Weekend January 6, 2018
My friends at Elliott Wave International concluded the market was close to or at a final fifth wave top on numerous different indexes. Now John Murphy at stockcharts.com, using Dow and Elliott theory, suggests a final high of 2,778. That is only 35 points over Friday's close of 2,743. In such a mania as this it would not be surprising to see a throw over to a higher level before this all ends. Even the Wall Street Journal on its editorial page, as well as Mary O'Grady on last week's Editorial Board tv show, have warned Trump about the danger of linking his Presidency to the successful stock market.
Relative strength is in purple while the black line is the SPX. Both are at the highest levels in 20 years. IN 2000 and 2008, once RSI fell below 70, it was a rush to the downside.
Five Waves up
I have noted the last two weekends that the DJIA is thousands of points above its 200 bar weekly MA.Take a look
The blue rectangle outlines the distance back to the 200 bar weekly MA, ironically about 6,500 points which is where the DJIA ended the 2008-2009 correction.
Goldman Sachs Commodity Index
Meanwhile the GSCI has just cleared its 200 week MA. The inverse relation could not be more obvious. After years of low interest rates, Central Banks around the world showering economies with QE, the new FED Chair may well expect to have his hands full.
Gold
Tom McClellan makes the case that gold moves in a three year up, five year down cycle. We have not completed the five down years. This is a massive base to launch an assault.
What about the big picture for gold?
Gold Monthly
Could it be that the move from 2000 to 2012 was a Wave One? Then the market corrected for five years in a Wave Two? If third waves are 1.618 times Wave One, well
1900-300 = 1600 x 1.618 = 2,588 +1,100 = 3,688 for a target for Wave Three. his sheer speculation on my part. But recall that after the 1948-1966 stock market rally from 185-1,000, commodity prices soared during the 1970s. Remember Gerald Ford's Whip Inflation Now WIN button? I suspect we are preparing for a similar repeat of that kind of market action.
US Dollar
Over the same long time period the US Dollar has retraced 61.8% of its decline from 120 to 75.
Weekly Dollar Chart
Uh oh, the Dollar has fallen below its 200 bar weekly MA. And the 50 is crossing thee 125 to the downside.
Oil prices have had a big run in a short time. It the Bear Fund DUG is as over sold as oil is over bought.
It is not unreasonable to expect oil to correct its big run. In that case some shares of the bear fund DUG may be warranted. If there is a PMO crossover buy signal I will post notice.
The Bottom Line
The stock market is extended to RSI 84. That does not mean the party is over but correction is over due. Shorter term expect the same for crude oil.
We remain bullish longer term on commodity plays.
Social Mood
Be sure to read the Nial Ferguson piece in the Review section weekend WSJ, In Praise of Hierarchy.
Also the Weekend Interview with Morris Fiorino. He explains that the polarization is among the politicians not the electorate.
This explains the rapid shift back and forth from Republican to Democrat in the Congress and White House.
A theme of this blog has been the New Civil War. The latest clash was on display in Governor Cuomo's State of the State address about New York this week.
The new tax act puts a $10,000 cap on the state and local taxes that can be deducted on a 1040. The deduction has allowed high tax states, CA and NY, to disguise just how high their taxes are. Republicans intentionally put in a limit to demonstrate to those residents just how much they are paying, usually for a disfunctional government, hello New Jersey.
Cuomo's solution is to sue the U S A claiming the tax is illegal. This is true distress and panic on the part of deBlasio and Cuomo.
Other interesting notes includ
Cadillac sold more vehicles in China than in the US last year, a first.Annual sales increased a stunning 51% to 175,489 vehicles. No wonder the US Dollar is down.
Another stunners is that the population of India is expected to overtake the population of china by 2025. I don't know where they will put all those people but...speaking as a college teacher, we see considerable more hard work from Chinese and Indian students than Americans. Finally both these sleeping giants have entered the modern world. As Richard Nixon noted, there are hundreds of Chinese laundries in NYC, but no Russian laundries.The Chinese are an entrepreneurial people. Now they awaken from a 500 year slumber. Mathematics stayed alive and well in India while Europe slept though the Middle Ages. The US is transitioning from being the power to sharing power.
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