The Market Perspective

Oversold Oil, Stock Investors Leaving the Room

Tuesday Sept 16 2014

Oil Prices Sink as World Wide Supplies Rise - WSJ page C4

I suspect we will see $85 by year end. but we may be over sold enough, along with the headline above, to get a bounce in price here. 

NASD

A few big tech stocks are heavier weighted and have kept this index up. But as revealed in the article posted yesterday, 47% of this index is already in a bear market. The trend for the year is clear. Couple this with the article yesterday in the WSJ that there is no fear, and there are no bears. THis is how tops are formed. 

Early Warning Indicators

HDGE is a find that directly shorts actual stocks. This is in contrast to a fund that starts over each month with a new short futures position. 

We do not have a crossover to the upside of the 13 and 34 day MAs, Then we would look for same on  a weekly chart. 

47% of NASD in Bear Market

Monday Sept 15 2014

47% of the NASD is in a bear market.

I am having display problems. We had at best an inconclusive day with the NASD down 47 points, most all the major NASD players were down.  The Dow and SPX were up a smidge. This argues for perhaps a lower high than originally expected for the final high due this fourth quarter.  

The drop in oil prices has begun to affect the price of the international oils like XOM. All of them have turned down from their previous highs. 

 

 

Weekly Newspaper Column

9/14/14

 

Too Much of a Good Thing

Two weeks ago in this space I was able to state that the price of crude oil was able to hold its uptrend line. Today that is not the case. Crude oil prices are breaking down and are apparently a good deal weaker in real West Texas Intermediate Crude WTIC prices than what we read on the New York Mercantile Exchange. There are two schools of thought on whether this is good or bad for the overall economy. For sure it is a warning shot in the Permian Basin and the Eagle Ford Shale producing areas.

The spot price of WTIC has dropped from its June high at $107 to just under $93. Price fell through a ‘triple support area’ at $99. This past week witnessed huge intra day swings of over $2.50.  I would expect a rebound to perhaps the $97 area and then a resumption of the decline. We have seen similar declines in other commodities such as gold, falling from its July high at $1340 to below $1270. The silver chart is even weaker.  The Commodity Research Bureau Index representing a basket of commodity prices including energy continues to fall. It is now trading under the 200 day moving average of 295.

One school of thought is that falling energy prices will. boost the economy. Some department store stocks were up this week on the idea that consumers would be more likely to drive to the store.  Personally I am not so sure it will work out that way. Perhaps we are seeing the return of the 2007 start of a deflationary wave. The fortunes of oil exporting states provide an interesting window on this debate.

Saudi Arabia exported 878,000 barrels of oil to the US each in August. It sold for 48 cents less a barrel than Louisiana Sweet. This is the narrowest discount since Bloomberg started keeping data back in 1991. Here is the rub. THE Saudi Oil Minister Ali al-Naimi predicted last December Saudi shipments would average 1.4-1.5 million barrels a day. So real exports are 500,000 barrels a day less, which at $100 is a $50 million dollar a day, drop!  The reason of course is the expanded output of US oil production.

In researching this article I note some experts are discounting this as a short-term event, don’t read too much into it. But we keep getting rosy scenario reports of ever expanding US production. Reports of substituting gas for water in fracking or at least reducing the amount of water required lend credence to this view.

As noted some believe lower energy prices will stimulate the economy with all kinds of cheaper energy.  But as I connect the dots it looks more and more like the start of a race to the bottom or for energy prices. The OPEC countries have little to sell other than oil. Other players like Russia have bet the future of their country on strong energy prices. With fixed commitments and entitlements to citizens totally dependent on oil revenue, my guess is that such exporters are likely to sell more and more oil at ever lower prices to keep their revenue streams going. As noted, commodity prices are down across the board, not just in the energy sector.

This is also being driven by a stronger dollar. The world is wondering what Mario Draghi, the head of the European Central Bank, will do. Already he is lowering rates and in some European countries, some very short-term rates are already negative. That does not lave much room for further reduction. France’s Prime Minister Hollande re shuffled his cabinet for a second time in six months still attempting to counter 10% unemployment. Meanwhile the Middle East seethes with civil war. Whoever is in charge will need more money to fight, and surely that means higher production.

Stock prices are dizzyingly high and now down four days in a raw. Monthly volume has been decreasing from the highs seen in March 2009. We have had a more and more narrow focused rally in a few large stocks the last few months.

Taken together, oil and stock prices are more likely to fall in tandem than for falling oil prices to stimulate stock prices. That is my minority view for what it is worth. This December will mark the 40^th year anniversary of the low in the Dow Industrials at 577. I suggest this might be a good time to be watching stock and oil prices, from the sidelines. 

Bonds Stage Violent Reversal, All One Market Experience Returns

Weekend Sept 13, 2014

C H Smith on the potential for a melt down

Here is the bear to bull chart Smith references, I put the SPX behind the indicator

 

As I am fond of saying, what could go wrong?

Next we have a close up of the turn after the March 2000 top

Looking back at the first graph, the rubber band of the distance between price and the indictor is stretched to new long dimensions, but Janet Yellen has everything under control, right?

___________________

It's no wonder our cover subject Pharrell Williams made a hit song called Happy, the pop star is a walking embodiment of good cheer, spreading chart topping positive vibes to a mass audience.

Kristina O Neil, Editor,  WSJ Monthly Magazine, today

This exhibit of positive social mood on display is exactly what powered the stock indexes to new highs.  It will take a change in the music tone to take down the market. 

 Oil Glut Ignites Gas Price Swoon You can't read the entire article unless you subscribe to the WSJ.

"We certainly have plenty of crude-oil supply over the next couple of months and plenty of products," said Andy Lipow, president of consulting firm Lipow Oil Associates in Houston. "I'm expecting the national average to drop to $3.15 by Halloween, and $3 a gallon as a national average is certainly in the cards." Analysts at AAA predict prices could fall another 15 to 20 cents by the end of October. 

Thirty Year Bond

The chart on the thirty year bond is a bit more informative than the one for TLT. Price reversed hard this week and right at a convergence of moving averages MAs.  Can you see the giant triangle pattern here? Prices have been falling since the top in 2012. But one can make the case that the uptrend form 2011 is sitll intact. 

TLT

TRLT is close to an island reversal top. It reversed at the same level from May of 2013 at 118.

Five Year Yield

The real story is that shorter term rates are rising in anticipation of or perhaps the FED is following the market, take your pick. But after consolidating for some time, the five year yield is rising. 

It's All One Market - OIl and Bond Prices are Falling

Typically bond prices move opposite oil prices. Higher oil prices would mean inflation and lower bond prices, higher yields. But that is not what is happening now. Here West Texas Intermediate continues lower. Many analysts have looked for an oversold bounce, one would think so, but it is not happening so far. This revives our $85 target.

My theory has been that the large number of countries who have nothing else to sell, like Nigeria and Kuwait, would ramp up production on falling prices to maintain cash flow. This of course would push prices even lower. And, this time it is different, as the Dollar looks stronger. 

Dollar versus Oil and Stocks

The Dollar in green has rocketed to the upside. Priced in dollars, oil has fallen. And of course there is plenty of it around the world.

SPX Daily

It would not surprise me to see a higher low form and then a final high in October. 

NYSE Summation Index

THe NYSE Summation INdex has diverged quite a bit from the second top on the chart. A lower summation index indicates less participation in the rally. Notice the double top that has formed in the index itself. 

DJIA Two Hour Chart

The closed lower Friday than on Sept 11. This could be reversed Monday and we will update you then. But the combination of falling bond, oil, and stock prices is suggesting a final lower high in stock prices this fall. Our theory now is that the 40th anniversary of the December 1974 low at Dow 577 will set a high in the last quarter of this year. 

Silver Joins the Party to the Downside

 

Silver dropped to  new lows this past Friday. Again this is a preponderance of deflationary signals. 

Shanghai

After several years in a down trend, Shanghai is taking off.   With the US markets making a high, this may be the world's way of marking a transition to the new power and leadership in the world. 

Weekly - Picutre of a Long Term Bear Market

 

Shanghai

Closing over the 200 week MA will be significant. Again notice the China market is coming alive as the US Markets appear to be running out of momentum.

The Bottom Line

Falling markets in bonds, oil, and stocks suggest our expected final high will occur in the 4th quarter of this year. Bonds appear to be anticipating a rise in interest rates. 

Is this the return of the All One Market Theory AOM, stocks, bond prices, oil. silver, CRB all down with the US Dollar up?

Social Mood

Here is an interesting socio riff on cable news viewership'

http://www.socionomics.net/2012/03/bad-mood-is-good-news/#axzz3DIncuFVM

Page A4 Weekend WSJ

Democrats Edge Among Women is Shrinking

A month ago 51% of women wnted a Democrat Congress. Now  47% favor a Democrat controlled Congress. What changed?   THe article admits it is not clear why women's attitudes are changing but women's anxioety about national security issues is one of them.

What has happened in the last month is that many women aparently underwent an endogenous mood change. While Obamacare promises medical care, genuine alarm is expressed over the impudence with which an upstart army disses the USA. It is doubtful ISIS will be executing Russian, Chinese, or Indians with impunity. Indeed none of these countries has suggested any concern over the Middle East. 

That was the reason for the carefully crafted speech this week, we have a plan but we won't be on the ground in Iraq. So of course that is precisely where ISIS is located. 

At any rate, it just shows you cannot take any one sector for granted, social mood rules. 

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.

 

 

 

 

EWT Link on Market Extremes

Thursday Sept 11 2014

Here is a linnk for a free sign on to EWT. Steve Hoch berg have a great video on tops in oil, housing, and a low in the US Dollar. I would agree no al three. 

http://www.elliottwave.com/r.asp?rcn=affem&acn=11tmp&url=/club/signup/default.aspx?id=93373

My Newspaper Column on Energy Published 9/7/14

Too Much of a Good Thing

Two weeks ago in this space I was able to state that the price of crude oil was able to hold its uptrend line. Today that is not the case. Crude oil prices are breaking down and are apparently a good deal weaker in real West Texas Intermediate Crude WTIC prices than what we read on the New York Mercantile Exchange. There are two schools of thought on whether this is good or bad for the overall economy. For sure it is a warning shot in the Permian Basin and the Eagle Ford Shale producing areas.

The spot price of WTIC has dropped from its June high at $107 to just under $93. Price fell through a ‘triple support area’ at $99. This past week witnessed huge intra day swings of over $2.50.  I would expect a rebound to perhaps the $97 area and then a resumption of the decline. We have seen similar declines in other commodities such as gold, falling from its July high at $1340 to below $1270. The silver chart is even weaker.  The Commodity Research Bureau Index representing a basket of commodity prices including energy continues to fall. It is now trading under the 200 day moving average of 295.

One school of thought is that falling energy prices will. boost the economy. Some department store stocks were up this week on the idea that consumers would be more likely to drive to the store.  Personally I am not so sure it will work out that way. Perhaps we are seeing the return of the 2007 start of a deflationary wave. The fortunes of oil exporting states provide an interesting window on this debate.

Saudi Arabia exported 878,000 barrels of oil to the US each in August. It sold for 48 cents less a barrel than Louisiana Sweet. This is the narrowest discount since Bloomberg started keeping data back in 1991. Here is the rub. THE Saudi Oil Minister Ali al-Naimi predicted last December Saudi shipments would average 1.4-1.5 million barrels a day. So real exports are 500,000 barrels a day less, which at $100 is a $50 million dollar a day, drop!  The reason of course is the expanded output of US oil production.

In researching this article I note some experts are discounting this as a short-term event, don’t read too much into it. But we keep getting rosy scenario reports of ever expanding US production. Reports of substituting gas for water in fracking or at least reducing the amount of water required lend credence to this view.

As noted some believe lower energy prices will stimulate the economy with all kinds of cheaper energy.  But as I connect the dots it looks more and more like the start of a race to the bottom or for energy prices. The OPEC countries have little to sell other than oil. Other players like Russia have bet the future of their country on strong energy prices. With fixed commitments and entitlements to citizens totally dependent on oil revenue, my guess is that such exporters are likely to sell more and more oil at ever lower prices to keep their revenue streams going. As noted, commodity prices are down across the board, not just in the energy sector.

This is also being driven by a stronger dollar. The world is wondering what Mario Draghi, the head of the European Central Bank, will do. Already he is lowering rates and in some European countries, some very short-term rates are already negative. That does not lave much room for further reduction. France’s Prime Minister Hollande re shuffled his cabinet for a second time in six months still attempting to counter 10% unemployment. Meanwhile the Middle East seethes with civil war. Whoever is in charge will need more money to fight, and surely that means higher production.

Stock prices are dizzyingly high and now down four days in a raw. Monthly volume has been decreasing from the highs seen in March 2009. We have had a more and more narrow focused rally in a few large stocks the last few months.

Taken together, oil and stock prices are more likely to fall in tandem than for falling oil prices to stimulate stock prices. That is my minority view for what it is worth. This December will mark the 40^th year anniversary of the low in the Dow Industrials at 577. I suggest this might be a good time to be watching stock and oil prices, from the sidelines. 

Energy Stocks Drop Under BP 50%

Thursday Sept 11 2014

 

I am guessing the strength of the dollar will take the bullish percent of energy stocks below this longer term uptrend line. 

Crude OIl Prices

Crude prices have clearly broken the uptrend on the weekly chart. 

XES Energy Service and XLE Energy Stocks

Investors are quietly exiting the energy sector but few to no one in the energy sector realizes that yet. THe rush for the exits has not begun. 

Dollar versus XES

The US Dollar is in green. Actually it is amazing the XES held up as long as it did. But the crossover at far right is telling us this party is at least at teh beginning of the end. 

And this is true across the entire commodity spectrum. Gold, silver, and I noticed palm oil in a WSJ article today are all down. 

NASD to Match March 2000 High?

Monday Sept 8 2014

Market tops are made amid positive sentiment and the certainty that this time it is different the FED is in complete control of the market. Well we have fulfilled those requirements. 

The MAs on the weekly chart move a lot faster than on the monthly, I looked at the monthly and the MAs lagged the top of the market by months. Compare teh ribbon of MAs now with 1998-20000. I don't know if anyone will be able to pinpoint a top but the set up looks remarkably similar. 

Bonds and Stocks and Oil

Weekend Sept 5 2014

CH Smith comments on Federal Manipulation of the Markets

Bonds

TLT ran into previous resistance at 120. This may be a completion of the re tracement from the high in 2012. 

Stocks

It is time to look for divergences. Here the summation index is well short of its prior highs while the NYSE is re visiting its prior high. Note the difference between now and late March when the summation index made a new high. It the rally was in full force the Summation Index would have joined the NYSE up here. But as CH Smith says, wer are now at a permanently high plateau for stocks, he is of course being quite tongue in cheek. 

But the FED money is keeping things high and so far there are no signs of a let up. 

The Dollar

 

 Here  ia  long term view of trhe US Dollar. It is attempting again to make a move to the upside.  

 

The daily chart is considerably more impressive. So what is up with the Dollar? Check out the article Getting Skittish in Scottish Independence on page A 15. The article notes just ho weakened the former Empire would be without Scotland. Perhaps Britain would lose its permanent seat at the UN, why in fact does France still have one?

 

 

 

The stronger dollar has crushed the CRB index, oil and gold. 

All of which brings us to the social mood section. 

IN 2008 a Russian economist predicted the US would break up in 2010.

'HIs vision of the re formatted country is at right. 

Rearders will recal my observation that the maps of the Civil War States, the Right to Work States, and the Republican Democrat Red Blue states are all pretty much the same. here is the last election.

Electoral Map

 

The Russian was close, in 2008 the country split into two countries, Democrat and Republican. 

The Democrats hold sway on the left coast where Immigration has as predicted turned California into a subsidiary of Mexico. Oregon and Washington are simply giant Starbucks liberal coffee shops. The Northeast nominated by Chicago, NY, and Washington DC area, will never change from Democrat control. 

The Solid South is now solidly Right to Work. 

So for practical political purposes the US has become a split country. Obama spent all his time in the central states of Ohio and Wisconsin or on the left coast.  I suspect Putin and the Arab states now realize that he only has to respond to his base, the rest of the country does not matter. This is why the Arab States are wanting to know what he would or would not do in Syria, there is no electoral leash on him. 

Periods of stagnation often see break ups. The failed WW I truce led to a re armed Germany and eventually a new map of Europe. We are seeing the Ukraine come back under Soviet Influence. The Scotts want out. of the UK. China wants control of the China Sea. Now things look a lot more like the 1930s as Kagan observes in the WSJ this weekend. 

So the Empire that domintaed the world in the 1800s may finally come apart. 

The Empire that dominated after WW I is at best only half represented in the world. A couple of books have been written describing what the world would look like without the USA involved. 

Mark Steyn has written two of them.

Bottom Line We are still expecting new highs this fall in the stock indexes. December 2014 marks the 40th anniversary of the December 1974 low. 

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.

 

 

 

Crude OIl Ready to Re Trace

Wed Sept 3, 2014

Crude oil has been taking out lots of stop order lately. Today it rallied so we will go with the idea this is a re tracement of the recent fall. It is quite oversold. Look for he CCI to fail near its zero line as it did in July. 

XLE Backtesting Break Down

I am guessing the XLE will beweaker than crude oil itself, It looks as if it is testing the underside of the 50 day MA. A failue to rise above this MA will be another clue that this sector may be about to reverse. 

SPX

On balance volume looks like it is turning down in the lower panel. The move up has been on lower volume. 

Gold and the Dollar

 

The dollar in green has been soaring as the euro falls. And that accounts for the move down in oil in the previous panel and gold shown here. Gold is dropping below its MAs.  If dollar strength continues my old target of $1,000 for gold may look good.