The Market Perspective

Maybe, Maybe Not, Impasse in DC

Weekend Oct 12 2013

Talks between President Barack Obama and House Republicans to avert a U.S. debt crisis have hit an impasse, House Speaker John Boehner told GOP lawmakers on Saturday morning.

WSJ Website Saturday Morning

-Crude-oil futures settled at a two-week low Friday, after traders closed out bets on higher prices and grew concerned about slowing demand from China.

Light, sweet crude for September delivery settled 79 cents, or 0.8%, lower at $104.70 a barrel on the New York Mercantile Exchange, the lowest settlement since July 9. ICE North Sea Brent crude oil for September delivery settled 48 cents lower at $107.17 a barrel.

The decline caps a week in which Nymex crude shed nearly 3%, as some traders booked profits following a steep rally earlier this month. Analysts said prices were correcting, after rising to multimonth highs in recent weeks, driven by sharp draws in U.S. oil inventories. Despite the week's loss, the U.S. contract is still up 8% in July.

Oil Prices Fall as Traders Lock in Gains, WSJ Friday Oct 11 2013

Here is a upbeat prediction for oil supply in the US  I suspect the author is over optimistic that a drop to $80 would not make much difference in activity

Let's Start with Crude oil

I noticed several gleeful news stories in papers this past week cheerfully announcing $3.00 gasoline prices. Careful what you wish for!  We cannot have an oil boom and low gasoline prices at the same time. Oil prices have retreated from the top of the Keltner channel.The last two times this resulted in 2011 and  2012 a trip all the way to the 200 week MA. 95 seems a more likely target as there is a cluster of MAs there and that would be about where the uptrend line along the lower boundary of price would intersect. 

Crude oil and Silver

Could the action of silver or gold offer some insight in the future of oil prices? Silver in purple matched the parabolic rise in oil during its 2008 run up. Since then both silver and oil have trended sideways. Silver has fallen to less than half its 2011 peak. Could that happen to oil?

Everyone is the oil patch is optimistic about increased production. Price spiked on the Syria story but has fallen back since. With all the world investing heavily in oil production, and needing high oil prices to support the investment, and ergo, there is plenty of supply, why are all the analysts assuming the prices will remain high?  This strikes me as being about where housing prices were in 2007. 

Stock Market

We are staying with our prediction for a November high, a five year anniversary from the November 2008 low. Here the High Low Indicator forms a wedge. 

NASD 100

The NDX is 33% over its 200 week MA ie 800 / 2400. it has been the leader and is likely to call the top in November. 

Bonds

Long term bonds have worked off enough of their over sold condition to top out and head down again. While Ms. Yellen may think she is in charge I suspect the market is in charge of where rates are headed. I am guessing lower bond prices ahead. 

US Dollar

One might think the US Dollar would have tanked this past week what with the Debt Ceiling impasse. But it id not, in fact it was up for the week. The reason is that most debt is denominated in dollars, and to pay for it, the world seeks dollars. A bottom and rally in the dollar would also send oil prices lower. 

Gold

Recall that 'extreme expression of social mood tends to occur near the end of a trend.'

The same thing is true of a top. We highlighted the last $400 run up which occurred in the shortest period of time of the entire move. The last move down is likely to duplicate that mood. If the low is at tne last of October, the $300 drop could occur in the next three weeks. 

Bottom Line 

We expect a top in stocks during the month of November.

Oil prices believed to be a a new permanently high plateau, as was said about stock prices in September of 1929. Massive optimism in energy projects, buildings, and even the $300 Million + Formula One Race Track in Austin Texas speaks to the sort of unbridled optimsm that occurs at market tops. 

Bond prices look poised to drop further. Municipal bonds sport the same patterns. 

Gold should drop hard into the month end, a target in the $900-$1,000 seems reasonable. 

Socionomics

See our lead news item. Repbulicans describe Obama as My Way or the  High Way. Obama rejects overtures as fast as they are made. The idea is not to make a deal but paint the Republicans as  blocking a deal. Obama is much more focused on taking back the House in 2014 than making any deal now. 

All the negative sentiment we have been writing about is now on display from Washington to Syria to Eqypt to Pakistan.  This will lead to tops in various markets between with Stocks topping in November. and Oil shortly thereafter if in fact it has not already done so. 

Thanks for reading The Market Perspective

[email protected]

 

 

 

 

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 ands 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 charts.

 

 

Skyscrapers Abound

Posted Thursday Oct 10 2013

Bob Prechter on Deflation

Say what you will Bob's group called the top in gold and has been correctly bearish since. Above  Bob charts several commodities none of which display a bullish pattern. 

The Skyscraper Theory posits that massive new projects are spawned as a result of positive social mood generated during an extended bull market. Raising optimism  to an exponential level, now a Chinese Company plans to build the world's tallest building in just 90 days. 

In addition we have massive expansion of Energy Service Firms both here in San Antonio and in Midland. HAL has bult its largest US facility ever.  HOLT CAT just broke ground on its largest expansion, HOLT is the largest CAT dealer in America. 

Chevron is building 340,00 sf in Midland.   In the post 1986 bust, Chevron had just bought Gulf OIl. Chevron could not fire contractors, of which I was one, or lay off former Gulf Employees fast enough. That was at the bottom. Now decades later, Chevron is frantically expanding at the top of this boom. Everyone tells me I am pessimistic, but this all looks like 1981 in the oil patch to me. 

Oil is Power, our destiny is here.  Says the developer of a new 52 story skyscraper in Midland. We'll see about that. 

As I have noted previously, the price of oil is just now recording a new world record of monthly closes over $100.  But that total is only about 20 months of history since Edwin Drake brought in his first well in Titusville, PA in the 1850s. It may be different this time, a permanent new plateau in oil prices, but with ample supply everywhere and more gas than we can consume ( US poised to export natural gas) it is hard to see continued high prices. 

I suspect 2.75% thirty year bonds, $102 oil, and record rices for condos in NY are all signs of a top, fueled by FED cheap money. 

Markets Transition to Topping Mode

Posted Wed Oct 9 2013

Charles Hugh Smith has the definitive take on Peak Jobs.  It looks to me like the entitlement requirements have finally caught up with the providers of entitlements. As many ride in the wagon as pull the wagon. We have hit the jobs wall. I cannot over emphasize how important this article will be over the next months and indeed years. 

Markets continue to mark time as both sides dig in for a WW I type trench warfare over spending. Interestingly John Murphy posted charts today very similar to what I put up last weekend. He showed BP falling more rapidly than price. 

NYSE A/D Line

The daily version is in triple top formation. We drew in an uptrend line which so far has been respected. 

The bullish percent line diverged from the SPX i last July. Now price is beginning to follow the BP line down. We are nowhere near the ultimate bottom registered last August and again in November. And we are nowhere near any compromise on the debt limit. 

QQQ

Tech stocks have led the rally but they too tanked the last two days. 

Summation Index NASD

The summation index for the NASD is right where it was this time last year, a remarkable coincidence. It plunged quite a bit lower before hitting bottom in November. 

The fact that the Administration would put out a We're Winning banner hardly suggests a deal is at hand. 

Oct 17 is a week from tomorrow. it will be interesting to see how much more negative political mood becomes before the Debt Ceiling is hit. Stil I am guessing we are about where the markets were i Fall  2007. That is when they actually topped before turning down into the horrors of the following fall. That would suggest we are still on track to repeat 1973-1974, our long held expectation. 

 

Is the US on Its Way to Being Italy?

Weekend October 6 2013

Dennis Elam writes a weekly nwespaper column for two West Texas newspapers. The recent gridlock in Washington DC has him making a worthwhile comparison. 

Has the USA become Italy?

We’re getting the living crap beat out of us by this Administration, and my Administration being a Democrat, It’s personal so us because of the jobs that we have, the energy we produce, and there seems to be no appreciation whatsoever.

Joe Manchin, Democrat Congressman, West Virginia

Joe finally took Obama at his word on the war on coal and defeated Ron Binz for the FERC job.  But that quote sets the stage for where we are today, political polarization leading to government shutdown. How did this come to pass, and is there a frightening model we are hurdling towards (yes ).

No one is more clever at the sophistry of rhetorically naming legislation for what it is not than Congress. Hence we got the 1974 Congressional Budget Act which is anything but. That act allowed the House and Senate to pass resolutions setting targets for spending levels, and then work out the differences. In short, the Budget Act eliminated the requirement of actually adopting a budget.

Instead we have a series of ‘continuing resolutions’ otherwise known as kicking the can down the road. There has not been an official budget adopted since 2010. Not one of the twelve major appropriations bills has passed this year.

In addition to the 1974 Budget act I would one more item that kicked off the ‘I refuse to negotiate’ bandwagon. Congress actually discovered it could drive a President from Office via the Watergate hearings. Whether Nixon deserved that or not is hardly relevant, acrimony took the place of compromise. It got worse, much worse than Republicans realized in 1994. That year Republicans took the House and Senate, defeating what was left of the ‘moderate, meaning I might listen to your  Republican suggestion’ members of the  Democrat party. That left Democrats with entrenched gerrymandered hardcore leftists that simply cannot be dislodged from office. And so the careers of Nancy Pelosi and Dick Durbin took off.   These hardcore Democrats saw themselves in the form of Tom DeLay and Newt Gingrich, and managed to drive them from office.  Now Obama refuses to assume the mantle of leadership that we saw in Reagan or Clinton or LBJ, the master of the Senate.  The USA is on Budget Auto-pilot with no back-up plan.

As I see it here is what we have today. The Democrats are well left of center, think Manchin or Landrieu of Louisiana, or way left,  think Nancy Pelosi. But Manchin and Landrieu are Democrats running in red (Republican) energy states next year.  Meanwhile the Republicans have morphed into the ideological right ( I’m mad as nell and not going to take it anymore) typified by Ted Cruz and Tea Partiers.  The moderate McCain, Graham, Cornyn wing that stands for something but no Republican is sure quite what. We have four minor parties with a President AWOL at the negotiating table. Now throw in single issue groups like the Lesbian Bisexual Gay Transgender LBGT, Sierra Club, Tea Party, or Code Pink, and the potential for permanent pluralities becomes a reality.  Is there a model for this kind of dysfunction, you bet there is.

Italy has had two major political parties from 1945-1994. Those would be the Christian Democracy and the Italian Communist Party. Various coalitions were formed with the Italian Socialist Party, the Italian Democratic Socialist Party, the Italian Republican Party, and the Italian Liberal Party.   Italy has  seven major parties and over two dozen minor political parties.  As I write today the Wall Street Journal reports,  ‘Silvio Berlusconi’s conservative party openly rebelled Tuesday…with Italy’s political scene once again in chaos…’

Does this sound familiar?  While Obama cannot find whoever to ‘guard’ various memorials in DC, he did find police to refuse entrance to the WW II Memorial to the Mississippi Gulf Coast Honor Flight of WW II veterans who had planned a visit for months. While various meetings are being planned,  Democrats have a loyal media to blame Republicans for the government shutdown, so why compromise?

Italy was the center of the Renaissance (reawakening)  a major combatant of WW II but now is a functioning country without a functioning government. In five years the Administration has doubled the national debt, elevated Vladimir Putin to peacemaker, abandoned millions of Syrian  refugees to whatever fate may hold for them, and run out of money  to fund operations. The world stage exit of Britain and Italy took decades, the USA may get the job done between 1994-2014. 

 

We' re Winning says the President

Weekend October 5 2013

An alert reader sent us this link to Carter Worth ddemonstrating that margin debt peaks happen at stock market peaks. He also notes the declining number of stocks over their  150 day MA. We mentioned declining internals again last weekend. 

 The must read for the week is Niall Ferguson's column in page A 11 in the Weekend WSJ, The Shutdown is a Sideshow, Debt is the Threat. By 2038, debt service will consume the entire Federal Budget. it is hard to imagine as he says that there would be enough spending cuts to solve the problem. 

Bullish Percent

Here is the chart referenced in the first reading assignment. The price index continues to climb while the breadth of the market, the number of stocks over their MA, is falling. This is a classic divergence flashing a potential top signal. Add to that the margin debt also shown in that video. 

The A/D weekly has flattened but so far has not had a crossover of the MAs. The  crossover in the Fall of 2007 predicted the Crash of 2008. 

Daily A/D Line

Zooming in on the daily version of the same indicator reveals a triple top. One can see a bit of a wedge developing here. A resolution to he Debt and Budget Impasse would resumably lead to a new high but the better idea is to watch these indicators. 

NASD 100

Tech heavy NASD 100 records a new high. It would be typical for this index to keep recording new highs as other big cap indexes like the Dow do not in November. If we are toppingit will likely be a process stretching into next year. This is why we led with internal charts which clearly show the a market that is weakening. 

Consumer Discretionary

The Consumer Discretionary ETF has been on a tear all year but has paused with the debt showdown. 

Energy Services

Energy Services spiked Friday. But as far as I can tell the oil field hiring boom has peaked.  Chesapeake laid off the land man I was dealing with. That is anecdotal but still speaks to what Greg Jefferson is reporting. 

Crude oil

Crude oil looks to be ending its consolidation since July. We are still expecting a high in oil by February 2014.

Bonds and Interest Rates

One only imagine all the back stage shennanigans and interventions that may be going on between the FED, big banks, and hedge funds. Meanwhile the Atty General has backed up the Revenue Truck at Jamie Dimon's place of buisness for  quite a haul. Okay back to the markets, bonds have tried to stage a reversal but failed to do so thus far. This may be the result of to taper or not to taper, no the FED  will continue to pour money into the bond market .But at this point this appears to be more of a normal consolidation in a falling market. Most observers are surprised bond prices are not falling more with the Debt Ceiling looming. 

US Dollar

The Dollar has declined amid the negotiations with Assad and lack of negotiations with Republicans, the real enemy of this administration. But a slightly higher low than last fall looks to be in the cards. 

Gold and GDXJ, Weak and Weaker

The trend is down for both gold and the miners represented by GDXJ. We have looked for a low in late October but it may well extend beyond that given the continued weak position of htis chart. $1050 for gold, see far left, sure looks realistic to me. 

Central Fund CEF is trading at a whopping -6.6% discount to its NAV on the close Friday. I have maintained that CEF would at least have to start trading at parity before a real bottom takes place in gold and silver. 

 

Bottom Line

Markets are on hold waiting for the political  theater to play out.  The tech sector remains strong.  Gold and the dollar appear headed for a low later this month. Crude Oil looks like it is finding a bottom. The US has become a major energy producer. 

Social Mood

Assad will 'run for President if the Syrian People want him.'  After murdering thousands that might have voted against him, I suspect he is following the Stalin  model.  Running and being re elected would certainly be a victory for Putin's mid East policy, which is what we expect. 

Our title for this post comes from the Administration. Clearly the Administration sees this as a game for potentially scoring  points for the 2014 electinos. But we have been writing for the last few years warning of a coming negative social mood and it is certainly here on display now. The placing of barricades at the Open Area WW II memorial  is surely a new low for social mood on display, anything to inconvenience the public over the shutdown. 

This is a slight echo of a similar time of economic stagnation. In July of 1932, General Douglas MacArthur forcibly removed the Bonus Army of veterans camped in Washington demanding pensions. The recurrence  of scens of open air memorials being needlessly barricaded is surely a PR disaster as well though on a smaller scale. But let the Dow drop a few thousand points and the degree of agitation is liable to be much higher now, as it was in 1932 at the depths of the Depression. 

On 28 July 1932, a clash between the District police and demonstrators resulted in two men being shot. President Hoover ordered MacArthur to "surround the affected area and clear it without delay."^[88] MacArthur brought up troops and tanks and, against the advice of Major Dwight D. Eisenhower, decided to accompany the troops, although he was not in charge of the operation. The troops advanced with bayonets and sabers drawn under a shower of bricks and rocks, but no shots were fired. In less than four hours, they cleared the Bonus Army's campground using tear gas. The gas canisters started a number of fires, causing the only death during the riots. While not as violent as other anti-riot operations, it was nevertheless a public relations disaster.^[89]

 

Here are few random headlines from the Weekend WSJ, the negative mood near jumps off the page at the reader. 

Obama Absence Gives China an Opening

Protests in Egypt Turn Violent, Killing Four

Berlusconi Ouster Advances in Italy

Irish Seante Pegged to Become Latest Casualty of Austerity

Killingof Kenyan Cleric Sparks Riot

While socionomics is hardly an exact science, it is difficult  to see a new bull market beginning as mood deteriorates world wide. More likely we are seeing the topping of markets fueled by world wide Central Bank Interventions. 

Thanks for reading The Market Perspective

[email protected]

 

 

 

 

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 ands 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 charts.

 

 

Hussman on the Market

Tuesday October 1 2013

The bottom line is simple and not at all contradictory. First, we view market valuations as obscene, and likely to result in a market loss on the order of 40-50% over the next few years. Second, we view the recent inaction by the Federal Reserve as creating a risk – not an expectation by any stretch of the imagination – but a risk, of resumed speculation that might create a speculative blowoff over a period of weeks. In my view, given the present level of implied option volatility, very little seems needed to insure against that risk with “contingent assets” such as index call options, and given the low probability of such a blowoff, very little seems warranted to insure against that risk. Present conditions are what they are. The dominant risk is that of deep and extended market losses. A possible speculative blowoff would simply make the market’s subsequent losses that much worse. So the essential concern remains that of severe market losses. The secondary risk of a short-run blowoff is simply a source of potential frustration that is easy enough to mitigate.

John Hussman 9/30/13

An alert reader of TMP sent us this link to the full text.  An outstanding read and thanks to our  reader. 

Succinctly Hussman points to a 24.3 P/E. all time previous highs are 27, weakening internals (we have pointed this out many times this year, and a the false hope of lower p/es based on future earnings.

He also eludes to our 18 year analogy of stagnant markets noting the two previous declines in 2000 an 2007.  He  allows for a 40% potential decline over the next few years. 

This aligns perfectly with out  1973-74 analogy. That analogy is now complete with the first government shut down in 17 years. Community organizing taught the President to never negotiate or compromise. And so here we are. Thinking there would be no payback after passing Obamacare without a single Republican vote was naive. But this is just a puzzle piece that helps validate the overall thesis that we are at high point similar to 2000 and 2007 again.