The Market Perspective

Four Producers Agree on Oil Production Cuts

Tuesday Feb 16, 2016

Saudi, Qatar, Venezuela, Russia agree on productcion cuts

We have been calling for a low in oil prices in this time frame. It is beginning to take hold. Still when one reads this article several

analysts are quoted saying the worst is not over yet, again this is typical of the herding mindset at any market bottom.

And amid rumors this would happen, headlines this weekend shouted, but who will cut?  the major producers in the most budgetary pain, of course is the answer.

The Dow is up another 200 in pre market trading.

Back to the Future, It's 2009 for the XES

Weekend Feb 14 2016

XES  Energy Service ETF

The XES has lost  75% of its highest 2014 value. It now trades at the 2008 low. We may have to wait a month or two for a recovery

but this is the example of buying when no one wants the shares.

Transports Testing their Lows, Energy has Biggest Day since 2009

Weekend February 14 2016

Industry Agrees, It May Never GetBetter   And that folks is what we mean by total capitulation

Jamie Dimon buys 500,000 shares of JPM Chase  He is rewarded the next day with an 8 % rally.

Overview

The Bottom Line

The markets are exhibiting a  90 day cycle and that needs to be closely tracked. Crude oil sentiment as shown in the above linked article has again reached an extreme. Friday's action was the biggest up day since the reversal of 2009. We have been expecting a low in this time period for energy and that may have been it with an 11% advance on Friday. The Transports did what they needed to do as outlined here earlier this week. Transports did not close under  6900 but rallied strong, along with oil. Markets do what they want, and Transports have fallen with oil and now rise with oil, go figure.And oil a year out is trading a full ten dollars higher, so these low prices are surely not for long

We will exhibit various divergences which also suggest at least a short term relief rally. And adding to the evidence, bond prices have risen as stocks fell. On Friday bond prices fell, yields rose perhaps confirming a turn is at hand.  Jamie Morgan made an impressive statement with his 500,000 purchase right at the low, reversing the next day.

Our bottom line is that we expect the rally Friday to extend into this next week. We will monitor the progress for signs of an extension of that rally.

We begin with our reliable NYSE A/D line. From a lower low it bounced Friday. But examine the divergence shown in the top panel by the RSI.It made a higher low, and then turned up. This is what we look for suggesting a market reversal.

Transports

Friday morning our post noted Transports had fallen right to the PAR SAR support. But Transports rallied 2.4% while oil rallied 11%. This is often the case with three day holidays and should

extend the rally into next week.

Dow Industrials  A 90 Day Cycle

The DOW topped in May 2015. It then fell for three months right into the August low. It then rallied for three months into the November high. We are now another three months December, January and into February.  This cycle suggests one might better be looking for a low than a continuation of the decline. It is not an assurance the market will rally for another 90 days.

Bond Prices

 

From that stock top in November, investors moved into bonds as a defensive measure. Here the inverse correlation between bond prices in the main chart and the DOW in the lower panel is clear. IF as I am asserting we are at a trend change, bond prices should reverse here. Clearly they did dropping over $2 in two days.  This is another confirmation that Friday was at least a short term turn point.

Banks

JPM Chase

Again see the linked article on Jamie Dimon's stock purchase, and two previous purchases near the dead low of the markets a few years back.

This was both a personal success and reminds me of the sort of bold moves the bank's name sake, J P himself, used to make when markets were in disarray.

The next day the shares jumped 8.33% and on good volume as one can see in the lower panel. One can learn via socionomics to look for such divergences and reversals while the herd is still headed in the wrong direction. Dimon did just that this week. Other bank indexes also surged affirming this as a broad based event.

 

Speaking of herding, on Thursday S & P lowered the credit rating of four banks with energy loan exposure.

http://finance.yahoo.com/news/p-lowers-ratings-4-banks-193907473.html

The very next day Cullen Frost jumped over $2.. It is trading at  1.05x book value and pays a 4.58% dividend. This is a classic demonstration of socionomics and how herding causes so many to do exactly the wrong thing at the wrong time.

CFR

A nice 6.24% jump in one day. CFR preferred fell to $23 and I bought more Friday at about  23.50

Energy

ON Friday unleaded gasoline jumped 7.4%, heating oil was up 4.75% (East Coast about to be hit with Arctic blast, more global warming) and crude oil

jumped 6.3%. Yes crude needs a close over $35 but this is a good start.

Cliff Natural Resources CLF

CLF is also verifying the turn up in commodity prices here. The biggest percent gains are in the early part of the move. A move from 1.25 to  2.00 is a 60% move. Yes I bought more Friday.

Gold and silver have led the move up in commodities and appear to be topping short term now.

Social Mood

We mentioned outstanding examples of social mood above. S & P lowers the credit rating of perhaps the best run bank in Texas, CFR. On that day oil rallied and on the next day it really rallies over 6% along with bank stocks. This is classic herding when one should be looking the other way.

Our lead link article from Bloomberg reflects the gloom and doom of those herding in their own energy markets. This is typical of just how lows are made in markets. Just this week I received  this gloomy assessment from perhaps the most quoted 'energy economist' in the state. The point is that one should be looking for a low amid single digit bullish consensus on oil prices. This fellow however is not doing that.

The Odessa Economic Index declined for the eighth straight month in December to finish out the year, falling to 225.0 down from 226.4 in November, and down 2.9% from the December 2014 OEI of 231.6.  The Odessa Economic Index, based at 100.0 in January 1996, peaked at 234.6 in April 2015 and is now down by 4.1% compared to that pinnacle.

Virtually every component of the Odessa Economic Index registered year-over-year deterioration in 2015 compared to 2014, with the exception of single-family housing construction permits which were up compared to a sharply down year in 2014.  And, as has been noted multiple times, payroll employment, while continuing to indicate modest improvement in 2015 will be revised downward to reflect deep employment losses over the year after a probable peak in December 2014.

The Texas Permian Basin Petroleum Index continued its sharp decline through year-end 2015 falling to 241.3 in December, a drop of about 36% compared to December 2014, and of 37% compared to the index peak in November 2014.  The regional rig count dropped by over 60% from December 2014 to December 2015, and the posted WTI crude oil price lost another 40% over the year on the heels of a 60% decline in the second half of 2014.  The number of drilling permits issued in Railroad Commission Districts 7C, 8, and 8A, dropped by close to 60%, and an estimated 8,900 oil & gas jobs were lost in the combined Midland-Odessa metro area in 2015.  The regional oil & gas stock index (Clayton Williams Energy, Dawson Geophysical, Patterson-UTI, and Concho Resources) lost over 30% of its value last year.

Pop Trends, Price Culture

Be sure to listen to the Feb 11 podcast Make Politically Incorrect Cool, win the White House ?

[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.

 

 

 

 

 

 

 

Negative Interest Rates

Friday Feb 12, 2016

Can the Fed Drop Interest Rates Below 0%?
This question is not as preposterous as it may seem.

By Elliott Wave International

For the financial markets, the biggest event of the week starts tomorrow: On Wednesday and Thursday (Feb. 10-11) Fed chair Janet Yellen will appear before Congress to deliver her semi-annual Monetary Policy Report.

"It's huge." That's how one strategist put it this morning, in a CNBC interview about the importance of Yellen's testimony.

Why are all eyes on Yellen? Maybe because by now, almost everyone has forgotten how powerless the Fed appeared in 2007-2009, when none of its measures could stop the financial crisis. Despite the recent market chaos, six years of rising stock prices reaffirmed the notion that the Fed can move mountains. "As the Fed goes, so do the markets" is the current mantra -- so, on Wednesday and Thursday, analysts will be listening carefully: Will Yellen mention the ongoing market turmoil?

If not, then the Fed is focusing on "the positives" like the U.S. jobs and GDP numbers, which makes another interest rates hike likely in March. If Yellen does mention the "turmoil," then the Fed is worried about the markets, making a March hike unlikely.

Basically, it comes down to "rate hike now" -- or "rate hike later." But there is the third option.

A rate cut. And not just any cut, but a rate cut below zero.

Crazy? Look at Europe and Japan, where negative interest rates are already in place. As our December Financial Forecast wrote,

"...yields on more than one-third of all euro-area government bonds...are now below zero.

"A buyer of these bonds at par who holds them to maturity is guaranteed to lose money."

Can this happen here? Yes, says Bloomberg:

"Fed Chair Janet Yellen said in September that negative rates weren’t a main policy option, but that officials would evaluate the approach if needed."

Translation: "Fed officials have said negative rates are possible, though not probable any time soon."

What could push the Fed to make a move like that? Our new, February Financial Forecast explains:

"Successive rounds of quantitative easing by central banks along with various other monetary tricks were all designed to spark inflation; all they utterly failed.

[That's hard to argue with: Europe is officially in a deflation, and the Fed has been unable to push inflation up to its goal of 2% for several years. -- Ed.]

"The latest gambit to grab the fancy of central bankers is negative interest rates. Japan [has just joined] the European Central Bank, Sweden, Denmark and Switzerland in charging depositors to hold their money.

"These actions confirm that deflationary forces are intensifying, consistent with our long-standing forecast. It may seem outlandish to think so at the moment in light of the U.S. Federal Reserve's recent decision to raise short-term interest rates, but deepening deflation will eventually force the U.S. central bank to go down this path, too."

If the Fed indeed is forced to reverse course and drop interest rates below zero, what investment will be a "safe place"?

Read our new report, Risk ON? Risk OFF? Find Out Where Your Money Lies. The editors of our Financial Forecast Service, Steve Hochberg and Pete Kendall, have been tracking a "steady global shift to greater financial conservatism over the last 18 months." They have just published this new report detailing all of their findings. Read Their Complete Report >>

---

This article was syndicated by Elliott Wave International and was originally published under the headline Can the Fed Drop Interest Rates Below 0%?. 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.

 

Watch the Transports Close Today

Friday Feb 12, 2016

Dow Transports

The Transports have been the leader to the downside since topping Nov 2014. The weak rally from January 20 looks to be completing.

Price rallied and fell yesterday.  The PAR SAR reversal is now6780 but I am thinking a close under hte 13 day EMA at 6908 for the week will be negative. If not the

consolidation will continue into next week. Bank stocks are weak all over the globe due to low interest rates. Recall bank stocks were at the core of the 2008 collapse.

Even bank preferred stocks are weakening, a sure sign of a loss of confidence in the sector. And as we have observed, the FED like Butch and Sundance in their final scene, are is out of ammunition. With rates near zero there is nothing left for the hapless FED to do but watch stocks slide.

Oil Makes a New Low: A Slight Embarassment to TMP

Wed Feb 10, 2016

Yes I saw it, oil fell to a new low taking stocks with it the last hour of the day.

Intraday that was about a 250 point drop in the Dow Industrials.

Oil fell to a new new low taking out the January  20 low.

USO allows us to use the two hour chart. Yes the MACD is headed lower but sentiment remains incredibly low. We still think the bottoming process is underway.

 

 

FCX Stirs, Gold up 15%

Tuesday Feb 9, 2016

hNegative mood on the rise in Hong Kong

Harry Dent on the failure of Central Banks

Amid the deflation sweeping the world the first hints of inflation are on the horizon.

FCX

FCX appears to have completed five waves down from its $50 high in 2011. That is a loss of over 90% and a look at what lies in store for

many stocks now. This move up is significant. I suspect a ladder of buy orders should be placed starting at the 4.80 level.

We are sticking with our prediction that oil has hit its low. But the energy share carnage from too much debt continues.

CHK fell 33% or one dollar yesterday as the company denies considering Chapter 11 to deal with its high debt load.

All moving averages are headed down for Apple. AAPL looks like it will take out the August low just under 92.5.  That will no doubt ignite a cascade of sell orders.Apple has lost 21% of its value since November.

Central Fund CEF

Central Fund is finally confirming a low. With the dollar firming we should see a pull back here which wold be a buying opportunity.

Recall just weeks ago in the WSJ Jason Zweig referred to gold as a 'pet rock.'  That sort of commentary is typical at market bottoms. Jason was guilty of the herd instinct

embracing Apple and Facebook when he should have been looking at beaten down stocks.

Energy Counter party Risk

From the WSJ Energy Report this morning, a failure of several companies here could lead to a domino type capitulation failure

 

Three big U.S. energy companies pulled each other into a spiraling stock plunge that illustrates how one distressed shale producer can threaten its business partners, Timothy Puko, Alison Sider and Erin Ailworth report. The rapid declines in Chesapeake Energy Corp., Williams Cos. and Energy Transfer Equity LP exposed the complexity and interconnected nature of some energy stocks.

Chesapeake was the first to go when the market opened and its stock lost more than 50% of its value in early trading as investors digested a report that the embattled Oklahoma company was working with bankruptcy advisers. Chesapeake, mired in more than $11 billion in debt, confirmed it is working with lawyers to strengthen its balance sheet and said it “has no plans to pursue bankruptcy.” Chesapeake closed down 28%.

Chesapeake, despite its mountain of debt, is likely to hang on while many smaller companies fail this year, Spencer Jakab writes.

Adding to uncertainty was news that Energy Transfer’s chief financial officer is leaving the company. The company said it is negotiating with Jamie Welch about a potential consulting role and his departure was not based on any accounting disagreements or financial matters.

NYSE Advance Decline Line as a Reliable Indicator

Monday Feb 8, 2016

A reader asks who I concluded the NYSE A/D line is the most reliable indicator. It is hard to see the EMAs on a eight year weekly chart so I will display the 2007-2009 period first.

The indicator topped int the summer of 2007. The EMA crossover was shortly thereafter. It tried to recover in October 2007 and May 2008 failing both times.

Notice the NYSE in the top panel had only dropped 1,000 points by may, so most were still thinking correction.But when the A / C line fell the final time in June 2008, the NYSE simply collapsed down 4,000 points or 50% in the next few months.

Weekly for the entire bull market since March 2009

At top notice the definite breakdown of RSI, the first real drop since 2009, it literally fell through the 50% level. It is hard to see what is happening in 2016 so let us telescope in on just that.

Weekly NYSE A/D

And there you have it.Notice how this parallels the action of 2007-2008.  The indicator fell last May, rallied once, and then fell a second time finally taking a crossover of the EMAs with it.

Daily NYSE A/D

Notice the NYSE in the top window has again fallen under its 34 day EMA. The indicator might still rally but the markets are set to open down this morning.

Taking out 106 K will likely take out the last August lows for many indexes and lead to another waterfall decline.

I posted the charts in the largest size for clarity.

Look for the collapse of a financial institution this fall ala Bear Stearns.  Come to think of it Venezuela is collapsing and Brazil's failure is well along the way. The Castro  Boys would be out of luck without Venezuela helping except for  a rescue by Obama.

 

Jim Rogers January 19

Monday Feb 8, 2016

January 19 interview with Jim Rogers

This was also contained in the Russian TV interview posted Friday

Markets are lower this monday.

Tech Tanks, Energy Shares Fall with Overall Market,The Bear Momentum gets Underway

Weekend Feb 6, 2016

Note to readers, I am  leaving  this post up as I construct it knowing many look for it over the weekend, it is not complete yet,check back  tomorrow afternoon. Sat 2/6/16 4 00 PM CST

Of Two Minds, Three down Two to go

I suggest you read his other articles linked at the bottom of the page above including the Collapse Could happen much faster than most think

Eric Hadik  at INsiide Track likens the situation to a roller coaster. The momentum to the downside does not really  get going until the last car completes the peak of the coaster track. Then nothing holds the train back and it descends quickly We are there now. All the major Indexes have peaked and turned down.

Soros, this is 2008 all over again  Soros compares this to the  1930s when deflation ran rampant.already rates are negative in the debt of countries like Japan.

Chorus of Experts Warn of Crisis

The WSJ editorial page features one one editorial on Rumors of Recession. They don't get it, recessions are already underway. The near infallible NYSE A/D line has turned down decisively.

The collapse of 2008 got underway via Bear, Lehman, Merrill borrowing 10x to buy long term sub prime mortgages using short term commercial paper to finance the deal. What were they thinking. When the bonds did not pay they could not pay off the commercial paper and that market locked up. Cue Hank Paulson asking for $700 B.

ON page B1 of the Weekend WSJ Jason Zweig details some 300 structured notes. these short term bombs, er notes, are tied to a complex energy formula for re payment. Most are underwater now and would require a double of the oil price to work themselves out.

Ferrari RACE is down from its IPO of $60 to $358 just since October.

Lionsgate Entertainment, the Hunger Games folks, fell 27% on Friday.

Chart of the Week

Linked IN reported less than expected fourth quarter profit. the stock dropped 44% Friday.

Here is a glimpse of things to come. In a bear market, all news is bearish, but that is social mood for you!

Monthly Dow

Remember Transports peaked in Nov 2014, the Dow held out till this past summer. Now a third wave down on the monthly chart is udnerway

Do  you see any support once 15,500 gives way>  Notice maximum action is to the downside with weaker rallies to the upside. The tide has turned.

I have the thirty Dow Industrial stocks i none folder and am looking thru them now.The damage already at Dow 16,000 is astonishing. Disney for example down from 120 to 93.90.

HP has already been cut in half. IBM from 170 to 125. United Technologies from 120 to 85.

Luxury is being decimated.

Ralph Lauren RL

Notice the two big vicious drops in February 2015 and February 2016.

And all of this is happening at Dow 16,000, Imagine what this will look like at Dow 10,000.

Energy

I went out on a limb and called for the low in oil prices two weeks ago.Boone Pickens followed doing the same. But it matters not, energy

shares are all still falling. Apache is down from 100 to 39.05. A break of the last low under $35 would be a negative event.

It is clear that energy shares will be falling with the overall stock market. Many issues like APA are already trading under their 2009 lows.

My suggestion that there would be a buying opportunity was wrong, this sector is leading the overall markets lower.

XES Energy Service

This picture is repeated all over the energy sector. A brief bounce below weekly MAs and then the failure

to follow through. Oil and natural gas I think are struggling to bottom but energy shares are caught in the down swoon

of an overall bear market in stocks. The 82% loss in the XAU shown later is a possible look ahead for what can happen to many stocks.

Regional Banks

Dick Evans CEO of Cullen Frost recently remarked that a bank had to have $2 billion in assets to survive in this expensive high regulated market.

This has meant the regionals have to merge which has cut their numbers by thousands the last few years. This of course is just the way J P Morgan and Goldman want it. It guarantees

no one else will be able to enter this high cost business and compete with them.  In my university accounting ethics class I note that the big firms pay big fines and just go on doing what they have been doing. Recent Too Big to Fail Fines  It is ludicrous to suggest that Hillary takes $675,000 in 'speaking fees' and then will break up those TBTF.

 

So what should you be buying?

\DOG

DOG and DXD are bear funds which rise as the Dow Industrials fall. The bull market for these tow funds is just getting underway. It is not too late to get on board.

Here is the potential

Monthly DOG

As you can see these two funds are just now turning up. And yes the situation is such that a return to the 2009 lows is not out of the question.

Bonds

Bond prices are near previous highs. Junk bonds are falling fast

Ratio Chart of JUNK to Ten Year Treasury

See the Jason Zweig article referenced in the opening comments. Investors are tossing lower grade debt overboard. And the world is awash in it. More defaults ahead. Energy bonds are the new sub prime junk.

Gold - XAU

The XAU index of gold miners has lost 80% of its value from the  top in 2011. It appears the low is finally at hand. This makes sense now that stocks are in their bear market and BRIC and others have currency woes.

Gold and Silver via CEF

Central Fund is now trading at a negative 5.6% discount to net asset value. This is a significant move up from a negative 10 % where it

has been trading and another sign of a bottom.  But don't get too excited just yet. Here is why.

The US Dollar

Gold and silver have advanced via the pullback i the US dollar shown above. It looks like the Dollar is bottoming.

This may well give us a pullback in gold and silver for a better entry. It will be most interesting to see how oil acts.

Energy shares notable the MLPs have taken a terrible drubbing causing some to questions whether MLPs are a viable business model.

The Bottom Line

World Dow, Dow Industrials, Dow Transports

The Transports continue to lead the markets lower. Now that all the indexes have topped, the moves will be more down than

up and in particularly violent fashion. Talking heads on CNBC will excitedly suggest buying something that is depressed such as

Apple which in fact is now in a fifth wave decline.  But the rallies to the upside are brief and violent. This stair step action on the way down will

persist into October of this year. But I doubt even that will be the end of this bear market.

Central Banks have lent money to firms who did not employ new workers but bought back stock shares boosting the share price. That made their stock options

pay off. But it has only resulted in the slowest economic recovery since the depression.  One must be prepared to do the opposite of what one did in the previous bull market since

March 2009.

Social Mood

The political races are really getting fractured. We are told career FBI types are still investigating HIllary but it seems unlikely the new AG would prosecute her. Still Sanders has millenal appeal which could last past New Hampshire. Dana on Glenn Beck speculates that the Donald continues to say he will only stay Republican if  he is treated fairly code talk for he gets the nomination. Whether he would run as an independent remains to be seen. All of which has Doug Schoen with an op ed in the WSJ and an interview with Paul Gigot on the Weekend WSJ Editorial Report. Bloomberg whose net worth is $37 B is willing to spend $1 B of his own money on a race. He rejected 2008and 2012 but with the fissures evident now, thinks there is a chance for a moderate with a successful big city record. Negative mood leads to these sort of fractured results. Now politically the USA looks like Italy with multiple parties. This means no party ever achieves a majority of anything so power is splintered and constantly shifting among different groups. The result of course is simply more not less gridlock.

Pop Trends Price Culture  Be sure to listen to Episodes 40 and 41Epidemics are evident in bear markets and one has already begun Also Bob Prechter has a concise explanation

of socionomic causality