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!
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