The Market Perspective

Cycle Anniversaries Converging

Tuesday July 18, 2017

The DJIA peaked July 15, 21957, sixty years ago.

The DJIA and the SPX peaked August 25, 1987, 30 years ago.

 

Here is a look at the SPX and the Transports. An article in today's WSJ notes that the Transports are confirming the Dow Theory that both the Industrials and the Transports need to make new highs.  Well they were doing that in 1987 five years after the rally kicked off in, yes, August 1982.  and then for no apparent reason, investors panicked out of the markets. So called portfolio insurance was partially blamed for actually increasing the sell off  analysts searched for reasons for the crash.

Market Top Year 2000 - 17 Years ago

Here is how it played out in March 2000. The  real story then though was the NASD  with dot.coms talking the NASD to 5,000 for the first time ever.

NASD Year 2000

NOtice the index managed to double in the last six months of the rise. Social mood is the most intense at tops and bottoms, here is the classic example.

Same chart for the top in 2007

Social mood was clearly more intense  for the tops of 2000 and 2007 than in 1987 when not near as many were participating in the stock market.

Still  all the charts show a rise to a top, then a sell off followed by a final failed rally that does not achieve the former price peak. Then as we know a collapse followed.

Okay so much for the history lesson. What about today?  Here is the NASD where tech stocks have powered the market to new all time highs.

That's a pretty good run for nine months!

DJIA and DJT

Finally here is where we are today in the Industrials and Transports.  We report you decide, with 60-30-17 year cycles all converging, what could go wrong?

ACA Cycle

The Affordable Care Act (which has been anything but)  was signed into law in March, 2010. We are now seven years out from that event. After campaigning for the last seven years to repeal it, Mitch McConnell today admits the failure

of an improved plan. He simply does not have the votes to do what he party has promised for since March, 2010. Nothing scientific here, just wondering if this is another puzzle piece in the junction of all this coming together in this time frame.

Energy

Yesterday oil prices failed to vault the 50day moving average.

The trend is down with lower highs and lows. News of course is that the market is over supplied. I substituted Apache APA in the bottom panel. Notice APA's failure to cross its 50 day MA as well.

I have been criticized for way too many early calls for a top. But the cycles are here now and should be respected. As I said, here is the history, you decide what is best at this juncture.

 

 

Oil Appears to be Topping

Monday July  17, 2017 1:10 PM CST

One can see the price of oil topping in real time.

Apache APA has been our bell weather for the energy market.

This weekend we suspected that oil would top out on the upper downtrend line. That is happening for APA as I write

At top Stochastics are about to roll over and at bottom same for MACD.

DUG a Bear Energy Stock fund

Meanwhile DUG is doing the exact opposite, probably making a bottom here. That seems to be confirmed by the MACD at bottom and the Stochastics at bop, both of which seem to put DUG in buy mode.

 

Will Crude Take out 47.39 Resistance this Week?

Monday July 17, 2019

August Crude oil needs a daily close over 47.32 to suggest a bottom is being made.

This morning it  fell back from up 20 cents to down 16 cents trading at 46.39

Saturday July15, 2017

Note I wrote my weekly column Friday. And now that I have examined the charts for the week, I am more of the opinion that the IEA is merely reflecting positive social mood with the price of oil at the upper down trend line. Certainly Prince Salman hopes oil prices will increase if in fact he will be able to IPO 5% of ARAMCO.

Today I am not as optimistic as the IEA

 

Friday July 14, 2017

Oil Prices Firm

The International Energy Agency said Thursday that global oil demand had “dramatically accelerated” in the second quarter of 2017 to 98 million barrels a day. The trend was driven by higher consumption in big Western economies like the U.S. and Germany, and it came at a time of depressed oil prices.

 

Brent, the international benchmark, was up 0.6% in London trading to $48.73 a barrel, while West Texas Intermediate, used to price U.S. oil, was up 0.52% at $46.33 a barrel.

Until this week, the market had been overwhelmed by pessimism, with investors worried about a vast oversupply that even the 14-nation cartel, the Organization of the Petroleum Exporting Countries, could do little to remedy.

 

Now, writes Timothy Puko, “there are signs that demand, growing faster than expected, will call for all of that oil and ease oversupply that has lingered for about three years.”

Wall Street Journal Energy Report, Friday July 14, 2017

Yes that is a long quote but it perfectly sums up what has happened since my last column just a week ago. Then oil prices as well as energy share prices were literally falling off the charts. A return to the February 2016 lows appeared possible. But as we are prone to point out, prices change with the mood of those speculating and investing in the energy market. Energy is both an economic (crude oil becomes gasoline) and a financial (shares, futures, options) item. And so the social mood towards energy changed, turning on the proverbial dime.   John Murphy at stockcharts.com noticed the change as well stating oil prices may be bottoming here. Here are some positives about the market.

Last December over 90% of a group of energy shares were in bullish position on what technicians term a point and figure chart. That total fell to 15% in May and June. Now the downtrend has been broken, and the total has about doubled to 29%. This is significant in that share prices will rise before crude prices. Somehow the magic hand of the markets is ahead of the underlying price activity.

Apache APA has not turned up quite yet but has risen to the top of its downtrend channel at $48.24.

Other commodity prices are firming as well. Copper has gained twenty cents in the last two months. Wheat prices are soaring with drought conditions in growing areas.

On my weblog (http://www.themarketperspective.com) one can see the support line for crude oil between $44-45. Price has been testing this area and rose to $46.08 on Thursday’s close. Natural gas is up but needs a close over $3.15 to reverse to the upside.

Speaking of natural gas, President Trump is waging an economic war against Russia to supply liquefied natural gas LNG. Recall that literally half of the Russian economy is oil and gas exports.

The completion of the first LNG exporting plant has seen a tremendous growth in the product. US LNG exports at 198 billion cubic feet in the first four months are eight times that number for 2016. In response Russia lowered its prices and wants to build another pipeline to Europe.

Reversing the Obama position, the White House has opened access to Federal lands for drilling. But at $50, companies are loath to drill in the challenging Arctic environment. And I suspect the bad taste left from the previous administration with so many projects shelved, has made firms wary of any promise from the Federal Government.

But summer months are always an uncertainty for financial markets. A final low may be delayed until this fall.

 

Energy Rebounds to Downtrend Line, Stocks Up from April Low

Weekend July 15, 2017

Yes I have been mistaken calling for a top in stocks. Last weekend we noted the strong advance decline line for the NYSE.

Yet July-October is a seasonally weak period for stocks and especially so in the 7th year of a decade as in 1987, 1997, 2007, in 2007 stocks peaked and then collapsed into 2008.

Energy

Our bell weather Apache APA has rallied to its upper channel downtrend line.

APA

Volume has been light during this rally. Clearly the trend is still down.

Crude Oil

Oil made its fourth higher low since the February top yesterday.MACD remains in a downtrend in the bottom panel.

XOP and USO look about the same. This argues for a near term top and then downturn in energy prices and shares.

Frontline FRO

A recent article in the WSJ on FRO  resulted in a bit of research and I added a position in my own account.

It trades at 70% of book value, pays a 10% dividend is earning money and trades at a modest 12 o 1 forward Price earnings ratio.  It jumped 22 cents yesterday.

check out the stats at this link

https://finance.yahoo.com/quote/FRO/key-statistics?p=FRO

Google and Netflix are off their recent highs which might also be confirming a forthcoming top.

Cybersecurity

Globalscape

Globalscape is involved in marketing software for secure internet transmission. I have owned the stock for several years. I have long thought that

a significant security breach would finally 'awaken' interest in this San Antonio based company. the market cap is a mere 117 million and it is trading at  3.82 times book value.

GSB has a net profit of 12% and no debt. I suspect this is a prime takeover target by a larger firm wishing to make a name in this very important field. All the revelations about Russia and the DNC, as well as world wide hacking seems to have the market interested in this company.

SPX versus Breadth Indicators

The SPX is signalling divergence. The price of SPX is at a new high.But participation in the rally has been falling since the March peak in bullish percentage.

This sort of euphoria is typical of positive social mood at a top, which always lasts longer than I think it will.

4 Month Closer Look

The  13 day EMA crossed to the downside of the 34 in late April. SPX took off just a week before that. Since then the EMA has not been able to decisively climb above the 34 day.

 Bonds and Interest Rates

Ten Year Note Price

The note price fell hard dropping some ten points last year. Now we have experienced a dead cat bounce with all the MAs coming together. The convergence of MAs usually precedes a change in direction. This bears watching.  XLF for financials and banks had double topped. That indicator has been rising on an expectation of higher interest rates.

XAU Gold Stocks

Again we have a convergence of MAs. And if XAU breaks below  the triple bottom at 77.5, this index is headed much lower.

 The Bottom Line

The divergence between stock prices and breadth of participation in the rally suggests some sort of correction ahead.

Bonds and the XAU are at an apparent juncture with their MAs converging.

Energy prices and shares have rallied to upper downtrend channel lines.

We will be publishing more frequently given these important simultaneous events.

Social Mood

It's the 50th anniversary of the release of the Sgt Pepper Album. Check out Bob Prechter's article and chart on how the Beatles Popularity reflected the rise in the DJIA in

the 1960s.

 

 

denislelam@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 and 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.

 

 

 

 

Bullish Percent Breaks Downtrend

Wednesday July 12, 2017

Commodity prices are looking to put in a bottom here. In fact last month the stockcharts guys who do the monthly report speculated commod prices  could bottom by their report in July.

 

BPENER

 

The downtrend in bullish percent for energy stocks has been broken. Both RSI at top and MACD at bottom are on the rise.

Stocks Rally, Oil and Bonds Roll Down

Weekend July 8, 2017

IN  21016 when rude averaged $43 a barrel, about 30 of the biggest shale companies spent $1.58 in cash for every $1 they generated. US operators lost a combined $130 B since 2015.

hElliott Wave Analysis for Crude Oil

WSJ Today

WTIC

As stated in our newspaper column posted yesterday, the H & S projection is to $35. Wave B of Wave 4 from the 2014 top is now under way. Given that Wave A took over about a year to top, this could go on for some time. At bottom note the lackluster MACD getting weaker and weaker. I posted a link to Bob Prechter's EWT on Friday. You can view his analysis of the oil market by following the link.

Apache APA

APA has been in a well defined downtrend since April. But yesterday it once again violated the lower trend line. I am wondering if APA collapses here. AS one can see MACD and RSI are nowhere near a bottom. .

Stocks Advance Decline Line the best overall indicator we have.

Still strong, no top here yet

Bonds

And to quote Bob Prechter, the potential for financial disaster among bond holders is far greater than anyone realizes. Recall that responsible or so they thought people actually bought

zero interest bonds. I doubt there will even be  a bid for such nonsense as rates climb. Here a first wave down and second wave up have completed. Note Wave 2 failed at the convergence of three moving averages. Wave one bottomed at the 200 week MA. Now that Wave 3 is underway, one can be fairly sure it will fall below the 200 week MA. TBT and TBF are bear bond funds which will rise as bond prices fall.

Five Year Yield

 Rates are so low this is not getting much attention but just the move from 1.725 to 1.95 is 13%.   With so many city, county, and state pensions underfunded, again the potential for disaster as rates rise is tremendous.

So stocks are still rising, oil has rolled over to the downside as the correction completes, and interest rates are on the rise.

Social Mood

The WSJ  and Peggy Noonan find themselves wishing for more serious speeches from Trump like the one delivered in Poland this week. The media is confounded that they cannot take him down and he dislikes them as much as they do him. A letter writer i the WSJ points out that the US is dangerously divided between secular and religious thought.  I see no signs of this changing, it only looks worse.

Matt Lampert explains terrorism and the stock market.

 

 

denislelam@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 and 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.

Access the latest Elliott Wave Theorist

 

 

Friday July 7, 2017

 

Obtain the latest edition of the Elliott Wave Theorist at this URL.

 

ttp://www.elliottwave.com/r.asp?rcn=affem&acn=11tmp&url=http://www.elliottwave.com/Free-Reports/Prechter--That-time-still-lies-ahead-but-it-is-coming

Friday July 7, 2017

Energy and Stocks Declining

China, one of the world’s largest oil imp0rters, bought nearly 100,0000 barrels of oil a day from the US in the first five months of 2017-10 times the average in 2016.

Wall Street Journal, Friday July 7, 2017

And this means a lot more activity on our own Gulf Coast. More on that in a bit, no wonder the Chinese are buying, there is a sale on oil prices. Prices for West Texas Intermediate WTIC nudged over $47Wednesday and then violently reversed under $45. As I write Friday July 7, in pre-market trading, WTIC is down $1.38 to $44.14. Prices bounced at $42 in mid-June but the action now makes me suspect $42 will fall shortly.

If that happens the head and shoulders pattern on the daily chart suggests a move to $35. Given the 6.4% drop just this week, that is not surprising.

Unleaded gasoline looks ready to reverse to the downside as well. Trading at $1.53 ,the last low was $1.40. The February 2016 low was way down at $.90. So prepare for cheaper gasoline prices.

Apache APA continues to acct as a bell-weather for the energy sector. It dropped 4.5% Thursday closing near the lows of $45.71. A break of $45, likely today, could well retest the February 2016 lows of $32-35.

Now back to energy marketing. China’s biggest suppliers are Russia, Saudi Arabia, and Angola. But the US may well ship over $1 billion in oil this year to China. OPEC has been attempting to limit production. And world wide, importers are likely happy to be able to deal with sources outside the volatile mid-East. In February of last year, I was interviewed by the South Korean television network. They were making another of several trips to Texas, anxious to find new sources of oil for their expanding economy.

But the trip from the Gulf Coast is indeed a slow boat to China. It requires six weeks to reach China from Texas rather than the three weeks from the Mid-East. So Texas oil has to be lower priced to account for higher shipping costs.

Occidental Petroleum recently sent one of its 2 million barrel tankers from Texas to the far east.   Already 25% of its exports are from Gulf Coast Ports.

We have further real market proof of lower prices. Saudi Arabia lowered its price to Asian buyers this past Wednesday.   Will this develop into a price war between the Saudis and the US? Will that make a US Saudi relationship a bit more uncomfortable? Will Saudi be able to sell 5% of ARAMACO next year if prices remain below $50?

Meanwhile stock prices retreated Thursday along with oil. The SPX finished at 2409.75, down about one percent. A break of 2388 would turn the daily trend down.

Meanwhile I am wondering how what will apparently be a shift to more electric vehicles will eventually affect the demand for oil. World wide electric generation is turning to natural gas. So let’s talk Tesla for a moment.

Social mood toward wonder boy Elon Musk is so strong that non-profit Tesla until Thursday had a larger market capitalization than GM or Ford. GM regained the top spot with $52 billion with TSLA at $50.7B, and Ford lagging at $44.5 B. GM has actually beat TSLA to the all electric $35,000 car with its new Bolt offering, claiming a 238 mile range. For urban commuters a daily re-charge would not be necessary. And Chevy has all those handy dealerships. TSLA has none. In Texas as state law requires a local owner. Volvo announced it will go 100% for hybrid or all electric as soon as 2019. As Chinese Greely owns Volvo, this is not surprising given the need to China to do something about its massive pollution problem.

TSLA shares have doubled from last December’s low of $180 to just over $380. But in the last three days the price dropped from $360 to 308.83.   Battery shortages still plague TSLA. And it is certainly no long distance touring machine with a limited range and lengthy re-charging required.  TSLA has existed on government subsidies and consumer tax rebates. Its debt totals $9.6 billion with a debt equity ratio of 156. And that would be much higher if the stock drops back to some reasonable level.

Hmm, could TSLA be sending signals of irrational exuberance?

First Hint of a Top

Thursday July 6, 2017

NASD history

1987 market fell 41% in 22 days

2000 Market fell 40% in two months

2007 26% in four months

The NASD 100 is up over 400% from the March 2009 low. It has not regained what was lost in the 372 point down day June 9. 

This remarkable event, with no particular reason for the sell off seems not to have registered on most traders. Yet the  index is now under its 50 day MA.

Monthly NASD

the run up from the February 2016 low looks to be parabolic to me. Andy Kessler had an interesting column on excessive valuations just days ago.

Shake Shak with a mere 84 US outlets trades at a 65 P/E. And that is at the current $35k, it hit $92 after the IPO.

Today Nikki Haley is openly discussing US Military action against North Korea. Defense Secy allows that a war on the Korean peninsula could easily result in millions killed.

We are in dangerous times.

WTIC

As noted this past weekend, oil has been in a bear market since 2008. Now it is below all the MAs, falling with commodity prices.

Today Volvo is on the front page announcing all hybrid and electric by  2019. 

Chevy beat Tesla to the $30 K electric car mark with the Bolt.

I have no idea just how quickly we transition away from the internal combustion engine. But it looks to be well underway.

Is it possible that crude oil is in over supply while demand is turning down?

SPX

five waves up are pretty obvious on the very long term monthly chart.