Weekend January 16, 2016
Jim Cramer goes from bull on Thursday to bear on Friday based on things already in the news.
How does Cramer have any credibility with anyone?
Of Two Minds on the China Housing Crisis
The problem is that most of the 'wealth' in consumer China is in real estate, if that grinds to a halt, the Chinese miracle halts, ie another world wide collapse due to government trying to put people in houses they could not afford.
The Weekend WSJ is loaded with articles about the extent of the decline as well as articles assuring you this is no real problem. The former is correct the latter
is quite wrong. Also notice that CNBC Fox Business and especially sites like Fidelity never use the phrase Bear Market, instead they refer to
'increased volatility' which sound much less offensive to your financial condition.
The Most Reliable Indicator
The Weekly A/D chart for the NYSE has turned down decisively. This is the first time since the recovery began March 9, 2009.
2007-2009
This is how that indicator played out in the 2007-2009 collapse. Then as now there was a dip, a recovery,
and then a collapse. ONce the last collapse occurred the indicator stayed below the 34 week EM until a real
recovery happened. That shows that this is in my opinion the most reliable indicator of them all.
New Highs New Lows - Just How Extreme is the Sell off?
Already the sell off has equaled the lows of the Fall of 2011. Only the complete collapse of Fall 2008 was worse.
And this is happening early in the overall decline. Do not discount the danger in this market.
Check out Section B of the Weekend WSJ to see the extent of the decline as well as the breadth. the NYSE had 7 new highs and 938 new lows.
This sort of lopsided result could lead to an abrupt counter trend rally at any time. The new highs were in a preferred, a high yield and the rest were municipal bond funds.
Stocks Still Above their 200 Day MA
Only 21.4 percent of stocks are still over their 200 day MA which means 78.6% are below it!!
Again we have already neared the extreme of the August 24 sell off. Immediately after that day this indicator returned to
its down trend line. The NYSE bullish percent is down to 25%, already below the 30% recorded last August. All these indicators are confirming that this is no ordinary
correction or volatility, this is the 40 year bear cycle taking hold with a vengeance.
SPX
The SPX closed under its August lows but the DJIA did not, so still a divergence there.
Shanghai
While the US media is blaming much of this on China, I think not. This is simply the result of interest free FED money buying back stocks of corporations to reward
execs with stock options who really did little or nothing for their companies. And this time unlike 2008. the FED has no room to lower rates as we are still near zero, if in fact lowering rates
every helped anyone other than CEOs. I suspect this index is headed back to 2000, the A down and B up of the pattern are complete.
Cullen Frost
CFR has the highest percent of energy loans of major banks with 16% in that sector. the sharp rise in volume at far right
suggests this stock is headed back to 40. IN that case it will have lost half of its entire market value in a few months time. This demonstrates how vicious a
bear market can be. When I was in broker school 1972-1973, all bank stocks traded over the counter. As the instructors pointed out, if banks had been on the big board
it might start a run on the bank, a panic, when share prices collapsed. No kidding.
Bonds
TLT has climbed from 188 to 126 and I am surprised it has not done better than that. On any snap back stock rally the air is likely to quickly come out of inflated bond prices.
Energy Volatility Index
Last year Boone PIckens predicted oil would return to $70 by year end. It closed the year trading at half that price, so much for an industry
expert. But despite missing it by a mile, Fox Business had him on this week admitting he did not know the bottom but that these prices were too low
for the industry to function. Perhaps the volatility index is the best way to prove for a bottom. We are near the last three extremes and only February 2009 was worse. Apparently we will have to reach higher than 70 top find the bottom.
Monthly Crude Oil
Goldman and another big bank have suggested it would take $20 to make a new low. That last happened in 2002. Frankly I don't see much support
until we hit that price,especially now that we have taken out $33, the 2009 low.
The Dollar and Metals
The Dollar remains strong keeping oil depressed as well as other commodities. Gold has still not closed over $1,100. The XAU has not closed over 50. Central Fund
is trading at an 11% discount to NAV, still no interest there.
The Bottom Line
Stock prices continue to fall but sentiment is nearing previous extremes where reversal rallies took place. That may not happen until oil finally bottoms. Oil blew through the
$33 low set in 2009. We suggest watching the volatility index in oil for some signs of an extreme at 1.00. The bear market is on display. Rallies should be used to establish new short positions.
Monday our markets are closed but we will get a chance to see what happens overseas. If China melts again we could easily have another August 24 big down day.
The bear fund DOG looks extended but has not topped yet.
There is no way of knowing if we will see a 1,000 point blow off to the downside causing a spike in DOG. But this bears watching, MACD is approaching some sort of potential peak.
Social Mood
Pop Trends Price Culture
Oil in the $20’s (!!)
Copper under $2
Baltic Dry Shipping Index at the lowest ever at 383 and down ~50% in the past year.
Wal-Mart closing 269 stores, 154 in the US.
Business inventories to sales at new cycle highs
U.S. freight volume falls for first time in almost three years
US retail sales fall 0.1% in December
Empire State index weakens to recession lows.
South African rand hits new all-time lows in 2016
Brazil’s Real Falls Sharply Against Dollar
Brazil Unemployment Rate Rises to 9%
Canadian Dollar Hits 13 Year Low Against US Dollar
U.S. Energy Junk Bond Spreads At Record Width
Nigeria’s Currency Plummets On Open Market
Mexico’s Peso Hits New All-Time Low
Chinese Stocks Enter Bear Market (again)
European Stocks Enter Bear Market
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