Weekend March 25, 2018
Markets move from Greed to Hope to Fear
DJIA
The first drop was 26,500 to 23,500, 3,000 points.
So this next drop if it matches would be 25,500 to 22,500 for another 3,000 points. I would expect that to happen this week.
While those hoping this is 'still just a correction' noting stocks would have to drop 20%to be in official bear territory, the Mood already matches three bear markets.
Social Mood during Past Bear Markets
1973-74, 1,051 to 577 in two years
The press was consumed with hating Nixon and eventually he own party disowned him resutling in his resignation. Add to that the energy embargo and gasoline waiting lines everywhere and bingo, bear market.
Now we have Trump at war with both Democrats and his own appointees, State, National Security, Attorney General, Economic Adviser, and that is just the last month...
2000-2002 Dot.com Collapse, NASD falls from 5,000 to 1,250
NASD ran to 5,000 on the belief that internet based dot.com companies were the wave of the future. But all dot.coms did was burn through the case raised in IPOs. The 9/11 attack happened well into the decline. The press disliked Bush who could do nothing to stop the decline.
Now the NASD is over 7,500 on Facebook, Apple, Netflix, Google. But the mood has clearly turned against FB. After five days of silence, Mark admits mistakes and will probably be called before Congress. Meanwhile tariffs rise the cost of business here sending Boeing and Caterpillar down. Those two stocks are heavily weighted to they are taking the market down. Now steel and aluminum stocks are falling as well.
2007-2009 Sub Prime Mortgage collapse, DJIA 14,000 to 6,469
Highly leveraged bets on bad mortgages brings down numerous brokerages, Bear Stearns 'rescued but when Lehman is not, markets collapse. Warren Buffet rescues Goldman via a 10% preferred stock deal. Merrill Lynch sold an hour or two before Lehman goes bust. Republicans have now lost House, Senate, and finally White House.
Now margin debt is at record levels. Just weeks ago headlines read, New Investors Fear Missing Out. See our letter to Mr. President noting his foolish citing of record stock prices as evidence he knows what he is doing. Now China backs off buying Treasury Bonds. Investor sentiment was at a multi decade high prior to the January peak in stocks.
https://www.cnbc.com/2018/01/10/reuters-america-us-stocks-wall-st-slips-after-report-china-may-slow-u-s-bond-purchases.html
My point being that the current situation has all the hallmarks of three past market panics right down to Presidential dis satisfaction.
Bonds
Sell offs in the stock market typically result in a 'flight to quality' which would be a bond rally. But with SPX at top, the TLT rally is weak at best.
With a $1.3 T spending bill, the Chinese reluctant to buy in retaliation for tariffs, and the FED looking to unload trillions in bonds after years of low rates, this market is in trouble. I noticed ads for ' high yield CDs' in the paper today, 2.5%-wow!. Clearly no one remembers the double digit rates of the 1980s.
Gold
Gold took out 1342 and now needs to break through 1360. Silver bounced 20 cents Friday to 16.58 but needs to take out 17.00 to really get going.
Miners rallied via the XAU Friday up 2.66% But the XAU is facing resistance at 83.
Energy
West Texas crude rallied right to 65.89 as shy as can be of 66. That remains resistance. The Energy Service XES remains weak suggesting the market sees problems in this sector. Apache APA had a dead count bounce to 38 and pulled back, for now that is resistance. Drilling companies mostly remain weak. Patterson PTEN managed a conter trend rally from 17 to 20 and is now fallig to 18.50.
The Dollar remains weak, no wonder!
Bottom Line
Stocks should have a spike low this week. that will set up another low for May in 45 days. The triangle discussed two weeks ago resolved to the downside.
Interest rates continue higher. Gold looks like it will rally for the time being but mining stocks need to really get going here.
Energy is mired in the stock sell off.
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