The Market Perspective

Recovery Fails on Second Day

Wednesday June 27 2018

This morning I suggested that the BPSPX indicator might rally and try to vault the MA it fell below. It could not even do that. The rally managed a 266 point DJIA rally but closed down 165. 

 

Here is the indicator updated.

The  2009-2018 party is ending.

Bullish Percent Finishes Five Wave Advance

Wednesday June 27, 2018

Monday was probably what Richard Russell would call a 90% down day. This occurs when 90% of stocks close lower, if it was not 90% for the DJIA, it was a high percent for sure.  Russell would also note that such days were usually followed by a couple of languid, weak attempts to regain ground.Tuesday certainly qualified in that regard. And in pre open Wednesday not much is happening as well.

Five waves up can be counted from the low.And the BP indicator stopped, and reversed and fell below the trend line at the 61.8% retracemetn level, almost on the exact number.

Here is a closer look.

At this juncture such an indicator will often try to re bound above the trend line, and fail.This really bears watching as the trend line has held since the April low.

Historians may record that this was the week the world went from trade talks to an all out trade war. Trump is calling out Harley Davidson. HD has no choice but to move operations to a country where there is no export tariff to Asia. Apparently Trump, as noted on Mornings with Maria by all three female analysts, does not understand the global supply chain. The WSJ notes that a US nail maker is under siege due to higher product costs of steel. And there are 20,000 requests for exemptions.  Already Texas pipe producers are beginning to wonder what will happen as they are forced to buy more expensive steel. There are way more steel consumers in America than steel producers. Trump is helping a 1955 by gone industry which is now far more mechanized, ie, steel.

Merkel is in trouble in Germany. Now that 1.5 million immigrants are there, the Germans are not happy. 

The US Dollar is stronger and  the yuan hits a new low.  We noted the new low in the Shanghai Index this weekend. Negative social mood is rolling markets world wide.

Lone Star State

Tuesday June 26,2018

 

Dispatches from the Lone Star State

 

To  a Texan marooned north of the Mason Dixon Linew

Please remind him that Texas has survived six different flags and emerged still the best state to live in and the one
everyone wants to come to, there is no immigration problem in Massachusetts, CA, IL, or Rhode Island

We have the best of everything including West Texas Sunsets, Pollo  Enchiladas, Blue Crab, Gulf Shrimp,
and the Guadalupe River to name a few

There are more reasons to live here than there are other states in the Union

It only rains here so we can grow better bluebonnets and drink a Lone Star while gazing at their beauty

We realize that you are having to make do amid suffering disorientation and deprivation
This would be the deprivation and shock resulting from crossing the Mason Dixon Line,
this is worse than jet lag and at least is an indication that your southern inclinations
are strong, true, and like any great hunting dog, on point! Were you comfortable there we would worry!

Must be the cold damp air in Boston  which is of course is  foreign territory to any true Southerner. 
It is no wonder they had to invent clam chowder to keep warm.....
We recognize that you are without the necessities that make life the delightful experience
that it is here in the South

Iced tea with mint
Brisquet, well smoked
Chicken Fried Steak
Black   Eyed Peas
The Big Twelve (note Harvard and Yale are and will always be II A)
Lone Star Beer
Jeff Foxworthy
Jerry Clower anecdotes
Chicken Enchiladas
Justin Wilson Jambalaya
The mere knowledge that MA and Rhode Island could fit in  Brewster County and still be lost
to mankind which come to think of it would not be a bad thing

So take heart, stay the course, realize that you wear boots and they wear Hush Puppies
Which means like all Texans you are ready to saddle up to ride to the rescue of any Texan in need  while they are ready for the lazy boy

Remember only that we here Deep in the Heart of Texas will monitor your trip and stand ready
to provide aid, assistance, and Pace Picante Sauce and Wolf Brand Chili  as needed to any you encounter  that
might be ripe for conversion  to  the South

Till then stay the course and answer their ' hey youse gals' with Howdy I'm from the Lone Star State

We will welcome you back and will  be relieved to know that another Texan has returned from the real
frontier of danger to rejoin us here in God's Country, the only state that was once a nation and in our
hearts will always be

 

the Lone Star State

What Could Go Wrong Part II

Monday June 25, 2018

We noted the weak bounce in the DJIA Friday. In pre market trading, the DJIA is down160-175 wiping out the Friday bounce.

Industrial companies are getting weaker, and here is a Trump Ross example.

HOG

 

IN a year and a half Harley Davidson has lost about one-third of its value. Europe has targeted HOG for tariffs as it is in Paul Ryan's home state.

Markets do not turn all indexes at once.  And as mentioned Transports and small caps still look good. But this makes nine days in a row of declines as Friday's up move is not gone.

What Could Go Wrong?

Weekend June 24. 2018

Yesterday I spotlighted several energy plays that look ready to advance. But in the overall picture, what could go wrong?

1. It is summer which is rarely a great time in the markets.
2. Shanghai stock market is weak.
3. The only think Donald and Wilbur have accomplished so far is to encourage former allies to hike tariffs on the US.  Already producers of various products in the US are being harmed.  Boat manufacturers, motorcycles, and soybean exporters are already having difficulty.
4. Friday's rebound as noted yesterday was very weak coming after an eight day sell off.

Shanghai

The six months of 2018 have wiped out the previous  1.5 year of gains. And the big drop this week may well be the start of a third wave, the strongest of three waves down.

This is an echo of the weakness in the DJIA and Berkshire Hathaway.

Mexico

 

Mexico finally recorded an up week, perhaps it is bottoming. But  between  the upcoming election,  stagnant NAFTA progress, and the border squabble, the news is not encouraging.

Turkey

Turkey has been a zero sum game for the last two years. Erdogan's plan, whatever it is, is not working.

Canada

Canada has not been for the faint of heart, Down, up down hard and then up again.

In the US the Transports and NASD100 have been strong.

 

 

[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 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 predictions.

 

Oversold Dow Reverses, Oil Jumps,Our Energy Picks

Weekend June 23, 2018

Bumpiness Signals Weakness

I would agree that a mere 119 point move up in the DJIA after 8 straight down days is rather weak

Chart of the Week

The OPEC meeting bumped oil a huge $21 to the upside.

I really like FRAK as it includes expensive stocks like Pioneer, $185, and EOG, $118.51, for a mere $17.09.

And I like Viper VNOM as it is an expensive way to participate in Diamond Energy symbol FANG which trades for $125.56

Chesapeake Energy CHK

CHK has been given up as a zombie stock, the walking dead, particularly after the apparent suicide of Aubrey McClendon, dead one day after being indicted.

https://www.cnbc.com/2016/03/02/ex-chesapeake-ceo-mcclendon-dies-in-car-wreck-day-after-indictment.html

The weekly PMO is turning up as the stock recovers from  a 90% decline.

CRAK looks like it is coming into a decline, and again this includes ownership in expensive Phillips 66 and Valero for a much lower price.

CRAK

DJIA in Black   and Berkshire Hathaway red black  OHLC bars

 BRKB pretty well mimics the DJIA, and at the moment that is not a good thing.

Abraxas AXAS

Here is another nice set up

 XES Energy Service

I have commented that XES was badly lagging XLE, now it looks like it too is making a bottom.

Again this is an economical bet that the phones will be ringing at the service companies on the boost in the oil price.

DWSN, this one is approaching the overhead resistance at 10-12 But PMO is turning up. Note this is the slow moving MONTHLY chart, so be extremely patient.

 

 

And in the bargain basement now selling for 17.2% of book value, cash flowing and with a current ratio of 3.14, okay okay so the debt / equity is 2.16 but ...

Parker Drilling

 

On balance volume at top and Price Momentum at bottom have not reversed yet.  But price has fallen 95% from the 2014 high. 

PKD Put this on the watch list

 

Cash per share is 85 cents and the stock is 33 cents, so you get the company assets, okay okay, and the debt for free.

 

All but PKD look like their indicators will soon turn up

FRAK, CRAK, CHK, XES, AXAS, VNOM

 

WTIC

 

Okay that is good for today.

 

 

 

The Rally Seems to be Tiring

Friday June 22, 2018

Tom McClellan suggests the Price Oscillator is calling some sort of top

Summer Doldrums Settle over Markets

All stock or even energy markets do not peak or bottom at the same time. Let’s consider the stock markets first.

The Russell 2000 is an index of smaller companies. It just hit a new high, up 11% this year. Apparently investors worried about a trade war are finding shelter among firms not so involved in international exchange.   Tech has also been on a tear up from 6,300 to 7,300 this year. Notably a handful of stocks have added most of the gains there, Google, Netflix, Facebook, Apple, and Priceline.

This is not the case with the broader industrial indexes.  The S & P 500 peaked along with the DJIA at the end of January, 2018. Both have trended sideways since. The S & P is in an uptrend since April but still below the January high.   The weakest of the large indexes is the Dow Industrials DJIA. The DJIA has dropped the last eight days in a row but is up a weak 100 points in pre-market Friday trading.   The DJIA just recorded its third lower high since January. And various momentum indicators are starting to roll over to the downside.   As I have previously noted, the weekly chart is still in a strong uptrend. On the other hand the weekly chart has not re-visited its 200 bar moving average since January, 2016, two and a half years. It could drop 5,000 points just to test the 200-week moving average.   A technician would conclude a correction to the two year run-up is underway.

A more fundamental analyst would not doubt point to the growing evidence of an international trade war. So far Wilbur and Donald have only angered our best trading partners, Canada and Mexico, and raised steel prices here and probably cut back on US agriculture exports. This past week China did not levy tariffs on Liquefied Natural Gas LNG. The simple reason is that China needs the LNG. This is good news for the Port of Corpus Christi.

Our prediction of lower crude prices was correct as it dropped from $73 to $65. I suspect however this is not over yet. There is ample supply and producers in the Permian Basin are still not getting $65. The 200-day moving average is $60.71. I expect that is the next price level to be tested. Donald might as well take credit for lower gasoline prices. Unleaded futures are down from $2.25 to $2.00. I suspect the next target is the cluster of moving averages at $1.75-1.80.

The bottom line is to exercise caution in any purchases at this time. Momentum has left the trading room.

Free EWI Week

Tuesday June 19, 2018

Dear Reader,

Elliott Wave International is opening the doors to its entire lineup of trader-focused Pro Services -- but only for a week! It's a ticket that's worth $1,180.

Now through Sunday, June 24, you get free access to every forecast, every chart, every piece of expert analysis for 50+ markets -- stocks, forex, cryptos, gold, oil and more.

Learn more and register for free.

BONUS: Register now and get instant access to 6 Markets Ready to Move Before Year-End. This timely 6-page report gets you up to speed FAST with the most-compelling opportunities brewing right now -- and tells you how to catch them.

Don't miss this! Year in and year out, this is EWI's most popular event. And the timing couldn't be better. EWI's Pro Services are highlighting BIG market opportunities for subscribers right now. Open House is your chance to join them -- free for a week. Register now to get started.

Sincerely,

Dennis Elam

World Cup Slows Trading World Wide

 Weekend June 16, 2018

Weekend WSJ

Social Mood Update

Page A8 China Tells Us firms to Brace themselves

Tariffs Are  lobbed in Trade Fight

 Page A 9 G 7 Tensions Cloud trade outlook The mood is really changed after the G 7 a European Union official said, Trudeau warned  Canada would not be pushed around

People Aren't Rational, and that's Why we Need Free Trade - see entire article on behavioral economics

Is it Human Error Whena Rob ot Fouls Up? Aristotle called man a 'social animal'

Page A 14 Trump had better hope trade wars are as easy to win as he claims-Editorial Board

Perhaps the most important article is Page B14- How to Spot Signs of Pain in the Trade Wards

The article notes the pain may not be obvious until well after the damage is done

One, watch the stock markets

Two,  Watch communities where jobs are dependent on trade

Third, companies admit disruptions in their business, Lenox puts Mexico plant expansion on hold

 

Finally a study shows trading volume dropped 33-55% during the 2010 World Cup

OH and on page D7- Lambo introduces $200 K SUV

This follows forays by Jaguar, Maserati, Bentley and yes even Rolls rRoyce into the SUV world.

It has near doubled Jaguar sales and Porsche now sells more Cayennes and Panameras than sports cars

 

 

 

 

Anadarko APC and apache APA

Friday June 15, 2018

A Tale of Two As

Despite the run up in crude prices to the mid $60s, creating real cash flow remains difficult for energy firms. I have used Apache APA as bell weather, but it appears I bet wrong. Anadarko APC has way outperformed APA in the last year. Let’s take a look.

Firm	Anadarko APC	Apache APA
Proven Reserves	$1.4 Billion Crude Equ.	1.2 Billion Crude Equ.
Market Capitalization	$36.59 Billion	$16.39 Billion
Price to Book	3.53	2.2

Both firms have about the same proven reserves at $1.2-1.4 billion. But APC has more than twice the market capitalization than APA. And it trades for 50% more on a book value basis.

Now let’s break down the financials. Anadarko has negative net income for the last three years losing $456 million in 2017.   The last two quarters have turned positive with the rise in crude prices. First quarter earnings were $121 million. But eventually al firms (save Tesla I guess) must produce enough cash from operations to cover investing activities.   Fracking remains an expensive proposition. APC capital expenditures were $1.547 billion for the quarter 2018. Net cash flow has been negative for the last three quarters, currently $1.190 billion in the red. Why APC is spending over one billion each of the last three quarters to re-purchase its own stock is a head scratcher to me.   Wouldn’t that money be better left in the bank account?

Apache APA has generated positive operating income for the last four quarters. First quarter 2018 was $473million.   Capital expenditures for APA were $877 million for first quarter 2018.   Net cash flow overall were negative the last two quarters at ($591 and $274 million) but positive the previous two at $275 and $146 million. APA is not re-purchasing its stock. APA paid back $150 M in debt each of the last four quarters.

The bottom line for investors is the stock price. IN the last eighteen months Apache has fallen from $6750 to just under $35 and now recovering to $42.89.   The moving averages are attempting to turn up and other momentum indicators are positive.

In the same period APC fell from about the same level, $72.50 to $40 and has now recovered back to $71.04. Those are wildly different valuations for two firms with such similar results. But real bottom line is that energy producers are still grappling with how to refine cash from expensively produced oil and natural gas.

The NASD hit a new high this week. Having run up NFLX and GOOGL, now the market is buying Twitter TWTR, up 13.47% this week on a Goldman recommendation. And what does Twitter own? Irrational exuberance anyone?