The Market Perspective

Dow Transport, Utilities, Composite Continue Breakdown

Weekend May 30, 2015

The government on Friday slashed its gross domestic product estimate to show it shrinking at a 0.7 percent annual rate instead of the 0.2 percent growth pace it estimated last month. 

A larger trade deficit and a smaller accumulation of inventories by businesses than previously thought accounted for much of the downward revision. There was also a modest downward revision to consumer spending.

CNBC

Be sure to read Of Two Minds this week, excellent charts on margin debt.

The Retail and Industrial ETFs are weakening along with Consumer Discretionary goods. 

John Murphy is apparently reading TMP, oaky just kidding, but he is coming around to my view of the weakening market. The Dow Transports, Utilities, and Composite all closed under their 200 day MA Friday. 

The government on Friday slashed its gross domestic product estimate to show it shrinking at a 0.7 percent annual rate instead of the 0.2 percent growth pace it estimated last month. 

A larger trade deficit and a smaller accumulation of inventories by businesses than previously thought accounted for much of the downward revision. There was also a modest downward revision to consumer spending.

in the lower panels we have the composite, transports and utilities.

the upper panel shows the difference in the Industrials and falling Transports.We have been writing about this for the last couple of weekends. 

 

Retail

Retail is a significant part of the economy. It fell hard on Friday.

The XLK Tech ETF hit another new high. all things tech wise are booming. 

Luxury Goods

Trouble in Luxury Land? Coach, Michael Kors and Ralph are having a hard time.  Indeed perhaps the economy is really slowing down even affecting the Luxury Goods sector. 

 Attention Stock Market Shoppers, Buyers will Have Started to Exit the Shanghai

 Compare this chart with the margin debt chart in Of Two Minds, both off scale!  P/Es are over 70 in China!

Ten Year Note Yield

I am guessing yields pull back to the three MAs around 20.5, a bounce of all three back to the upside would suggest the move to higher rates has tested positive with the underlying support.

TBT

This is fund that moves inversely with bond prices. I am guessing 44 should be a good place to start buying if indeed bond prices advance a bit more. TBF is  a 1x fund. Longer term buying these two may be one of the better bets for the next two years. 

US Dollar

Is the correction over in the US Dollar, I think so. 

Crude Oil

Crude oil  bounced right off its 34 day MA Friday. That is a big positive. 

XLE Energy Shares

Tj

XLE energy shares stayed weak however. 

 

 

Dollar Strengthens, Commodities Weaken, Transports Drop

Wed May 27, 2015

This week will also be a monthly close.  It will be interesting to see how hat plays out. 

As we suspected the Dollar moved up taking oil and gold down. 

Two Hour USO

The two hour chart USO for oil shows a clear five waves down. Watch the rebound today through Friday, fourth wave resistance is 20.6. 

XOM

That is a pretty clear drop in Exxon Mobil yesterday. Again the energy stocks are often  an early warning for the price of oil. 

The Dollar versus Energy Service XES

The Dollar is in red black and the solid black line is XES. XES will break down on a close under 28. That looks likely again watch the action this week. 

Gold

Shortening the time span highlights the breakdown yesterday in gold. RSI at top and MACD are breaking over. This was a 1.51% drop in a day. The low in gold will probably occur this summer. And it seems likely to be accompanied by  some sort of secondary low in oil. 

Transports

We have pegged Transport support at 8500-8600. That finally gave way yesterday.  As we have noted, after multiple attacks that support line, a failure means that is now resistance. 

I receive weekly updates from a major money management firm. Their take was that well the weak Transports are being taken as a Dow Theory Sell Signal, but that is not always the case. During a bull market perhaps not, but as we transition out of a bull market, perhaps so. The lower highs and lower lows are blatantly obvious here. 

The firm also brushed aside the rise in interest rates. 

30 Year Yield

Notes and bonds are testing their respective breaks above the 200 day MA. 

So the pieces are coming together. 

Transports and Russell 2000 are breaking down.

Interest rates and the Dollar are rising. 

Oil and gold pull back as a result. 

Again Friday's close will be important in many markets. 

Social Mood

We an always depend on brokerage firms to do the wrong thing at the wrong time. 

Here Société Generale is dismantling Bache, now a commodity trading firm.  When I was 'in the business' Bache was at one time the second largest brokerage firm in the US. It was then handed off to Prudential and now will be dismantled in France. 

But as we suspect a low  in commodity prices may occur this summer. it is typical to see firms abandoning the business, at or near an upcoming low in price!  This follows studies of  magazine covers of Business Week at important bottoms. Typically the magazine would declare 'the death of mining' near important lows. Look for similar articles on say iron ore, I have seen some already. 

Thirty Four Years out from the 1981 Low

Weekend May 24, 2015

Of Two Minds shows how over valued the market is in 1981 terms.

Where We Are Now

 

More markets reached for  and attained highs in April.

Remember this will be a slow topping  progression ala Year 2000-2001.

The government and other suspects - talking heads of mutual funds, REITs, etc. will never admit anything is wrong until it is far too late for someone buried in the market at too high prices to extract themselves. 

Social Mood is insanely positive towards all popular asset classes including stocks, emerging markets, art, and especially high end real estate and automobiles. 

At the same time the US has abandoned its world leadership role, ala 1935 and the same results are already occurring, see Iraq. I skimmed Bret Stephens,  WSJ foreign affairs columnist, new  book America in Retreat. He has an interesting what if look forward in the last couple of chapters. 

Brazil is falling into political chaos amidst the Petrobras scandal, the Castros are expanding their influence, Iraq is back to roadside bombs having lost Tikrmt and Ramadi, and so it goes. The Russian economy is wounded and Putin knows he only has 18 months free and clear to do what he wants. 

The American Armies are the same size today as in 1940. 

So, expect more clues to what will happen this fall as more indexes tip their hand. 

Russell 2000

the RUT 2000 appears to be putting a secondary high, the top of a Wave 2. I am buying November at the money puts. Will look to add some shorter term puts  this week. 

 Transports

 

After a market breaks longer term support, it is typical to see it try to re assert itself and climb over what is now resistance, say 8600. I suspect that effort will fail in June. And I expect a lower close this month.

 NASD

 

5132 was the high in Year 2000

The NASD exhibits a seven year cycle. It should be topping now. .

None of the stock indicators are particularly worthwhile with this much QE cash in the market. Bob Prechter noted that the funds are apparently buying into higher closes as they have more margin available with stocks up the last hour of trading.  And so we hit NASD 5000 again. 

Sotheby's

Bid is a good proxy for social mood optimism on markets and accordingly has made a double top!

Apple

 

I count five waves up for Apple. Notice how far it is above its MAs. 

 

Ten Year Yield

 

Here is the opposite of the Transport Index.Yields broke through resistance and are now pulling back to test the break out. I suspect the test will be successful. 

Municipal Bonds

 

This is a significant turn down in Municipal Bond prices i.e. an increase in yields. 

Oil at the 2009 Low

This looks a great deal like the oil chart now, right down to the similarity in price. But we did not have the US Shale production nor Iran waiting on the sidelines then. 

 The US Dollar

 I had over laid oil on the Dollar chart but oil obscured the reversal up in the dollar. Still at top you can see the inverse relation. How strong will oil be against a surging dollar. At bottom the MACD for the Dollar turns up. I am long UUP, the Dollar ETF.

The Bottom Line

I am long IWM November 123 puts and UUP Dollar ETF Shares. 

Stocks continue topping action. Bond yields are rising rapidly. 

Oil has hit resistance. But the chart looks very similar to the 2008 low. The Dollar will tell the story here as well. 

 

thanks for reading TMP.

dennislelam@gmail.com

 

 

 

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.

 

 

 

 

Related articles

Islamic State Seizes Full Control of Capital of Iraq's Largest Province

Transports Drop, Airlines Swoon, The First Shoe Drops

 

Thursday May 21, 2015

Oversupply of airlines worries market   SW Air announced a growth plan, the news is that spooked the market, fearing lower oil prices would  bring over expansion

But the bigger story is the breakdown across the board of Transport stocks.

Transports

We have noted the weakness in Transports for weeks now. They are finally breaking down, 2% yesterday.

Airlines

We used four MAs on this chart. Notice that the index broke the widely watched 200 day MA. The other MAs have all come together, typical action before a change in direction. The truly frightening thing is that the Industrials did not fall but made another high.

Industrials versus Transports

Dow Theory holds that one index Industrials should confirm the other. With Transports headed down likely the only thing holding up the Industrials is high frequency trading. When the Industrials play catch up they will likely do so in dramatic fashion.

 

Natural Gas

 

We began our newspaper column for the year by announcing Deflation would be the big story. 

Recall the conventional wisdom was that lower energy prices would help everything. I was doubtful. Sure enough we now have calling Transport AND falling energy prices Note the big reversal in natural gas. 

 

The Dollar

As always the dollar is tamping down natural gas and oil prices. I suspect the correction in the dollar has ended. 

Wed May 20 2015

TLT

Bond prices as shown by TLT have fallen further than we thought. is this support?  That is an 18 point drop since January.  I suspect we get  pop up about like the March move into June. Then higher rates are on the way.

 

 

Ten Year Yield

 

Bond support on the TLT chart is resistance overhead on the yield chart. This is pretty impressive in that all five MAs have been cleared on the daily chart. Higher rates ahead, never mind what Janet thinks. 

USO

Oil prices shown via USO are falling. We noted this weekend that the money dried up going into this ETF. That is still the case. I had originally thought oil would move up to 60*61 and then possibly experience a fifth wave to new price lows. That is still a possibility. 

 

XLE

Here is the same time frame and indicators for the oil producers. It looks worse. Often the shares of producers are an early warning on oil prices. 

XES

Energy services was turned back at the 167 day MA. Now it has a test of the shorter MAs. If those go in the next few  days it will be another warning that oil prices are going lower.

Our Slowing Economy

Monday May 18,  2015

A Forbes columnist suggests the economy is slowing.  This follows suggestions we posted this weekend from Zero Hedge and Mish on the same topic. 

Socionomic Study Predicts British Election Outcome

Monday May 18 2015

Here is an example of the practical application of socionomics.  Polling indicated the British election would be close, it was not. Here is why. 

Social mood determines what happens. This is more and more evident as our friends at the Socionomic Institute continue their investigations. 

Peak Optimism -Weekly Newspaper Column

Weekend May 17, 2015

Peak Optimism

At Wednesday’s auction of contemporary art at Christie’s International, which netted $658 million, an electronic screen flashed bids in seven currencies including rubles, Swiss francs and Hong Kong dollars. Collectors from more than 40 countries wound up competing for the offerings.

“Art likes to move around the world, but the scale is so much bigger now,” said Ed Dolman, chairman and chief executive of boutique auctioneer Phillips. “We’re talking an incredible orgy of spending, and it feels like a total transformation.”

Art Market Sees New Auction Highs, New Rules, WSJ 5/15/2015

A record price for a painting occurred with Picasso’s ‘Women of Algiers’ fetching $179.4 million. No, that is not a typo.   It makes the Steve McQueen 1967  Ferrari 275 GTB/4 auctioned at $10 million last August in Pebble Beach look like a real bargain!

Dolman is correct, we have an orgy of spending across multiple asset classes-art, automobiles, and stock markets.  It is the polar opposite social mood from March, 2009; irrational exuberance, one might say, is in evidence.  That does not time a top but it certainly is worth noticing.

Economics is not finance. Economics is the exchange of money for goods. We made the point in this space that if avocados traded in the same range as oil prices would have topped at $9.00. But there are no $9.00 avocados. Rationality prevails in the economic market.

Commodities and collectibles however are a different matter. Steve McQueen originally paid $14,400 for the Ferrari in 1967.  Emotion and the movie star ‘Steve McQueen effect’ drove the price much higher.  A similar car not owned by a movie star in the same auction brought $4 million.  The difference is the social mood surrounding what is perceived to be more valuable, though each is the same thing.

Which brings us to the price of oil. Oil is both an economic item and an emotional commodity. It is economic because it literally powers economies. It is an emotional commodity because ‘auction exchanges’ like the  NYMEX/CME, offer leveraged trading on future prices. This is why oil has traded down form $110 to $42.43 in March.   It then advanced 41% to today’s round number of say $60.

Did world demand explode 41% in two months? No, but social mood did as short sellers raced to cover previous sales and bought back their contracts. The collapse and subsequent rebound seem to have wrung the volatility out of this market for the time being.

Okay that was both lengthy, half the column but also a short reminder that crude oil prices trade emotionally more than economically. The overall world demand does not shift 41% in sixty days, but the prices do.

Art is not the only mania alive and well. Stock prices have moved up since the October low, lately  eking out slightly higher highs.

That said, oil has reached the target of $61 we mentioned on our weblog. Now what?

Sure enough articles are now appearing that shale producers are looking to complete ‘fracklog’ oil stored in uncompleted wells. The reason is that oil has reached what is perceived to be the magic $60 level (hey it’s 50% more than $40!).   That of course potentially brings more supply to an already over abundant market. 

The flow of money into the crude oil ETF USO has considerably decreased. Crude oil for May 2016 delivery is $63..40. Natural gas futures have surged 21% to $3.00 in the same period.  Coal fired utilities continue to shut down spurring the demand for natural gas.

The value of the Dollar Index has fallen a bit further than I thought it would . Support now lies at 92-93 with a closing rice of 93.15. Oil is priced in dollars. A rebound in the dollar is likely to limit the upward price spiral.

Exxon Mobil XOM remains in a downtrend and   Conoco Phillips COP is merely moving sideways.

The XES Energy Service ETF has turned its trend up along with oil.   It has moved from 24 to 30,  a nice 25 % increase. The XLE is testing its break out price level of 82.

Our conclusion is that the crude oil price has turned up and is likely to be in a new higher range with support at $50.  That prediction is valid as long as the Dollar Index stays in a 93-96 range. A big move up in the Dollar is likely to put a lid on crude oil prices.

But this is no easy game. After all, a barrel of oil will never be a bushel of avocados. 

Bonds Bottom, Stocks Still on the Edge

Weekend May 17, 2015

Of Two Minds on Distribution - Good points about how easy it is for High Frequency Traders to juice the market and unload more stock at higher prices to fully invested individuals

If Distribution is Underway, has the Recession Already Begun?  Perhaps his best point is this one. The Central Planners whether they be the Bushes, Clintons, or Obamas, will never admit the economy has turned down until it literally falls off the cliff. 

 

A Two Month Recurring Bond Pattern

I believe the trend in bond price is dow with the trend in yields up.But there is also a two month alternating pattern evident this year. Looks like bonds are poised to challenge the downtrend line again around 130. 

 

REITs

Scroll back to the first chart, TLT = REIT !  Both are in downtrends. Remember REITs have  become America's saving account for millions of retirees. If this downtrend continues when do they get worried. 

Utilities

John Murphy thinks the bottom in bonds has kept utilities and REITs from falling out of bed. 

Was that THE TOP in utilities in February? Moving averages are trending down. 

 

Stocks

MACD at top is weakening, Money Flow at bottom is near negative, certainly pulling back. This supports the distribution theory. 

Transports

Again John Murphy thought the stock rally Friday rescued the Transports but this looks pretty weak to me. Transport have still not fallen through the 8500 weekly support. When and if they do, they are likely to fall hard. As previously mentioned this is all the more amazing given low energy prices. 

 

Dow 65 Composite

 

John Murphy also argued that the Dow 65 composite of all three Dow averages was the better picture. I would agree but I don't see a lot to get excited about. 

Energy

By using USO we can track money flow at bottom which of course is not available for WTIC. What really happened is a brief counter trend rally fueled by short cover buying. This is a busy graph but by overlaying RSI one can see it really tracks momentum. About all we can do now is track this chart to see if the trend really has staying power. 

The Dollar, the flip Side of Crude Oil

I substituted UUP an ETF for the US Dollar for USO. And here we have the inverse picture. I suspect the Dollar bottoms this next week, then we will have the real test for oil. My  weekly column on oil is the next post.  I spotted several articles announcing renewed drilling now that oil has hit $60. Recall my  prediction in late April that $61 would be the line in the sand resistance point. 

Natural Gas

As promised the Administration is putting coal miners out of business. With less coal demand, there is more usage of natural gas This is a stronger chart than crude oil. 

Gold via Central Fund

Gold has topped its various moving averages, this suggests our friends at EWI are correct that the low was last November December 2014.

 The Bottom Line

This next week okay we have thought this before, but, should be decisive for the stock market. 

Bonds look to have bottomed and are likely beginning another month long rally.

Energy has rallied to resistance. It performance is tied more to the dollar and potential expanded supply with increased prices than most think. 

Social Mood 

Art Markets Hit New Records - Art Collectible Cars and Stocks are all Hitting Highs

t Wednesday’s auction of contemporary art at Christie’s International, which netted $658 million, an electronic screen flashed bids in seven currencies including rubles, Swiss francs and Hong Kong dollars. Collectors from more than 40 countries wound up competing for the offerings.

“Art likes to move around the world, but the scale is so much bigger now,” said Ed Dolman, chairman and chief executive of boutique auctioneer Phillips. “We’re talking an incredible orgy of spending, and it feels like a total transformation.”

Art Market Sees New Auction Highs, New Rules, WSJ 5/15/2015

 

Covering up the Defaults

Of Two Minds Lays out the Greek Options

This is s good summary of any highly leveraged headed to default situation. Where the word Greece appears in this article one can substitute sub rime mortgage loans in the US in 2008 or student debt in 2015, the same holds true for all. One can

1. write it off

2. extend terms, lower payments, re figure loan rates, etc

3. Or just bury it in the non performing loan section. this is what Japan did which kept them in a twenty year funk after the top in the Japanese market in 1989. 

I am guessing the trillion dollar US  student loan debt is somewhere between  2 and 3. 

thanks for reading TMP.

dennislelam@gmail.com

 

 

 

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.

 

 

 

 

The War on Cash

Friday May 15 2015

Why the IRS Seized All the Money from a Country Store
Another shot fired in the "War on Cash"

By Elliott Wave International

Editor's note: You'll find the text version of the story below the video.

Learn how your hard-earned money may be in jeopardy. Read War on Cash
 Follow this link to download your free report »

Lyndon McLellan owns the L&M Convenience Mart in rural North Carolina. A few months ago, the Internal Revenue Service went to McLellan's bank and seized all the cash in his store's account.

Why?

McLellan had violated a "structuring" law by making cash deposits of under $10,000. Structuring laws are supposed to catch drug traffickers and money launderers. But small business owners can also unknowingly run afoul of these laws.

Last July, a swarm of officers from North Carolina's Alcohol and Law Enforcement, the local police and the FBI descended on McLellan's place of business.

The agents told the small business owner something that shook him to his core: The Internal Revenue Service had seized all of the money in L&M's bank account: $107,702.66.

"'Are you telling me you took my money?'" McLellan recalled asking the agents. "I didn't understand what was going on. They dropped a bomb on me. I was lost for five to 10 minutes. I can't believe that y'all guys can walk in here and tell me y'all took every bit of my money out of the bank."

The Daily Signal, May 11

McLellan is still fighting to get his money back.

"In 2005, the Internal Revenue Service made just 114 structuring seizures. By 2012, that number had risen to 639."

This story shows how the government can financially upend the lives of citizens.

Consider this excerpt from the March Elliott Wave Theorist:

The most vulnerable money is sitting in bank accounts. Depositors in Cyprus banks found that out in 2013, when the government seized a large portion of uninsured deposits to pay its debts to the EU. ...

... I have long advocated holding outright cash notes, which are already preserving value better than commodities and negative-interest-rate bonds. But we cannot depend upon government to act fairly. If in a future panic central banks opt to recall cash, even cash-holders will be doomed. All authorities need do is demand that people turn in their cash for new notes worth 1/10 as much. In 1933, the U.S. government confiscated gold because that was the money of the day. Now, dollar deposits and cash notes are the money of the day, and they are even easier to seize.

We've been updating subscribers on the "War on Cash."

• JPMorgan Chase Bans Storage of Cash in its Safety Deposit Boxes (InfoWars)
• Citi Economist Says It Might Be Time to Abolish Cash (Bloomberg)
• Sweden moving towards cashless economy (CBSNews)
• Large U.S. bank bans wire transfers, limits cash withdrawals (TheCrux)

Giant financial institutions and the government are now waging a large-scale war on cash.

This is the time to get the financial insights you need to protect your hard-earned savings.

---

Read our Free Report: War on Cash Big government is conspiring with big banks to wage a secret war on cash by limiting and even outlawing the use of physical currency. This development may have a devastating impact on your hard-earned savings unless you prepare right now. Get your free report now »

This article was syndicated by Elliott Wave International and was originally published under the headline Why the IRS Seized All the Money from a Country Store. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.