The Market Perspective

FANG Disappoints, Energy Service Perks Up

Weekend July 28, 2018

Could the collapse of confidence in the red hot social media FANG sector be telegraphing a warning?  The economy is in great shape what with tax cuts and tariff cuts and let's get NAFTA behind us before the elections.

Energy Service

After the gap down this looks like a reversal from a very oversold condition. HAL is big world wide energy service.

Patterson PTEN is Texas based energy service, same idea.

Berkshire Hathaway BRKB

 

In all three cases the MAs need to come down to the lower level, converge, and then begin climbing, but this should be the time to start accumulating.

Small Caps Weakening

Small caps are weakening, the PMO has turned down in the lower panel. A move back to the MAs at 158 - 1600 seems reasonable.

August is the seasonally weakest month of the year so looks like that is where we are going.

Social Mood

Trump's press secretary is thrown out of the Red Hen Restaurant, ditto for the Homeland Security gal at another restaurant, and Maxine Waters wants all Dems to accost Republicans at every opportunity. Where is MLK's non violent theme?  I suspect this just gets worse as the election approaches.  Yet polls show Americans are not interested in Russia or Stormy Daniels.

After all the tweets and threats looks like Trump is trying to wrap up some wins before the election. This explains the about face with Junker this week, claiming 4.1% victory, and hurrying to wrap up NAFTA. Let's hoe so.

Trump had a great week with the return of Korean War Remains, a tentative agreement on EU tariffs, and the  4.1% growth rate. And the Dems just can't stand that. Regrettably rather then trot out a solution to something they remain focused on Stormy and Russia.  We shall see how well that works out for them in November.

 

 

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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.

 

A Socionomic Look at the News

Weekend July 22, 2018

Auto Armageddon avoided for Present

Commerce Secretary Wilbur Ross says ‘it’s too early to move ahead with 25% tariffs on imported cars and parts.’

Wall Street Journal today July 20, 2018

We have written numerous columns this year warning of a ‘gathering storm’ of retaliatory tariff wars. Social Mood is slowly lowering markets as political leaders, not wanting to appear weak to Trump threats, resist. Around the world only Canada seems to be making a new high, with India revisiting the last high. Most other markets made their high in January along with the US. Shanghai in particular, has fallen from 3,550 plus to 2,765.

Now consider these news headlines.

Trump Raps FED (once again Trump’s Wharton degree fails him, the FED simply follows the two-year note yield. Higher rates are a sign of a more robust economy, low rates reflect the weakness of the last eight years. )

EU threatens of Retaliate for Levies

US Automotive Policy Council Opposes Tariffs (that is GM, Ford, Chrysler and Toyota et al)

America’s Chinese Ambassador Feels Heat

Investors Treat Asian Junk Bonds Like trash (yields rising to 9%)

Alcoa Shares Tumble 13% on Tariffs

Stocks Decline, Weakened by Financials (odd in that rates are supposed to be going up)

British Sterling Falters over Brexit Worries

Trade fears Crunch U S Grain Prices (farmers voted for Trump)

Another article suggests that even powerhouse German is now the ‘sick man of Europe with small company productivity lagging.

On a positive note, Blue Origin passes Test in West Texas

Amid worries about the EU and Brexit, the US Dollar has risen from 89 to 95. That is a counter to the fall from 102 to 89. But it is enough to have crushed various commodity prices. In the past four months gold has dropped from $1,370 to $1,224. Silver is down from $17.60to $15.19. In the last two months copper fell from $3.30 to $2.70. All this weighs on emerging markets which are basically commodity exporters.

Crude oil has dropped about the same 10.7% as gold.  We predicted a pullback and oil dropped from $75 to $68. Unleaded gasoline prices eased by 25 cents. Note that Congress is working for the US to ship more LNG to Europe in response to Trump’s comments that Germany is too dependent on Russian energy supplies.

The bottom line is that markets do not like uncertainty. Foreign markets are pulling back due to their weaker currencies and uncertainty over higher tariffs.   Most world markets have not re joined their January highs. With the November elections 3.5 months off, don’t expect new highs in mood, or the markets.

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Buffet Rescues BRKB, Bonds Contiunue Rally

Weekend July 22, 2018

 

BRKB

Warren was apparently reading The Market Perspective about how BRKB was headed down. So he announced a share buy back, and bingo, BRKB rallied. It has pulled back since and might probe that big gap. And if the overall market pulls back, can BRKB stand the strain?

Two Hour

 

Nice break out to the upside.

 

 

 The NYSE A/D line is in the same position where it corrected last January.

 

The trend is still up but Friday afternoon I had CNBC and Fox Business on. As more and more talking heads discussed the billions of tarifed goods, the market slowly lost its momentum. See our accompanying newspaper column posted next.

DJIA and TRAN

The series of lower highs, the convergence  of all the MAS, the weak PMO at bottom, and the lagging Transports at top suggest a more significant pullback may be at hand.

Gold and the Dollar

 

Gold down, Dollar is back to its previous high, PMO is pulling back, this could mark a Dollar high and metals low pretty fast.

Dollar and Oil

Oil has managed to sty in an uptrend but it should move higher on dollar weakness as well.

Notes and bonds have rallied since May but rates eventually look higher which means lower bond prices.

The Bottom Line

Good chance for stock market pullback, dollar high, metals and oil low.

Social Mood

Again see our weekly newspaper column posted next.

Reasons the odds are stacked against Trump in the Tariff War.

China is united whether the people like Xi or not, he is in charge. There is no dissent to distract policy in China. 

Here Trump frets when told there are things he cannot or should not do. One third of voters are unhinged livid that he is President. This is so

much the case that they are unable to understand WHY he got elected.Hence they cling to some conspiracy theory of Russia or Comey or whatever

that brought us to this point. This makes it much more difficult to mount a united US front for anything.

Meanwhile Canada, Mexico, the EU and China are inking their own trade deals without the US.  And given the bruised feelings it seems unlikely

the US will be invited back anytime soon.

Even Trump's own party doubts his trade strategy. And given China, North Korea, and trade, where are the wins for Trump?

 

 

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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.

 

BRKB

Weekend July  15, 2018

BRKB Daily

 

This week wil. certainly tell the tale of whether a bottom is in place.

BRKB Daily

 

Impossible to tell, it has failed here before.

Two Hour BRKB

 

Stay tuned, the conclusion should be exciting

 

Weekend July 14, 2018

Tom McClellan sees risk complacency. in Friday action.

A Top for Now

Friday July 13, 2018

Markets Topping for the Time Being

They call me the wanderer
Yeah, the wanderer
I roam around, around, around

 

Dion DiMuci, The Wanderer, 1961

Those 57 year old lyrics summarize the stock market since its last January 31 peak peak at 26, 338.   It has not been near that peak since bouncing in a range with 23,360 as the low.

It appears that the July rally from 24,100 is topping now at 24,925. That suggests a move lower into the end of July. The Transports are not confirming the move up in the Industrials. AAmerica’s favorite stock, Berkshire Hathaway BRKB, just dropped below its lower support level at $190. BRKB peaked at $217.50 January 31 and bounced at $190 several times. In the past month it fell to $185. After a drop through previous support, often a market will attempt another break through to the upside, and usually fail. That appears to be what is happening now. Notably BRKB is now below all four daily moving averages we monitor. This could be a set-up for a low risk entry for BRKB. It may also be a warning that stocks are coming to a final nine-year high, possibly seen in late January.

Meanwhile energy markets have already begun their correction. West Texas Intermediate had a year long run form the June 20107 low at $42.50 to the recent high of $75. The Thursday close was $70.33. Support lies at $64. Natural gas peaked at $3.04 and has fallen to $2.80. That is about where the uptrend line from February lies. This sector has finally come alive with Chesapeake CHJK soaring from $2.50 to $5.50 since February. Like BRKB a pull back in CHK would offer a nice entry point. Clearly natural gas is becoming a mainstream energy source for utility companies. The Chinese did not impose a tariff on Liquefied Natural Gas LNG as they need all they can get from our Corpus Christi export terminal.

Finally we note that while the price of oil has rebounded, all the roustabout and drilling jobs have not returned. Drones are now being used to monitor tank levels.   In the 1970s, humans dropped a measured line with a weight on the end to measure the depth of oil in the tank. A chart from the tank manufacturer converted to the vertical rise to the amount of oil in the tank. That kind of inefficiency is now gone. Now both tank levels and drill bits have monitors relaying information back to headquarters eliminating a lot of previous fieldwork. Or as Dr. Emmett Brown might put it, Marty, it’s back to the future!

Stocks Top for Now

Wednesday July 11, 2018

It appears stocks have topped for now.  The DJIA has traded in 23,300 - 26,600 range since its top in January.  Holman Jenkins has a good column on the growing trade war.

These lines caught my eye.

 

Mr. Trump is messing with a complexly arranged global auto manufacturing order that’s working pretty well for Americans right now.

His supporters knew this moment was coming. His virtues are also his faults. He relies on his gut. . He’s playing checkers. The world is playing chess.

His connection to his own administration (from which he often gets good advice) is tenuous. On trade (and Mexican immigration), the world has changed since the ’80s, when his sensitivities were formed.

the last line about sensitivities formed in the  1980s is probably right.  And he notes the car makers themselves are against all this. But this event is providing reasons for the market to embark on its typical summer slumber. 

BRKB

The MAs crossed to the downside in March and have stayed in sell mode since.  Price is dropping even further below the blue downtrend lines.

Weekly BRKB

The FIB retracement level to  50-61.8% suggests 160-165 is likely support. and notice BRKB was negative throughout 2015.  The 13 week EMA is just now about to cross the  34 EMA generating an official weekly sell signal. The two year rally 2016-2018 is now being corrected.

Trade Wars, The Hills are Alive with Electricity

Weekend July 7, 2018

Trade Wars are a Negative Sum Game

Districts indicated that plans for capital spending had been scaled back or postponed as a result of uncertainty over trade policy

Minutes from the FED Open Market Committee June Meeting, comments from Presidents of the 12 FED Districts

Today China and the US slap tariffs on some $34 billion of each others exports. As we have remarked in numerous columns this year, Trump and his trade advisors act as thought the other side has no alternative to our raising tariffs. But as Chinese President for Life Xi Jinping puts it, “Get ready for a full bore trade war.”

Meanwhile Trump instructs Trade Prep Robert Lighthizer to find a national security rationale to put 20% tariffs on auto imports. This is occurring as Ford announces it will only make two brands of cars in the future, preferring to make trucks and SUVs. Even GM opposes a 20% tariff noting it will interfere with the supply chain of imported parts.

As noted in a previous column, the Great Depression of the 1930s, fueled by the Smoot Hawley tariffs, finally ended in 1947 with the General Agreement on Tariffs and Trade GATT. This created the World Trade Organization WTO. Now the seven member appellate body is down to four and will be down to one by the end of 2019 thanks to the US not replacing jurists as terms expire.

The real problem is the demand by China that firms wanting to import goods ‘share their technology with the Chinese. But such a demand is counter to WTO regulations.

This is part of Made in China 2025 which plans on China being a tech powerhouse. The war needs to be with China, not the EU. The EU is notorious for taking years to settle such disputes. As it is America exports some 481,00 American made German cars. Tariffs against China will likely bring Chinese tariffs of American produced cars. This could cause lay offs of Americans at German firms. And further tariffs against foreign cars will surely affect Americans working at foreign owned car dealerships, ie Honda, Nissan, Toyota, et al.

Stock markets have continued sideways since their top in late January. But no real progress is being made to the upside.

Energy Update

Innergex Renewable Energy will build a 250 megawatt solar farm in Winkler County (Kermit). It will cost nearly $400 M and be completed by third quarter 2019.

VW’s all electric 671 bhp racer set a new record in the Pike’s Peak hill climb this year of seven minutes 557.148 seconds, shaving 17 seconds off the last gasoline powered effort.

Stocks Resume Uptrend

Weekend July 7, 2018

Rally Road sounds a lot like the structure of tax shelters back in the 1970s.

The operators bought an asset, say a railroad car, the investor got heavy up front depreciation, operations for a few years, and then supposedly the asset would be sold for a

capital gain. But funny, it never worked out like that. The operators made money and the shelter never provided anything other than part of the promise, a loss.

Stocks had a solid up day Friday as evidenced by the NYSE A/D line.

But clearly the better  entry point as February.  Yes we had a great jobs report, continued low unemployment but the trade tremors are growing.

Bullish Percent  150 MA

In contrast to the A/D line this chart has been correcting sideways since February. Now we have a series of higher lows. So this should support a rally of some length.

XLV Health Care and XLP Pharmaceuticals were the leaders Friday.

Financials XLF

 

This chart looks great, a good entry point for banks and insurance companies.

 

BRKB

BRKB looks much the same, it is correcting from its February 217.5 high.

BRKB overshot its February low but looks to be making a final bottom here. PMO is below the zero line which suggests there is the potential for a good rally.

And this may be as reliable an indicator as the 150 MA BP, both have been correcting.

XLC

XLC is a brand new ETF for communication companies.

 

Apparently money is still pouring into these stocks, whether it is rather late in the day to jump in, I cannot know but these are the Wall Street darlings.

Central Fund

  Central Fund is simply a pile of gold and silver bullion in Canada.It is not a leveraged play. But with the dollar topping in the top frame, and CEF probably bottoming, see PMO in lowest panel, the gold and silver stocks may be ready for a run up.

Okay how about a beaten up sector, say China?

Sure the US and China are starting  a trade war. But SSEC is down from 3500 t 2747.  The ETF tha mimics Shanghai is ASHR.

SSEC is the red black bars and ASHR is the solid black line.  There is a high correlation.  This bears watching.

ASHR

 

It is not time to buy yet but certainly time to watch for signs of a bottom.

 ASHR Long Term

 

ASHR is approaching its long term uptrend line.

 

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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.

Tariff Tremors

Weekend July 1, 2018

Tariffs Tremor the Markets

If the new tariffs continue to drive up the cost of oil and gas production, America’s quest for global energy dominance could be significantly hindered.

Governor Greg Abbott’s letter to President Trump

The Governor goes on to note that there are 225,000 oil and gas jobs in Texas alone but only 140,000 nationally devoted to making steel and aluminum.

This column has warned (as many others have as well) of the unintended consequences of a trade war. As economic history is written, this was the week that the trade talks became a trade war. The latter description now appears in every media story on the issue.   A pick up in energy as oil prices double always results in a parabolic demand for steel pipe. Already Texas pipe producers dependent on foreign components are struggling to produce at a market price.   That same problem plagues Harley Davidson, now faced with a 30% increase on the same bike for sale in Asia. Now Canada is considering steel import tariffs to protect itself from cheaper steel. This is precisely why one does not ‘win a trade war.’

Maria Bartiromo just commented that the markets are giving Trump’s policies the benefit of the doubt.   The hundreds of points, generally down, of market movement this week do not suggest that. Both the Industrials, Transports, and Major Market Index fell below 200 day moving averages Thursday.   The QQQ and NASD 100 did record new highs and then pulled back. But stock indexes do not all move in tandem at new highs or lows.

America’s most beloved stock, Berkshire Hathaway B Shares BRKB, fell below support from its February low at $190. It will be imperative for BRKB to vault above $190 to prove Maria correct.

I was incorrect last week in suggesting oil prices would fall. Despite the OPEC expansion of production, prices rose over $70. Apache APA has soared to $46 from $34. Indeed Energy has come alive as the leading sector Transocean RIG, FRAK, XES Energy Service, and Big Oil have all just completed a correction.

Social Mood meanwhile has gone off the rails. From Peter Fonda’s verbal assault on Barron Trump to Robert DeNiro’s Trump expletive to the Red Hen’s ejection of Sarah Huckabee, civility is way past gone on the left. Democrats excoriated a baker for refusing custom order for a gay wedding. How is it okay to boot someone out of a restaurant for political belief.? What’s the difference?

Will a trade war negate the positive effects of the tax bill? Will continued negative mood from the left derail enthusiasm for stock market investing?   We shall see.