltdown. See our article Friday on puts and calls.

So summer drags on with new stock highs

Social Mood Moves the Markets

Friday July 23, 2021

 

Global Investing: Here's the Message of Consumer "Overconfidence"
Bear markets tend to follow this particular sentiment

By Elliott Wave International

In many global regions, economies are flourishing.

For example, here are two headlines about the U.S.:

What America's Startup Boom Could Mean For The Economy (npr.com, June 29)
Inflation Rose in June as Economic Recovery Continues (WSJ, July 13)

The goings-on in the United Kingdom provide another example. Employers in the UK are hiring people at the highest rate in more than six years. Plus, business and consumer spending are climbing swiftly -- at the fastest clip in a quarter of a century.

So, it wasn't surprising to see this June 18 CNBC headline:

Morgan Stanley picks the global stocks set to ride Europe's expected boom

However, here's what investors need to know: An economic boom follows an uptrend in the stock market, not the other way around. In other words, history shows that a booming economy may serve as a contrarian indicator.

Indeed, here's a chart and commentary from our July Global Market Perspective, a monthly Elliott Wave International publication which provides forecasts for 50+ worldwide financial markets:

The chart shows that consumer confidence in the European Union two months ago eclipsed the survey's pre-pandemic optimism from February 2020. Financial markets have traveled this territory before. In May 2020, GMP discussed two prior outbreaks of consumer overconfidence and noted that bear markets followed such sentiment. In the case of this survey, the all-time high came in May 2000.

The Stoxx 600 peaked in March of that year and fell 60% over the next 24 months. Consumer confidence peaked two months before the stock market's top in July 2007, and the Stoxx 600 declined 61% to March 2009.

Yes, consumer and business confidence might climb even higher. However, the point is: The "boom part of the cycle" appears to be in the "mature" zone. Another key takeaway is that many in the investment community see the economic upturn as a sign that the bull market in stocks will persist when history suggests just the opposite.

The best way to get a handle on the world's stock markets is to use the Elliott wave model, which reflects the repetitive patterns of investor psychology.

After all, as Frost & Prechter's Elliott Wave Principle: Key to Market Behavior notes, "The Wave Principle is governed by man's social nature, and since he has such a nature, its expression generates forms. As the forms are repetitive, they have predictive value."

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Volatility Reigns

Friday July 23 2021

Volatility Reigns in the Markets

Monday July 19 crude oil futures dropped 7.5%

 

In this space we frequently warn that the crude oil and its refined products are both an economic and a financial asset. In fact financial shenanigans have a much greater impact on stocks and bonds than economic forces.  Let’s take a look back a week ago.

The first indicator is implied volatility.  This statistic is compiled from option pricing and volume.  The indicator jumped  41.2% on  Monday.  That was the highest level since April  5.

The next clue  is the spread between call options, bets on higher prices, and put options, bets on lower prices.  Monday this spread fell to minus 13.7%, clearly a move to the bearish or downside potential in price.  The $66 put option traded in  huge volumes. Once the price decline began those  who sold puts had to either buy them back, at a loss, or sell futures.  Apparently most sold futures sending prices down.

That may seem a bit complex but it does explain the huge volatility of Monday. Prices 5ouched $65 Monday.  Price has re-bounded about half-way to Wall  the high o9f $75-76 since then.

It seems reasonable that prices might re-test that $65 level by the end of August.

Recall that Fed Chair Powell  has assured us higher prices, for everything, are transitory.  Tell that to the markets.  One group estimates prices that Unilever and Nestle, big food producers, pay will increase  14 % over the next year.   The Consumer Price Index CPI has soared from just over 1% to over 5% just since January!   the 1920s  witnessed a boom in Florida real estate.it  is  back.   A Beach FL vacant lot sold for $37 M  in 2017. It just re-sold for $140M, not a misprint. The Mansion section of today’s Wall Street Journal trumpets the Palm Beach Boom  A realtor knocked on my door just yesterday announcing the neighborhood had a 9% rise in prices this past year.

Soaring prices as with the dot.com mania in 1999-2000 are part of a developing market top.  But we will need to see much higher implied volatility in the VIX index which measures just that before a top can be called.

Meanwhile mood trends negative in Haiti, Cuba, Venezuela, Russia, Hong Kong, Mynamar, and Malaysia. The political mood is so negative that Texas Democrats fled the state to Washington, DC.   Democrats want to re investigate the Kavanaugh hearings. Murders in major cities are climbing fast. So far this negative mood has been ignored, Once things break over, expect crime to be headlined.

Dennis.elam@att.net

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Thursday July 21 2021

 

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