The Market Perspective

De Regulation Spurs Financial Stocks

Weekend February 5, 2017

Stocks moved up  186 DJIA points onthe news that Trump intends to de-regulate, banks were real lbeneficiaries

as all Obama did was penalize banks his entire term.

Transports

The Transports have yet to  confirm the move to new highs in the Industrials. The Industrials and SPX bounced

 nicely on Friday on the news of deregulation by the Trumps administration. Obama never met a regulation or tax he did not like and

the stellar performance in stocks since Hillary's defeat speaks to that. But the Transports and the RUT 2000 need to join in.

I am coming to the conclusion that yes a pullback is coming but it is likely to be more of a buying opportunity in mid April.

Treasury Yields

The ten year yield has consolidated and is testing the 50 day MA. RSI at top suggests it is about to start rising again, note the rocket launch form 1.8%.

At bottom we positioned the REIT ICF. All related interest rate securities have fallen with rising rates. That is likely to recur as the ten year rate rises.

Exxon Mobil

I noted in my University class that Exxon Mobil was not generating enough cash to fund investments AND pay the dividend.

An alert student asked well then who is lending them money?  The answer is simply faith in one of the world's largest companies. But the market seems to be noticing the

problem. This is a poor performance.

OIl Price versus XLE

The oil price in blue is outperforming the ETF for energy stocks represented by the XLE. Why?  I honestly do not know.

And the XLE is sagging as the DJIA makes new highs, again something is amiss here.

XAU

 

The XAU needs a pullback here.

The Bottom Line

Stocks are over bought but fund managers keep piling in fearful of missing out. Add in the positive seasonal factor and here we are at new highs. This I guess will continue until it does not.

Interest rates are surging again threatening utlities and REITs.

Crude prices are out pacing energy stock prices. Exxon Mobil not looking good.

The XAU is perhaps outpacing metal prices.

Social Mood

Pop Trends Price Culture

Robert Folsom discusses Bob Prechter's new book the Socionomic Theory of Finance

And he, Alan, and TR discuss the transfer of power in two longer podcasts

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Traders Move Positive on Oil Prices

Friday Feb 3, 2017 Traders Move Positive on Oil Prices Prices have continued to move sideways in a range of $51-54 since the move up in early December. But bullish bets on future oil prices are on the rise. Let’s take a look. We have noted that the media focuses endlessly on what is perceived to be supply and demand for oil. Yet amid the very worse news about an over supply last February, prices doubled from the low around $25. The trading mood towards oil turned at that time, regardless of what supply and demand suggested. Again, this is because of the dual nature and use of petroleum. Petroleum is an economic good powering transportation and machinery. At the same time, petroleum is a financial good. One can bet on the direction of future prices. We have suggested that tracking the amount and direction of those bets was a more reliable indicator of price than guessing what OPEC and Russia might or might not do about supply. And boy howdy, is there ever a big betting casino on for oil futures. Just three months back in November 2016, oil traded in the low 40s. At that time there were 159,415 more contracts long oil futures than short. A contract allows for future delivery of oil at a fixed price and time. An owner of a bullish bet can profit if the rice of oil rises above the fixed delivery contract price before expiration. Now bullish bets exceed bearish bets by a whopping 370,939 contracts. That is the largest net long position for traders in ten years. One contract represents 42,000 barrels of oil. Do the math and this means those contracts represent as much oil as is stored in the US at this time. But, of course, this is no guarantee of price direction. The last big bullish bet occurred in June of 2014 as the crisis with ISIS grew. That was the last high in oil before oil began its descent from $100+ to $25. We previously noted the breakout above $50 suggested an eventual target of $75. Commodity prices continue to surge with copper and now gold back on the rise. Another positive for oil prices is the recent decline in the US Dollar. Oil is priced world wide in US Dollars. When the value of the Dollar, declines, commodities priced in dollars tend to rise. This keeps the value of the commodity relatively constant. Demand for US natural gas is also rising from Mexico, assuming Trump does not follow through on his rumored threat to invade our neighbor. Natural gas bottomed in November around $2.80. It then rose to $3.80 and has fallen back to $3.10. We are still optimistic for $4 plus in February. Speaking of markets, the Dow Industrials double bottomed a year ago between January 20 and February 2. That was around the 15,500 levels. Stocks then rose throughout the election and beyond to top 20,000. So we are exactly one year or 360 degrees if you will from that bottom. I the markets are probably due for a correction. That would make sense into a possible low in mid-April. Advance decline lines for most indexes look good. But the Transports and the Russell 200 have not moved to new highs along with the Industrials. This might be the first sign of an impending correction. While the mood for oil is positive, the polarity in Washington, DC is the worst since the re-election of Richard Nixon in 1973. Already Democrats are boycotting Senate Hearings and not just voting no, but refusing to vote at all. Auto sales are down 2% suggesting the sales surge propelled by lower gasoline prices may be wearing thin. Brick and mortar sales sag while on-line shopping is brisk. All that suggests caution at the new high in stock prices.

Friday February 2, 2017

Tom McClellan likes the action of the advance decline line.

2000-2002 = 2016-20

I suspect the Road Map Ahead will look a good deal like 1999-2002. then the market made a final mad dash of 4,000 points to highs in the spring of 2000.

The markets now did make a final less ambitious dash to the top following the Trump election. But already indexes are hitting resistance. Transport and the RUT 2000 have not made new highs.

Auto sales are slowing as are brick and mortar sales.

Year 2000

17 Years ago the market was cagey, causing investors to think the rally would shortly resume. Instead if had a final fall of some 4,000 points from the Year 2000 high.

By 1998 all the gains had been erased.

The acrimony of the Trump Presidency opposed by the media and Dems will be enough to turn moods sour, and as noted some economic indicators are already slowing.