The Market Perspective

Thursday Morning Markets

Thursday Oct 30, 2014

JOhn Hussman's latest letter is here. We linked to the Business Insider artcle on this column earlier this week but thought you would enjoy reading the original. Like TMP, he compares the current action to past tops in 1972 (our favorite parallel) 1987 2000 2008.

Henry Blodgett brings some perspective to long term trends. Notice that he identifies the same 18 year cycle we have identified. 

An Echo of the 1973-74 Bear Market Beginning

Tuesday Oct 28 2014

 NYSE

It was originally given a value of 50 points, based on the market closing on December 31, 1965, and is weighted by the number of shares listed for each issue.

If the index is weighted by the number of shares out, the weighting does not change a lot. However, see SPX below, it is weighted by the market capitalization or value of the total shares out. This changes over time, and can change a great deal if fund managers herd into a few stocks with big cap values. 

NYSE

The NYSE is testing the underside of its longest MA. 

 

 

 

 

 

SPX

The S&P 500, or the Standard & Poor's 500, is an American stock market index based on the market capitalizationsof 500 large companies having common stock listed on the NYSE or NASDAQ. The S&P 500 index components and their weightings are determined by S&P Dow Jones Indices. It differs from other U.S. stock market indices, such as the Dow Jones Industrial Average or the Nasdaq Composite index, because of its diverse constituency and weighting methodology. It is one of the most commonly followed equity indices, and many consider it one of the best representations of the U.S. stock market, and a bellwether for the U.S. economy.^[6] The National Bureau of Economic Research has classified common stocks, as a leading indicator of business cycles.^[7]

The S&P 500 was developed and continues to be maintained by S&P Dow Jones Indices, a joint venture majority-owned by McGraw Hill Financial. S&P Dow Jones Indices publishes many stock market indices, such as the Dow Jones Industrial Average, S&P MidCap 400, the S&P SmallCap 600, and the S&P Composite 1500. It is a free-float capitalization-weighted index,^[5] and has many ticker symbols, such as: ^GSPC,^[8] INX,^[9] and $SPX.^[10]

SPX

Meanwhile the SPX is above its shortest MA. This suggests that the fund managers are buying big cap stocks pushing this index relativelyhigher than the NYSE.

Even here the SPX is making a lower high unless it really breaks out.

Russell 2000

The beginning of the bear that Hussman described in out link in yesterday's post is more evident here. 

The small caps topped first. Now they are tracing out a parallel channel to the downsie. Note how the tops coincide with a top in the CCI in the bottom panel. 

I srongly suspect the echo of the 1973-74 Bear Market is getting underway. 

How Oil Went Down in 2008

Monday Oct 27 2014

Here is the pattern of the oil decline in 2008.

There was only one counter rally of $20 in the fall of 2008. Note the approximate same support level of 90 then as now. 

Now

Which is to say we were at $80 exactly six years ago before oil plunged to $35 in four months. 

Brazil ETFs Tank on Rousseff Re Election

Monday Oct 27 2014

Brazilian ETFs around the world are down 7-10% on the news .  the news is that the same government that has over seen the  fall in the markets and the real hs been re elected. Once again, Brazil fails to take the baton of the country for the next century. 

A week ago we noted American markets had erased their gains for the year. Now last week we are told was the best week for the stock market in years. Sounds  a  bit like Zero Hedge observation that the US Govt would spend what ever it took to keep the markets up into hte election. This makes it all the more probable that there will be a larger decline in the US once that really sets in. 

John Hussman makes the case for a falling market. Please read this article. It displays charts of the prior crash scenarios, 1929+, 1987, 2000,2007,and now 2014. My take is that the real crash started in the oil market. As Art Hill noted on stockcharts this weekend, it happened with no warning.This past week was no doubt an engineered bear market rally.  His five concluding points are things we ahve discussed here for months. 

Though to at least defer our immediate concerns about market risk, we should also be mindful of the sequence common to the 1929, 1972, 1987, 2000 and 2007 episodes: 1) an extreme syndrome of overvalued, overbought, over bullish conditions (rich valuations, lopsided bullish sentiment, uncorrected and overextended short-term action); 2) a subtle breakdown in market internals across a broad range of stocks, industries, and security types; 3) an initial “air-pocket” type selloff to an oversold short-term low; 4) a “fast, furious, prone-to-failure” short squeeze to clear the oversold condition; 5) a continued pairing of rich valuations and dispersion in market internals, resulting in a continuation to a crash or a prolonged bear market decline.

Read more:  http://www.businessinsider.com/hussman-the-stock-market-is-crashing-2014-10#ixzz3HLdAqJZ0

Speaking of which, speculators go long oil too soon. 

Again as we have noted many times, the entire 50% 1973-74 decline never experienced a genuine crash. Rather it was a series of just what has happened since the Russell peaked months ago. Other indexes stayed up before plunging and then rallied in such a fashion to convince many a low was in. They were all way early. 

Euro Bank lousy performance reverses early rally.  THis article is typical of what we describe in the paragraph above. 

 

The Markets, Apparently, Will Not Sell Off Before the Election

Weekend Oc 26 2014

 

 

 

ON the way up, the Bullish Percent was on top of Price. Now Price is on top of Bullish Percent. This indicates declining breadth, fewer stocks participating. But still over 60% are participating. 

As Zero Hedge speculated, there is no way the FED will let the markets decline before the elctions, what if it does cost $1-3 trillion?

IF the stock rally is for real, why are bond prices so high, what is everyone afraid of?

Crude Consolidates

Many analysts are looking for a bounce here but I continue to read articles pushing more productin from US Shale Fields. Hard to see how that supports a price rise. 

Hedge

Hedge shorts specific stocks. It is not the opposite of the SPX so it can hold up even if the SPX rallies. 

Frankly I am not sure there is much to say until after the elections. 

Violent Reversal Leads to Short Term Top

Friday Oct 24, 2014

One has to grasp that the markets are in nose bleed territory. As such the potential for massive moves of money on a short term basis are real And so we get violent reversals like the last few days. But as alwasy we need to put those in perspective.

SPX One Hour Chart

THat is a  130 point rally in a matter of a week. Such fierce action comes from short sellers rushing back in as their buy stops are triggered on the rally back up.  But

stochastics top out

price makes a lower high just above the 200 bar MA

And On Balance Volume in the lower panel makes a lower high, very significant

This same pattern was repeated again and again all the way from the snapback rally into March 1930 to the final lows at Dow 41 July 9, 1932.

And the same pattern prevailed from January 1973 to the bottom in Dec 1974, stair stepping down with occasional violent reversals to the upside. Such reversals fool many into believing the 'low' is now in. Yesterday by 9 AM Cramer and company were beside themselves on CNBC over the CAT earnings. The CAT earnings were backward looking. They were a result of high oil prices over $100 in the last quarter. Since then oil prices have collapsed, along with the fortunes of those in the booming oil patch. 

CAT

The correlation between oil prices at top and CAT are positive. CAT took longer to peak as it took a few days for it to dawn on CAT investors that the oil game is closing. CAT is a big player in the Eagle Ford and Permain and elsewhere in the US.  But in truth yesterday was another violent short term reversal stopping at least so far just under the 200 day MA.  Cramer did not bother to mention that the shorter MAs were crossing over the downside. 

CAT up close

It is going to be really tough going, better get a D 9 to pull the price up, for CAT to get back over these downtrending MAs. Things really got going to the downside once oil punched through 95 lower. 

One can read lots of articles on oil along the lines of 

production and fracking can continue evenif the price drops to $60

The fortuces of CAT in the real market suggest otherwise. 

It is time to start a watch on HDGE. Yes it has been slow to react. But considering we are at a five YEAR high with massive positive sentiment this is to be expected. IT will take time to turn the USS Sentiment mega super tanker around. A two hour chart seems appropriate given the market gyrations. 

HDGE

 

HDGE is right at the 50% re trace from 11.40 to 12.80 at 12.10. This looks like a good entry point, Notice it did not fall back much on the big bounce yesterday. How significant was that bounce anyway? Not very says the chart below. 

On the right hand scale the percent of stocks trading over their 50 day MAs is less than 50%, this is an unweighted index unlike the major price indexes. This chart barely moved on the big up day yesterday telling us that the movement was limited to big cap stocks, likely the last to fall.  Notice RSI at top is just back to 50%.

Look for a short term move to the downside the next few days. 

Hedge Exhibits Cup and Handle Formation

Wed Oct  22 2014

Here is a link to the description of a cup and handle formation.

HDGE

Click the link and then tell me if this is not what you are seeing. HDGE has come right back to former support. The red green line must be at former Wave 2 support, Wave 4 has not over lapped yet. 

Real Estate Topping Out in London, NYC

Wed October 22 2014

Evidence of Another Even More Sweeping Housing Bust is Already Starting to Appear 

By Elliott Wave International

This is an especially interesting article echoing my comments about the prices of collectible and newly manufactured Ferraris. Prices have shot up in parabolic fashion with each new century mark on the S & P. 

Housing prices in London, home of sheiks and Russian oligarchs have also rocketed as well as NYC. This is all part of the skyscraper theory, a building boom precedes a bust. 

And notice on the front page of the WSJ today, we have more evidence of the Federal Govt launching another sub prime mortgage effort. And this time it kicks off at the Mandalay in Vegas, ow ironic. Remember the President chiding those who vacationed in Vegas after the last bust?

Here we go again. 

Are Stocks Topping or Taking Off?

Wed Oct 22 2014

Credit Suisse on low oil prices. The phrase I keep seeing int these articles that makes no sense is

when prices rebound. And this comes after the article makes the case for over supply.

Bullish Percent, the Internals of the Market

The internal picture of the market tells a very different picture. The internal strength of the number of stocks over their 50 day MA peaked in May. Price of the index peaked in September. This is due to the weighting of big stocks in the index outperforming the smaller stocks. Remember the RUT peaked months ago that is a small stock index. If we are indeed at a fourth wave momentum peak, this indicator will get turned back at teh 50% level which lies just overhead. NOte RSI at top is also at 50%. Granted it could extend to the downtrend line not shown off the prior two tops, that would be about the  55% level. 

30 Year Bond Yield

All the talk of low yields obscures the fact that instead yields are slowly rising. In the panic thsi past week yields stayed above the previous lows of 2012. Janet Yellen, your destiny is calling for the day you find out the market not Janet is in charge. 

Markets Finish Strong

Tuesday October 21 2014

I published the EWT view of the markets in the last post. It is an interesting analysis. Howver the markets other than the NYSE seem to be blowing through several of those resistance levels today. 

On balance volume is turning up along with the index itself. It took out the previous low from August. 

NYSE

The NYSE does not appear as strong. But this is still an impressive rebound. If it does not stop in the next day or two, this would cast doubt on the top is in scenario. 

The breadth indicators are not in yet for today. So stand by.