The Market Perspective

The Puzzle Pieces Come Together

 

Weekend Dec 14, 2013

Two things have changed since those days. (when she was in the Reagan Administration) The first is that we used to worry the government would go bankrupt, and now we worry that it is bankrupt and no one's admitting it. This has created an air of considerable crisis. The second happened in the past few years. It is that the government is now unable even to pass a budget, to perform this minimal duty. Instead Congress and the administration lurch from crisis to crisis, from shutdown to debt-ceiling battle. That gives a sense the process itself is broken, and this lends an air of instability, of Third World-ness, to the world's oldest continuing democracy. We can't even control our books. We don't even try.

Peggy Noonan, WSJ Weekend

Charles Hugh Smith ponders five the five year bull cycle in stocks

And Charles has more thoughts on 2014 here.

These two articles certainly reflect out thinking and as he says are in contrast to the Rosy Scenario from economists like the one I heard this past week.

 

It appears we are at an historic juncture. Five years out from the 2008 financial market bottom evidence continues to accumulate that

the stock market topped in early December or will by January. 

the Bond market has ended it 30+ year bull run

Gold is flashing Massive Deflationary Warning Signals and is now being joined by other commodities. 

The Number One Commodity Buyer on the planet, China,  has been  in a bear market for years. 

The  US Dollar may have recently bottomed. With some commodities already falling a Dollar Rally could kick off the turn down in other markets. We have been writing about a parallel to Jan 73-74 for over a year. It may be worse than that. Perhaps we will parallel the five years form 1932-1937 rally which was inflated by government easy money, with a similar 1937-1942 collapse. If so that takes us 2013-2018, the projected end of our 108 year cycle of economic stagnation. 

Technical analysis holds that there is always a fundamental event to validate the technicals. We have numerous fundamentals on simmer, rising to bbubbling about to go to full tilt boil.

Like Nixon, the President's popularity has slid below 50% as well as on the economy, the ACA, and worse,  his credibility. A Clinton adviser has been brought in to attempt a salvage operation. Aside from domestic woes, the US has abdicated its world leadership role. This may make uneasy allies of Israel and Saudi Arabia, no small feat, but for the wrong reasons.  Our point is that the Health Care Fiasco is causing domestic problems, and leading from behind is causing international problems.  And now

demonstrations in Kiev for control of the Russian border state Ukraine

China versus South  Korea and Japan USS Cowpens takes evasive action to avoid Chinese Warship

Most of South America slides left into a socialist quagmire

Turkey embraces Iran

Let's start by looking at what has been some of the 'hottest stocks' in the recent run up. Distribution is the first phase moving into a bear market. The smart money is selling to the late comers. We have noted numerous articles on how Mom and Pop have just joined the rally as have our readers. 

LULU

Dennis Wilson,l founder of LULU,has made hundreds of millions selling his insider shares to late comers on the way up. Indeed I have shown my classes Analyst Conferences by these very insiders explaining why to buy LULU while of course they have dumped their shares as fast as possible. This is the very essence of a classic topping pattern. Note the 15.23% collapse this week. The favorites of this past bull are losing favor.

Topping patterns are a process. All stocks and indexes do not top at the same time. This is how the markets keep economists and late comers convinced things are Okay. 

Sotheby's BID

Sotheby's is a socionomic barometer of the overall market. Positive social mood causes people to attend auctions and bid up the prices of 'collectible' which pay no interest, such as jade, art objects,  or exotic automobiles. BID is back to its 2007 pre crash highs with the Commodity Channel Index at bottom higher than ever. CCI is now the polar opposite of where it was in late 2008. As Mentioned a Chase economist this past week recommended being long equities on the thinking that we are only half way through the recovery.  

Nineteenth Nervous Breakdown

You better stop, look around
Here it comes, here it comes, here it comes, here it comes
Here comes your nilne-teenth nervous breakdown.

The Rolling Stones

The\\ 

 

This bear market is entering its final exhaustion phase, REMX has collapsed 70% in three yeras. But if it goes to 17, it will colapse another 50% from here. Is anyone still reading Steve Kaplan?

BP - Potential Massive Island Reversal ?

 

An island reversal forms with a gap, consolidation and then a gap in the opposite direction. The opposing gaps form an area without any price data that isolates the consolidation. In this regard, the consolidation becomes an island that is separated form the rest of the price action

Author: Arthur Hill

 

This looks again like another puzzle piece forecasting the move to a bear market. Irrational Exhuberance takes BP to new highs and then just as quickly reverses. We need lower weekly closes to confirm this. OR as below in crude oil perhaps this is a back test. 

 

Crude Oil Backtesting the Breakout or Something Else ?

 

 

 

Since crude broke its downtrend line from September, this is probably a backtest of that break out. But longer term I suspect REMX, Silver, and Gold are forecasting Commodity Bear Markets. 

 

Gold Miners A Disaster Still Unfolding

 

The ratio chart of the Gold BUgs  versus gold is now lower than at the worst of the financial crisis. But there is no crisis at the moment. This suggests that even after all this decline, there could be much much more pain in this sector. The monthly parabolic remains on a sell signal. 

 

 

The Big Picture SPX with Volume

 

 

 

From the top in 1929 the Dow Industrial plunged  from 390 to 32, a loss of 90%, Of course many stocks simply disappeared in the process. The government then set in an easy money policy resulting in a stunning five year rally from 32 to 195. Then another bear market took hold lasting five long years from 1937 to  1942 dropping from 195 to less than 100. By 1942 enough data was produced to show that the US far outproduced the Axis powers in steel and other manufactured goods, cementing the belief the US would win the War, and that is just what happened. Just as Smith points out in the first two linked articles, the bear markets exhibit a five year cycle, then as now. 

 

My point is, we just went through the very same thing. A collapse from 2007 to 2009 of 50% followed by a five year bear market induced by Federal Easy Money. Then as now we hae lower volume throughout the rally. See the volume bars above, less and less participation. We have shown you the internal high for the markets occurred last April - May. What could be more clear?

 

Interest Rates

 

 

I seem to be the only analyst that has broken the 50 200 MA into further fractals. This is important in that the 125 month in green above has so far contained all attempts of rates going higher. We shall see what happens on this next challenge of this  level. Is Janet Yellen in charge or are Market Forces in Charge. 

 

 

IBM

 

 

Here is another favorite that has hit resistance and it being sold off. All three MAs are now headed down. 

 

OPEN

 

 

OPEN is a restaurant reservation service. It is still in an uptrend but the gyrations are growing wilder suggesting selling pressure. This is another candidate for a sell off. 

 

Rackspace RAX

 

 

The market giveth, and taketh away. RAX has lost half its value from the top this year. A break of 30 will likely take it back to 15 losing another 50%. Understand that this is the black hole of stock market deflation. Such drops destroy accumulated wealth built up in the surging prior bull phase. 

 

Shanghai

 

 

China enjoyed a one year recovery and then four years of a down market. Most other world markets have been moving up the last five years. Will China move counter to the rest of the world?

 

The Bottom Line

 

We suspect markets are already into the topping process. Favorites of this past bull phase are already being sold. Markets are at the end of a reliable five year bull phase that has been evident in this and the markets of 1932 - 1937 and then 1937-1942. Be sure to read both of the Smith articles. 

 

Social Mood

 

Last weekend we boserved  that the most expensive Ferrari ever offered at $1.3 M per copy had already sold its  499 model run. We have previously noted the Skyscraper  Theory as alive and well with mroe outsized facilities planned around the world. Exhuberance can take many forms. Odessa, TX was the backdrop for Firday Night Lights, first a book and then a movie and TV series about a football frenzied town. Now the UT Board of Regents has approved UTPB, the UT branch in Odessa, for Division II Football.  This is similar to Bear Stearns, Merrill, and Lehman loading up on sub prime mortgages in 2008. Higher Ed is the sub prime mortgage disaster five years late. A trillion dollars of student debt, graduates with out jobs, debt wihtout a degree, massive building programs while touting on line education, it's all here to see. The program will require UTPB to raise over $9 Million. My thoughts - 

 

Higher Ed is facing its own trillion dollar debt crisis.

Graduates cannot find jobs. 

Many take on debt and never graduate. 

The Future of Football as we know it is in doubt. Massive class action lawsuits at the NFL level suggest that a  much lower level of physical engagement will be formed for Future Football. 

The school already boasts men and women soccer teams. If there is anything to globalization, we should be playing soccer, not football. It is less expensive, far less dangerous, and requires smaller coaching and athletic teams.

Thoughts like this are all cast aside at market highs. 

 

Social mood arises when humans interact socially. This process appears to be relateds to the herding impulse. Extreme expressions of social mood tend to occur near the end of a trend. Millionn dollar Ferraris or ten million dollar football programs, it's all the same social mood. 

 

 

 

 

 

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.

 

 

Six Year Look Back

Thursday December 12, 2013

An alert reader makes the case that Investors Intelligence has now recorded the biggest sread ever between bull and bear readings. This of course is taken as a positive by the bulls, nothing like pleny of company. 

The same reader reminded us to look back five years. We often hop in to the way back machine so here goes. 

The  market really started down December 11, 2007, exactly six years ago.

Regrettably stockcharts cannot provide us with information beyond today but...

The same large candlestick has appeared again. This adds to the suspicion that a top of some importance may be forming. 

GDX to Gold

Market Vectors Gold Miners has already recorded a lower low than in 2008. This should be a warning for lower miner prices ahead. 

Gold

The 13 has crossed the 34 month MA for the first time since the bull market began circa 2000. Lower prices ahead. This is quite significant and over looked by the gold bugs. 

The Sell Off Begins

Wednesday Dec 11 2013

We noted Mark Hulbert's article on the Value Line  Median Adjusted Projection VLMAP this morning. 

After he big move up friday this looks like it might be the start of a Wave Three. 

Second waves re enforce the idea that the previous main trend is still in effect. That was exactly the reaction to Friday's up move. But today the market is  more clearly rolling over. We have remarked on how far the the indexes are above their longer term moving averages. Whether this will be THE TOP of course remains to be seen. But the MACD at bottom is clearly rolling over. 

Island Reversal in the A/D Daily

Island reversals occur when a market in an upswing penetrates a previous resistance but is then unable to hold and falls back. This created an 'island' of price projection that cannot be held. This appears to be happening. No wonder, the markets have advanced while internals have seriously deteriorated. Breadth has been shrinking. And all of this as we showed this morning is occurring at 2013 price resistance highs.

Divergence on NYSE

The NYSE price index is at top. The Summation Index in the main panel has been flashing a divergent ssell signal since its top in April.This could lead to a sell off that surprises folks like the economist at Chase we mentioned this morning. 

We have watched as  many try to call THE TOP here and have failed,  so we'll take a wait and see attitude but this does look like at least an interim pullback. 

Checking Out the VLMAP

Wednesday Dec 11, 2013

Be sure to read this column by Mark Hulbert. He notes a triple top in the Dow expressed in  constant 2013 dollars. As he says ifyou really believe in tech analysis this are represents serious resistance. 

In addition he discusses the Value Line Median Appreciation Potential or VLMAP. Here is the quote. 

One to which he draws special attention is known as the Value Line Median Appreciation Potential, or VLMAP, for short. This represents the median of the projections made by Value Line’s analysts of where the 1,700 widely followed stocks they closely monitor will be trading in three to five years’ time. But for brief exceptions, the VLMAP currently is lower than it’s been in many decades.

For example, the VLMAP today stands at 30%, where it’s been for seven straight weeks. Prior to the October 2007 peak, it got this low for just one week. And it never got this low in the months leading up to the 2000 market top. ( Read a column I devoted earlier this year to the VLMAP. )

In fact, you have to go all the way back to early 1969 to find another time in which the VLMAP spent as long a period at 30% or below. From then until the market’s December 1974 low, of course, the Dow fell more than 40%.

When coupling the bearish message of the VLMAP with the potential triple top of the inflation-adjusted market, Aronson thinks we should be worried about where the market is headed.

That pretty well reflects where I think this market is. 

Mark Hulbert's April column suggested the market had topped out then which was our conclusion as well. That was incorrect as to the price indexes but was correct for momentum indicators like the summation index. In the crash of 2008 internals bottomed in October while the final index low was in March 2009. N

On the other hand, yesterday I attended a presentation by a JPM Chase Economist at Financial Executives International. HIs story was that we are 'half way back.'  Things are just great, the stock market is simply tracing out the growth of increasing profits by American corporations. As with all economists, despite past downturns, he simply projected the continued increased into the future, and assumed the stock market would follow. He did note that bond prices are falling with increasing interest rates but assumed a much lower target for 'normal interest rates.' He would be long equities here, no need to worry about valuations levels which are reasonable. 

To that I would remind that we have posted a different analysis by both Comstock Partners and John Hussman. Those were similar to the article referenced above. Which is to say that after a 10,000 Point advance in the DOW one shold be cautious. 

Yep It's For Real, Markets Head Higher

Weekend Dec 8 2013

JIm Rogers -be prepared, be aware, be careful

Consider the Headlines form the Weekend WSJ

Fed Closes in ON Bond Exit - FED closer to winding down its $85 B bond buying program.

Employers Gain Confidence to Hire - I am skeptical given the angst over ACA

Dow Theory

Despite the big rally Friday, both the Transports in Black and the Industrial in Red and Black finally ended a week lower than they began. Still the trend is up. I suspect we are slowing into the year end. 

Markets hit the typical seasonal October low right on target rallying since. 

Ten Year Yield Doubles in 18 Months

Since July of 2012, the ten year note yield has doubled. The market not the FED has taken charge here. Clearly interest rates are on the march to the upside. Is it possible yields could double again in another 18 months?

Back to Year 2000

YIelds were last at 6% in the Year 2000. This ten year period of ultra low rates is the very end of a thirty year bull market in bonds. Returning to six percent would simply be returning to normal. 

Now for comparison and a look at what a bubble really looks like, consider the NDX. 

Mark Hulbert discusses the charts I showed last weekend.  We are not in bubble territory quite yet. Note that from 1998 to 2000, the NDX soared five times its value from 1000 to 4750 on the dot.com bubble. That was truly a parabolic rise. The current increase is not that steep.   As Jim Rogers remarks in our first hyperlink, the real top may be yet months away. Also note the NDX declined with the same symmetry it rose, ie 1198-2000 = 2000 - 2002.  This chart seems to exhibit that about to fling off into the Wild Blue Yonder parabolic rise. 

Energy

Crude Oil has risen from late November to January 82 % of those periods the last ten years. An article on the front page of the Friday WSJ notes the huge rise in oil production world wide, something we have also noted. But for the time being prices are headed up. WE anticipate a February high.

USO

USO appears to be a good bet to regain 39. 

Aussie Dollar

The Aussie and the Canadian Dollars also rose in good fashion Friday. This suggests a play in oil is underway. 

GM

We recommended GM at 20 over a year ago based on its strong balance sheet. It has doubled and has the potential for higher prices. 

GSB

I have mentioned Globalscape as a play on internet security. It looks to be appearing on the radar screen of various analysts. Drop us an e mail if you would like to read a report from Sidoti and Company on the fundamentals. As the tech area, see NDX above, moves higher, it makes sense that analysts will look for micro caps like this one that have real fundamentals but have not yet broken out.

The Bottom Line

Stocks continue to head higher. This month will be crucial to see if the SPX breaks above 1818. 

Bond yields are clearly headed higher, the only question is how fast. 

Crude oi bottomed this past week and is headed higher for the next few weeks. 

Tom McClellan believes the Commitment of Traders reports suggest a low in gold is ahead. I suspect that low will be lower than most think. 

Social Mood

We have noted higher and higher prices paid for collectible cars as the stock market moves higher. So it is fitting that Ferrari has produced another super car and cut back world wide production. La Ferrari is seen as an investment. 

La Ferrari at $1.4 M, sells all 499 production models.

This hybrid Ferrari is the most expensive ever. With competition from Bugatti and others, Ferrari is cutting back production from 7200 to  7000 per year. The cars are now seen as investments. This is a fitting reflection of the positive social mood that $98 oil generates in Saudi and elsewhere. 

 

 

 

 

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.

Eight Straight Weeks of Advance

Thursday Dec 5, 2013

The markets are taking a breather after eight straight weeks of advance. As noted, the percent of bears recorded by Investor Intelligence is the lowest since 1987. We should now be looking for subtle signs of shift, suggestions that all this optimism is more a result of FED pumping tan strong fundamentals.

Consider yesterday's WSJ stories

Page A 10 Russia Dials BAck Growth Forecasts - this is the fourth revision so far this year.

Readers following Mary O'Grady's column on Mondays are aware of the leftward tilt in countries all over Latin America, with of course the usual predictable results like this, the perennial country of the future returns to its more normal past

A11 - Brazil Slide Deepens Amid Global Upturn - Latin AMerica's largest economy contracts

A 13 Inflation Drops in Largest Economies - the rate of inflation dropped for the third straight month in the world's largest economies..World Banks many need to apply more stimulus to avoid deflation

None of this changes the existing trends which remain up but

NDX

That is quite a one year performance !  Note that the Slope in the lower panel has reached its previous zenith from last fall. NDX is far above its longer moving averages. 

Bullish Percent

As previously noted, the internals peaked in May. As the indexes mark new highs. there are fewer stocks in bullish mode, a clear divergence. This along with the article noted above in the WSJ suggests the rise is all due to FED stimulus.

NYSE Advance Decline

The trend is still up for the A/D line but running  into some resistance. How much more money is waiting  to pour in?

Australian Dollar

Comodity based currencies like the Canadian and Aussie pictured above have been in free fall, that is the deflationary aspect the WSJ story reports. This means the demand for concrete, aluminum, etc is falling. 

The US Dollar and bond prices continnue to chop along with no break out in either direction. 

We will update the longer weekly charts this weekend. 

 

The Topping Process Extends to Early December

Tuesday Dec 3 2013

An alert reader sends us th latest from John Hussman.  AS we have written here, he cites an extreme of social mood occasioned by the belief that this time, thd FED is omnipotent. He also cites numerous examples of over valuation. We are also of this view. The 18 year cycle has one more down leg to complete. There is compelling evidence it lies ahead.

Gold Drops $30

Tuesday Dec 3 2013

Michael Gayed shows what a difference the ten best and worst days makes on your returns.

Breakaway Gaps in GDX

The first two red arrows at left highlight the break away gaps beginning a larger plunge for GDX. The third arrow at right suggests this is about to happen again. All the Mining stocks, gold and silver got hit hard as December openned. I suspect with year end upon us we will see lots more selling in this area. 

US Dollar

We positioned silver at the bottom of this chart to show the inverse relation with the Dollar in the main chart. The Dollar appears to have completed its ocrrection recording a slightly higher low than at the end of 2012. 

MYSE Advance Decline

The bulls are in charge as long as the uptrend line here is respected. Notice that the RSI peaked last May and is lower now. 

Winners and Losers

The S & P, Industrials, Health Care, and Financials are all Leading the Way. The low interest policy of the FED has money pouringinto stocks no matter what the ratings are for the President, ACA, Congress, or anything else. Our internal indicators have backed off their highs but so what, the money just keeps pouring into the stock market from the FED. 

Still the high exepected in early November has lasted into December. The RSI is coming off its earlier high from the spring. I am sticking with the idea that we are transitioning to a topping phase in these markets. No one is paying attention to crude oil as more and more of it comes onto the market. Commodity prices continue to plummet suggesting lesser demand. And we are five years out from the lows of 2008.