The Market Perspective

Oil in a Long Term Downtrend

Tuesday June 30, 2015

Here is an outstanding article on oil prices. The author suggests it is much more like 1981-1986 which was also a supply induced price decrease. Look for a long term downtrend. This is already showing up in share prices of energy and service companies as we have shown in our weekend updates. 

A Confluence of Cycles

Weekend June 28, 2015

A Confluence of Cycles

The Summer Blockbuster Coming to Exchanges Near You

This is our alternate week in which we focus on oil. We are extending the discussion to the interaction with other markets given the fact that many cycles will converge in the next few months. This will offer opportunities for those who will take advantage of these multi-year cycles.

You can view the Dow Jones Industrials in the Fall of 1987 by logging into http://www.themarketperspective.com.  That is our investing weblog which is  free to our readers. We posted both chart illustrating the 500 point decline October 19, 1987. In addition we posted the Youtube.com link to the  Wall Street Week episode the following Friday night. It featured executives from Merrill Lynch, Goldman Sachs, and the legendary John Templeton. Before there was a Warren Buffet, there was John Templeton We urge you to watch the video.  While the other two seem to have the awareness of say a department store manager who happens to sell stocks, Templeton displays the wisdom of a true market strategist. Indeed, he puts his finger right on it that the short bear market might well already be over, which it was.

So what can we learn from 28 years ago?  Quite a bit actually the price of oil had collapsed the year before, falling all the way to a final low of $12 from its January 1986  high of $24. And notably stocks had been advancing since year 1982.  That makes it a round number of five years. That summer saw a low of Dow Industrials at 800. So for the entire 1900 point move, about one third of it occurred the last nine months!

Bond prices topped that March, 1987 and began a serious decline of some 2 percentage points, yield wise.  Which is to say yields rose from 7.4 to 9.4 percent, an increase of 27%.

 

Now, do we note any similarities? Well stocks have been advancing since March 2009 for a six-year period. It is also noteworthy that we are 40 years and six months from the low of December,  1974 at Dow 577.

Oil prices declined from $110 to $42, a drop of 61.82%, a perfect Fibonacci Number for the disciples of the Italian mathematician.  Then oil prices had dropped from $36 to $12 over five years, a drop of 66%.  Hmm amazing, just a coincidence do you think?

What about bond yields?  Have they been increasing?  The answer is a definite yes.   The thirty-year bond yield bottomed t 2.1% this past February, 2015.  They now reside at 3.2%.And that  is an increase of 52% in just five months!

So we have stocks up, oil down in a previous time frame, and bond prices falling, now as then. We suspect that now, as then, this divergence is likely to be corrected in a calamitous fashion. We are not predicting a stock crash but the evidence for a correction is certainly present.

This summer will likely see lows in numerous commodity classes. Gold and silver should make their final lows from the 2011 highs in July, 2015. Note silver is down from $50 to $15 a drop of 70%.

Oil has been stuck on $60 as though it were duct taped there.  It is gathering steam up against a glut of world-wide supply.  Natural gas has moved from $2.50 this year to $2.79. It needs a close over $3.00 to really break out and get going. Watch for that to happen later this year.

We follow least a dozen energy service stocks. Most have rallied along with oil from $42 and are now pulling back. The easiest way to participate once a bttom is in would be the XES Energy Service Index. I see Halliburton HAL and Floserve FLS are both making significant pullbacks.

The Commodity Research Bureau Index which represents a basket of commodity prices including oil. Has fallen from 370 in 2011 to 210 and now 224. This also represents a multi-year low.

So the outlook is for commodity prices to make lows this summer. Bond prices are probably headed lower as yields climb, no matter what the FED does or does not do. Stock prices look frothy here, Carl Ichan even said so this week.  And it looks more and more like the low on oil prices is in at $42.  There should be many fine investing opportunities in the energy service field as those stocks make a higher low this summer.

Dennis Elam teaches at Texas A & M University San Antonio and can be reached at dennislelam@gmail.com

 

The Trend is Down

Weekend June 21, 2015

I almost fell for it, what was I thinking. Let's be clear. The stock markets have been rolling over since the Transports topped last fall. One by one, Utilities, REITs, Bonds, the Dow Composite, are all falling. 

Oddly John Murphy actually said the Transports et al are keeping the Industrials from advancing. I suspect he has it backwards. Rather the fall in all these indexes will soon bring the Industrials down. 

It is time to bet short. 

China Stumbles, Dow Transports, Utilities, Composite Sag

Weekend June 27, 2015

Jim Rogers on Markets

Collapse Part 5 Things Fall Apart  C H Smith makes the point that collapse is a process not an event. Smith penned one of my favorite quotes on college accreditation, he said accreditation presents 'the illusion of comparability among colleges.'  See Accreditors of Colleges Weighing Crackdown on page A 3 of the weekend WSJ. There are 11 credited universities with graduation rates in the single digits. Corinthian was accredited as it went bankrupt. 

Collapse Par 4 Institutions This relates to all our education institutions where it is now near impossible to fail. 

 

Small Chinese investors race to invest, years into the China Explosion. Now markets are down 19% in a couple of weeks, down over 7.4% Friday. 

 

Dow Transports

 

Transports trade for a month or so at one level only to fall to the next lower level. Look like that is about to happen again. 

REIT RQI

This REIT pays a  3.9% annual dividend. The drop from 12.4 to 10.8 is a 12.9% decline. So 2.5 years of dividends have been wiped out since February. This is the stealth bear market we have been describing. In this way it is very much, as we said last weekend, like 1973-74.

 

Utilities are Doing the Same

 

\Dow Composite

 

Last Man Standing in Europe Germany

 

This stair step pattern will be more and more the case as the Bear takes hold around the world. 

Britain, Playing catch up to the German Decline

 

Everything You Need to Know About the Bond Market and Interest Rates in One Picture

Health Care

Walgreens

Media is ablaze with headlines like it or not Obamacare is here to stay. Health care stocks have been rising. Here is a perfect example Too late to buy, I don't know. 

Energy Service Floserve FLS

 

I thought FLS might be bottoming at 55 but the weak action of the MACD suggests it might fall all the way to 61.8% at 44.25

The Street is a bit late in their sell recommendation for FLS. But note they reach the same conclusion I did, and really I looked this up after writing the above, FLS is headed lower. We will keep tracking this firm. 

EEP

Like FLS a great company now out of favor with a lot of shifts in the pipeline business on a falling rig count.  Add to the watch list. 

FRAK The US Shale Plays in One Picture

FRAK is an ETF of the various Shale Producers. Like FLS failing at 53, FRAK is railing at 21.5. I drew the blue uptrend line to emphasize the importance of that price point. Money flow at top makes one wonder how the price is still this high.  It never got close to the two hundred day  MA and now the 50 day MA is bending over. 

This is an inverse bond fund which rises in price along with yields. Rates are rising and will for some time. Buy this fund. It is trying to break to a new high.

AXAS Abraxas

This firm is a player in the Eagle Ford south of San Antonio. Typically the MAs will converge on a change in direction of the price. That is happening now as all three converge well below the 200 bar MA. That is pretty ominous. 

Patterson PTEN

Here is another failure at the 200 day MA. Notice the big failure as the 50 day crossed above the 200 day. 

As we previously noted the energy and energy service shares are headed down. Hmm, how long will the price of oil hold up?

Natural Gas Speaking of Convergence of Moving Averages..

 

We mentioned that natural gas needed  a solid close over 3.00. It has not happened. Here too three MAs are covering, will price turn down from this triangle pattern?

 

Social Mod

Check out Love Among the Ruins on Page A 15 of the Weekend WSJ. As Bari Weiss observes, you can't get married if you are dead. The US ignores scores of innocents  dead across three continents in a celebration (?) for Gay Marriage. Indeed, it is 1938 as Hitler invaded the neutral territory of the Sudetenland.  During Ramadan terrorists have struck across three continents, is anyone going to do anything?  The history lesson is this. France could have easily run Hitler back into German in 1938 but chose not to do so. Hitler himself later said this was his most terrifying moment. As ISIS gains, it will be ever more difficult to defeat them. Not to be political but none of this bodes well for markets. 

More Retro Mania  On page C 12 Audrey Hepburn may be bigger now than when she was alive. A Givenchy gown designed for Breakfast at Tiffany's sold in 2006 for $923,000 at a Christie's auction in London. 

One of the problems for Starbucks SBUX with stores just about everywhere, is how to achieve anymore growth. The latest idea is, yes, home delivery via subscription. SBUX will deliver otherwise unavailable roast to your doorstep. Luxury goods makers have been stretching their offerings in synch with the expansive mood of the investing public. Million dollar cars, new records at art auctions, and now,  cafe by Fed Ex. 

And finally check out our interview with Robert Folsom.

 

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.

 

 

 

Stocks Up in a Final Fling, Commodities Making Final Lows

Thursday June 25, 2015

Yesterday I posted the Wall St Week show after the 1987 crash. I will be referring to it often in the next few months I expect. Things are becoming much more clear. When I said I was turning bullish, that now appears to be a final fling upward in stock prices, just like 1987. Then bond prices had declined for some time, but stock prices keep advancing, just as they are now. This divergence finally was settled violently with a single 20% decline on one day in October. So called portfolio insurance designed to protect stock holdings actually worked to accelerate the decline that day. 

NYSE Summation Index

 

Here is the set up for the NYSE. The Summation index is the red and blue. The actual price index for the NYSE is in green. Looks like it wants to make a final high as the summation index is turning up. 

Gold

Meanwhile gold is setting up for a re test of its uptrend line from the low of last Fall. It has plummeted the last few days. It should be setting another low as stocks reach for a final high. All that should resolve in the next two months. In 1987 stocks made their final high in August. Tom McClellan identified that as a potential final high for stock prices. 

In addition we have identified the huge percentage moves in bond yields the las few months. So bond prices have been falling just as they did in 1987. 

Stay tuned to this URL, things are finally coming together and it is going to be exciting and profitable if ones prepared. 

After the Crash 1987

Wednesday June 24, 2015

 

Wall Street Week after the Crash of 1987

Part I

Part II

Part III

Luis had the chair of Merrill Lynch, the strategist for Goldman, and John Templeton.

The CEO of Merrill is virtually useless, clearly understands little about markets or market history. At the time he was Vice Chair of the NYSE but is clearly little more than the manager of a department store that sells stocks. 

The guy from Goldman also speaks glibly but seems to have some understanding.

Templeton stands head ands holders above the other two,observing that the bear market might already be over. Which is was. He is most interesting in Part II observing that there are always bull and bear markets but that as long as you do not buy with borrowed money and invest well, you will be all right. 

Dow Fall 1987

This shows the fall in stock prices. Price held up until early October and then began falling. Monday October 19, 1987 completed that decline.

Stocks versus Bonds

Stock in gold completed the final 600 point run up. This is typical end of cycle stuff. Social mood had everyone piling in for the last 600 points of a run that started from Dow 800 way back in the summer of 1982. One third of the five year move then occurred in the last nine months! Socionomists refer to this as herding. 

Stocks are in orange, bonds are in dark brown. Notice how each corrected that Oct 19. 

 

 

 

Out of Favor Buys

Tuesday June 23, 2015

 

 

Greece 

GREK

Ten dollars was the dead low and that is now obvious, still GREK is half its recovery price of 24. Once it breaks thru the neckline which may be higher or lower than indicated, it will likely have a rapid recovery. 

Casinos

 

Since making this post I realized I got this exactly backwards, rather these charts are why  the market is headed down. Southwest Airlines is mating money like crazy and the stock is dropping like a rock. So much for the stock market and the economy. The same thing happened in 1973-74. Companies made money but the stock prices fell and fell. 

Wynn's now has a veggie 5 Zack's rating.

Union Pacific

 

The is why the Transport index is dropping. Notice the stair step like decline, The stock price moves sideways for a month or two and then falls to a new level.  This i the hypnotic effect of a falling market, one might think a buy is near, I mean i nearly fell for this idea but the bottom is indeed a long long way off. 

Fifth Wave Underway

Tuesday June 23, 2015

I am changing my view. Yes the interest rate sector via utilities and REITs is weak as is energy. 

But tech healthcare and even industrials are strong. 

NYSE Wave Count

The CCI at bottom would seem to confirm this wave count. Wave two and four typically show alternation. If one is strong theater is weak. Here wave two was strong down and now wave 4 is strong up. Note CCI bounced at the zero line on Wave Two and is not near that far down on Wave Four. 

NYSE PAR SAR

The stop and reverse indicator is useful in identifying Elliott Waves, note above. 

NYSE Summation Index

This is an up date from the chart shown this weekend. The summation index is in red blue and the actual price index is in green. This looks like an ending fourth wave.

S & P Monthly

Here is started with the assumption that Wave three is the longest so it must have ended in late 2014. Then the other waves unfold accordingly. 

Transports

Yes Utilities and Transports are down but perhaps the wave structure is just more clear here. 

Blow Up the Tax Code

Weekend June 21, 2015

Blow Up the Tax Code

The time consumption is further burdensome to individual tax filers. Considering 8 hours each for 169 million returns, Americans spent over 1.35 billion hours filing individual taxes.

All said, Americans spent over 3.24 billion hours, which is about 369,858 years, preparing and filing tax returns in 2012. Considering individual, business and employment taxes, this costs $37 billion annually in compliance cost for federal taxes alone.

Tax Foundation, se details at

 http://taxfoundation.org/blog/cost-tax-compliance

 

Rand Paul is probably in the second tier of Republican Presidential candidates. But his idea to blow up the tax code is strictly first tier. Given their penchant for income re-distribution, I doubt we will see this from Democrats. And the other Republicans have not come around either.

Your business columnist is also Texas a Certified Public Accountant.   I would really enjoy seeing those opposed to blowing up the tax code defend what we have now.

Commerce Clearing House sells various tax publications. Their largest series, the Federal Tax Reporter, now runs over 70,000 pages. The reason of course is that it allows Congress to dispense various ‘tax favors’ to well heeled lobbyists, in exchange for campaign money. Steve Forbes was the last to run with this idea of a flat tax, and was speared by the same lobbyists still patrolling K Street in DC seeking favors. Let’s take a look at the proposal.

Rand Paul’s plan, fashioned with the Heritage Foundation, Steve Forbes, and Arthur Laffer, would repeal the entire Code, as it exists. In its place he would have a flat tax of 14.5%. Mortgage deductions for interest and charitable giving deductions would remain.

The plan would eliminate the payroll tax on workers (an immediate 6%+ pay raise), and several federal taxes including gift and estate, telephone taxes, and all duties and tariffs.

The 40% highest tax for small business and the 35% highest rate on corporations would be replaced with a 14.5% rate. Income less normal expenses would be taxes. All capital expenditures would be immediately expensed, eliminating the MACRS depreciation schedules.

So what would the effect be? The non-partisan Tax Foundation, quoted in our opening, suggests that in ten years domestic GDP would increase 10%. At least 1.4 million new jobs would be created. (I find that statistic elusive but it would certainly create rather than destroy jobs.)

 

I don’t know that the graphic of pages of tax law over time will run with this column, but I put the link in the opening. Please go there and behold the horror of a massive privacy invasion. The number of tax code pages has doubled just since 1990. This is an unsustainable parabolic trend!

Ah you say, but as a CPA how can I advocate for such a thing?  Frankly I would much rather have CPAs working with managerial accounting tools to help clients make more money, and pay more 14.5% in tax!  I doubt individuals or corporations would object to that rate. The point here is that when rates raise to such levels the individuals and corporations feel they are robbed the tax avoidance game goes into high gear. Lower rates generate a sense of fairness resulting in less tax avoidance and more work towards actually generating income.

Just this past week, General Electric announced a move out of high tax Connecticut, its corporate headquarters.  Thursday’s Wall Street Journal reports Texas’ Engine Keeps Revving’ on page A3. Toyota is moving here from California. Fed Ex and Liberty Mutual are building in the same area. Low taxes drive economic growth.

The challenge as Paul admits will be to overcome the special interest groups that feed on the corporate welfare of special tax dispensations.   I suspect the bigger challenge would be getting Congress to abandon this vote-buying scheme of the tax code and then to abide by the new rules, i.e., no changing the game again.

This is a bold idea, whose time has come. Let those opposed to such change defend all 70,000 pages of the existing tax swamp of regulation.

Are there 60 Senators and 218 representatives, not to mention a new President with the courage to do this?

Dennis Elam PhD CPA teaches accounting at Texas A & M University San Antonio.

 

China Corrects, US Stocks Still Project Higher, Interest Rates Higher as Well

Weekend June 20, 2015

 

Chinese drop the most in six years, in one day, down 6.4% for the day Friday and 13% for the week. Has the bubble burst on the big run up?

Ten New Restaurant Chains - eating out is a bull market phenomenon

 

China

After the huge run up this year we will need move evidence but it appears the Chinese Central Bank is trying to cool things down. 

Greece

The index is now headed back to the sub 500 height of the Club Med crisis in 2012. 

This is an example of one of those 'Is it going to zero charts?' Well Greece is one of the oldest civilizations though not well run.  but it will not disappear.  My point being something is going to eventually happen to calm the other Greek bondholders in Germany and France. Headlines in the WSJ report that Greeks are withdrawing money 

Greeks Yank Bank Deposits As Talks Falter

Fearful  of a bank run or closure ala Cyprus who would blame them?   But all of this is standard fare for a currency and banking crisis. 

You gotta buy when there is blood in the streets, we aren't quite there yet but of all the potential contrarian opportunities, this is surely at the top of the list.

 

GREK The Greece ETF for some reason I cannot get the MAC screen capture to display the chart but GREK  is the symbol. Volume has soared lately which is to be expected. 

Greece is a financial disaster.  

We will continue to monitor the situation but it seems unlikely real reform will result from the new government that one election.  

REITs

The Friday WSJ has a big positive section on  REITs.

An REIT is a mutual fund of real estate paying out 90% of its earnings. As a result the REIT pays on income tax. But I don't see any reason to be buying yet in the above chart. In typical tech fashion, price popped right back up to the 200 day MA, and failed on Thursday and Friday to move above it. The overall trend remains down. 

IDU Utilities ETF

It is basically the same story here. A new downtrend is in force on Utility stocks. Will IDU test the 200 day MA? Both the above charts need to reverse trend to justify purchase. 

BLE 

Closed End Municipal Fund

One can see symmetry in the run up from 13.25 to 16.25 and then the drop right back to 13.75.

ON balance volume is bouncing a bit in the net panel down, and has encountered what could be support at the former break out love. MACD is counting along the bottom. 

The EMAs have not turned back up but is this worth a shot, perhaps. Price has corrected about 12% from the high. 

Stocks Remain in Bullish Formation

The Tech Stocks are back pushing indexes to new highs. Here the NDX bullish percent perks up this past week. That may be the best single picture to show. 

A Bullish Juncture in the NYSE ?

Stochastics at bottom are flat, the summation index looks like it may register a higher low. RSI at top is back to the position where prior lows have occurred. 

NASD Summation Index and the IWM

There appears to be a  recurring three month cycle low, beginning,now I notice, last August. We are coming off the latest low so there should be more price advance ahead. 

TLT Bonds

Not done yet?  TLT could still make it to 121 I think as part of this correction of the overall fall from 136.

Bottom Line, 

 A potential panic low looms for GREK, looks like a good trade to me, enter limit orders now. 

Stocks in the US are still up, and may surprise with higher his.

Interest rate markets are on edge expecting higher rates. 

Social Mood

I was recently  introduced to Robert Folsom's Pop Trends, Price Culture Podcasts. He reports that these podcasts have 'a long tail.' Once you run across them you continue playing catch up to read the ones  you have missed. I am doing so now and highly recommend this as a way to learn to apply socionomics. 

Give it a try at Pop Trends, Price Culture.

 

 

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.