The Market Perspective

Counter Trend Rebound

Monday Nov 29 2021

5 30  AM CST

It appears that wave three down on the INDU is still in progress, will update later today but we were right that the move up Monday was counter trend. INDU on globex is down over  400 points this morning.

 

John Hussman via Decision Point

Weekend Nov 247 2021

Linda Raschke tweeted this morning, "Today's event was the news event that nudged the market in the direction of the technicals." This is not a complete surprise to technical analysts. Earlier this week, John Hussman of Hussman Funds made the following three observations about current market conditions:

1. The most extreme valuations in U.S. history, on the measures we find best-correlated with actual subsequent market returns over the past century, and even in recent decades, coupled with lopsided bullish sentiment and historic levels of margin leverage;
2. Deterioration and divergence across measures of market internals that we believe to be reliable gauges of investor psychology toward speculation versus risk-aversion;
3. The largest preponderance of overextended syndromes--typically associated with intermediate or cyclical market peaks--that we've ever observed in history.

Long Term Energy Update

Weekend Nov 27 2021

Not quite a parallel channel but close  enough for 13 years. Point being we have lower highs and lower lows, it's a bear market.

the following day chart is what I would call the

Hey I fell  out of bed formation

Gasoline, Same Thing

 

Sizing Up Friday Nov 26

weekend Nov 27 2021

Bov Farrell's Rule #8

8. Bear markets have three stages – sharp down, reflexive rebound, and a drawn-out fundamental downtrend.

Translation: Bear markets often start with a sharp and swift decline. After this decline, there is an oversold bounce that retraces a portion of that decline. The decline then continues, but at a slower and more grinding pace as the fundamentals deteriorate. Dow Theory suggests that bear markets consist of three down legs with reflexive rebounds in between.

 

This rule perfectly describes what happened Friday.  Richard Russell referred to such days as  90% day where 90% of stocks closed down on the day.  Such days are often followed by a bounce. Indeed the last two hours Friday suggest the bounce may have begun.

The -1,000 registered at 34,749 might have been the end of Wave Three.

January 22 Crude has fallen $14 in two weeks a remarkable reversal.  The White House is getting the lower prices it wanted. But the message is quite negative in terms of future demand.

Natural gas actually rose 36 cents or 7% to $5.47. 1/22 gasoline fell 28 cents or 12.57%. That makes sense with crude falling.

We have pointed out that the NASD internal strength peaked way back in February and has been falling since.

Here is the percent over 50 day MA now at  30%, quite a drop from Nov 8 near  60%.

Our most reliable indicator the NYSE advance decline line is in retreat. This rarely happens so it is significant.

The summation index made a lower high on Nov 8 bt has now resumed its downtrend.

The volatility index soared yesterday.

We mentioned the NASD new lows made a new high earlier this week, that was a clue that a big correction was in store.

 

 

Advance Decline Line Collapse

Friday Nov 26 2021

the Bear Market Begins

Forget Inflation Think Deflatioin

Forget Inflation, Think Deflation

Farrell Rule #9

9. When all the experts and forecasts agree – something else is going to happen.

Translation: This rule fits with Farrell's contrarian streak. When all analysts have a buy rating on a stock, there is only one way left to go (downgrade). Excessive bullish sentiment from newsletter writers and analysts should be viewed as a warning sign. Investors should consider buying when stocks are unloved and the news is all bad. Conversely, investors should consider selling when stocks are the talk of the town and the news is all good. Such a contrarian investment strategy usually rewards patient investors.

I originally wrote this column Tuesday focusing on inflation. Friday, today, was a shortened trading day closing at noon CST. This is the typical Friday after Thanksgiving and usually consists of low volume and little movement. That was not the case today.

The Goldman Sachs Commodity Index declined 6.65%, today.

Crude Oil declined $10.24 or 13.06%, today. This reminds me of 2008 when crude soared to $140 and then collapsed to $35 by Christmas.

The Dow declined 905.04 points or 2.53%. Small caps lead so the Russell 2000 dropped 3.67%. the DJIA and S & P made new highs in November but have dramatically reversed.

while the media blames this on increased Covid, the truth is that the markets have completed a five wave pattern dating back to the lows of 1931. It is highly unusual for such a reversal to occur on what should have been a minor day but here it is.

See https://professorelam.typepad.com/markets/ ofr charts and more commentary this weekend. My opinion is that this is NOT a buy the dip opportunity. We have detailed the warning signs for months via lack of breadth, focus on electric car and a handful of FANG stocks, wild optimism for meme stocks which are not earning any money, and the crazy crypto fad. Add in the mania for art and real estate and we have a market mania top at hand.

Suddenlty It Feels LIke 2008 Al Over Again

Friday Nov 26 2021

In 2008 oil prices soared to $140 by June July, then collapsed to $356 by Christmas, /with oil down $9 today, could this be a similar set up?

 

Here is the Goldman Sachs Commodity Index, the same that is on CNBC display GSCI and Fox Business

Gee what a reversal

This might be a good time to start reading Deflation.com

https://deflation.com/

Bob Farerell Rule #9

Friday Nov 126 2021

Again this from Zacks, now compare this prediction with Rule 9 below

With the stock market pressing higher...

And strong economic progress to keep the momentum going (I expect this bull to run for several more years)...

There is no better time than right now to go "all in" as an investor.

Not only is the market pressing into record territory, but Q3 corporate earnings have just hit all-time quarterly highs, and Q4 could be even better. That’s a powerful force likely to drive the market even higher. In other words, you may never see share prices this low again.

This is an historic opportunity for you to capitalize on.

Farrell Rule #9

9. When all the experts and forecasts agree – something else is going to happen.

Translation: This rule fits with Farrell's contrarian streak. When all analysts have a buy rating on a stock, there is only one way left to go (downgrade). Excessive bullish sentiment from newsletter writers and analysts should be viewed as a warning sign. Investors should consider buying when stocks are unloved and the news is all bad. Conversely, investors should consider selling when stocks are the talk of the town and the news is all good. Such a contrarian investment strategy usually rewards patient investors.

Today's Message from Zacks

Friday Nov 26 2021

I have found that this is typical of all generic investing advice akd big brokerage firms and banks, always long, especially at the top

__________________________________

With the stock market pressing higher...

And strong economic progress to keep the momentum going (I expect this bull to run for several more years)...

There is no better time than right now to go "all in" as an investor.

Not only is the market pressing into record territory, but Q3 corporate earnings have just hit all-time quarterly highs, and Q4 could be even better. That’s a powerful force likely to drive the market even higher. In other words, you may never see share prices this low again.

This is an historic opportunity for you to capitalize on.

 

Whoops, an Unusual Short Trading Day

Friday Nov 26 2021

8 43 AM CST

I was dead wrong on FRO and energy buys but my point about the rout in junk bonds just yesterday was spot on.

I had not bought any energy deciding to wait till everyone returned on Monday, I should have said so.

I thought and said that junk bonds would re test their break down of the  200 day MA, well that did not take long.

By the end of the day which is a short trading day we may well see a spike in volume to a new high.

The INDU is dropping out of a head and shoulders pattern.

One of Bob Farrell's rules was that markets return to the mean over time.

https://school.stockcharts.com/doku.php?id=overview:bob_farrell_10_rules

 

It has been 12 years since the INDU tested the  200 bar monthly MA.  It is now at  17,219.  Biden's approval rating is the lowest ever in the first year of modern President. If the market tanks, he is toast.

 

While the media is claiming this is due to covid, nothing could be more wrong.  Read Bob's rules and they are kicking in.

We have noted for months the declining breadth, a new peak in lows on the NASD while the NASD makes a new high, the retreat in junk bonds, mania over meme stocks that make no money, enthusiasm for electric car makers, and valuations of FANG stocks.

That is all coming to a head so to speak. More later today.