The Market Perspective

Time for a Correction?

Friday August 31, 2018

Time for a Correction?

Tom McClellan at McClellan Financial has noticed an eery parallel to 1994. We had a new President in 1992 beset with scandals (Travelgate, Hillarycare) but a rising stock market. The same thing has occurred since 2016. Then as now the market peaked on February 2 and then had a rapid sell-off into early April. The market then recovered into August 30.

Then what happened? The S & P 500 then corrected about 10% bottoming December 8.   Of course this does not mean it has to happen but the parallel so far is remarkable. There are other factors suggesting this may be the case.

Now the S & P 500, Russell 2000, and the NASD have all made new highs. But now as then, the DJIA and New York Composite have not. America’s favorite stock, Berkshire Hathaway BRKB has rallied but has not returned to its January high.

The stock market and crude oil have been tracking one another. Crude oil WTIC is trading just over $70. That is under the $75 peak recorded in early July. That makes for another non-confirmation.   Brent has not returned to it May high of $80.

And, mid-term elections really don’t get underway until after Labor Day. And we are at that juncture right now. I noticed the first BETO television ad this week. There are numerous BETO yard signs in my neighborhood but not a single Cruz sign. This is classic Democrat strategy. When that party has lost election after election, they pick a guy or gal who does not look or sound like Nancy Pelosi or Dick Durbin. Make no mention of party affiliation in a sort of next -door neighbor friendly fashion. Our point is that all the Democrat candidates are running nationally against Trump. The threat of impeachment is not being discussed but will be quite real should the Democrats gain control of the House. That uncertainly will increasingly overhang the market.

Next, currencies of emerging countries care getting slammed around the world. Venezuela is experiencing Zimbabwe style currency meltdown. Argentina raised interest rates to 60% to stop the slide in the peso. The Turkish lira fell another 2.8% yesterday confirming my comment last week that it is not time to buy there yet. The point here is that ETFs if these countries are all falling and will continue to do so against. the stronger US Dollar.

Meanwhile, gold and silver may have bottomed over the last two weeks. This suggests that the real currency of hard money is gaining favor again versus so many weak world currencies.

All these uncertainties may well add up to a correction in an over heated market, including crude oil.

Amazing Analogy to 1994

Thursday Evening August 30 2018

Tom McClellan posts an amazing analogy to this time in 1994

A mew President had been elected two years prior

scandals ensued

Market advanced, then sold off then peaked again

and then

check this out

 

Stockcharts.com on decision point I noticed was very nervous that its timing showed all ETFs on a buy signal, how can things be that bullish they wondered

 

Perhaps this is the answer, a three month correction beginningnow

The Gold Bear is Done

Monday August 27, 2018

What was I thinking should have been long this fund going into the low, The low is now in place. Which means the future is to the long upside.

Long Gold

 

 

Ideal Entry Point

 

Dollar Topping, Metals Bottoming

Weekend August 26, 2018

Gold

UUP is the Dollar ETF in green. The red black bars are the price of gold.  I have been looking for a bottom in gold and the entire metals complex, iron, etc.  I suspect that occurred this past week. Friday was an outside reversal day for gold,  up $19.30.  No doubt that was a buy back of those short gold.

Silver and the Dollar

In similar fashion, silver also had an outside reversal day.

cliff Natural Resources CLF

CLF has been in an uptrend from a very over sold condition. Note MACD making a bottom in the lower panel.

Look at this next long term chart of get an idea of the potential in this trade.

CLF was trading at $90 in 2011. We have no way of knowing if that is a possibility but this looks like a lot more potential than the stock market near 26,000.

 Commodity Research Bureau Index

The ribbon of moving averages is converging for the CRB.That has to take place before a change in trend. This  looks like a great set up for a low risk entry betting on some inflation. Note the lead article in the WSJ is the new FED chair, Jerome, predicting higher rates.

 XLE Energy ETF

XLE is finishing its correction for the May high. Gold at bottom Dollar at top.

 

First Indication of Bottoming Action in Gold Shares

Monday August 20, 2018

Today we had the first indication of a bottoming in gold shares. I discussed this very issue this past weekend

The PMO is turning up on the two hour chart.

UUP The US Dollar

The dollar and gold are inversely correlated, here the dollar via UUP penetrates multiple MAs.

This is the perfect set up, the world believes the dollar is incredibly strong, but the markets suggest at least a pullback.

 Hecla

 

the fun is in the early stages of developing, start checking this site frequently

Godzilla Dollar Taking Down Commodity Prices

Weekend August 19, 2018

The previous post discussed new lows in many commodity and currency prices. This may be a set up for a reversal as occurred two years ago.

Dollar versus XAU Gold Miners

 

We cannot know how long the gold line of XAU will go but we can use a ratio chart to determine a likely reversal.

XAU versus US Dollar

 

Clearly the weekly ratio chart is still falling.  Silver is further along in its decline

Silver versus Dollar

The low occurred three years ago in June-July.

Same chart for gold

JNUG

If history repeats JNUG would offer considerable gain.

JNUG Three month

We cannot know when the dollar might top here, but the lead article in the Weekend WSJ has China and the US attempting to settle trade differences. And surely

someone is pointing out to Trump that his Trade Wars are Easy to Win better win something by election day.

Another article describes just what a mess Erdogan has made of Turkey. So any investment there would probably not be a good idea any time soon.

 

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Godzilla Dollar Tramples Commodity and Currency Prices

Friday August  17, 2018

Godzilla Dollar Tramples Commodity and Currency Prices

Emerging markets stock are teetering on the edge of a bear market given the rising dollar and tariffs.

The price of imported oil in Turkey has risen 60% this year.

Wall Street Journal Friday August 17, 2018

Godzilla is a fictional pre-historic movie monster, awakened by nuclear radiation. Highly agitated, Godzilla proceeded to trample 1954 Tokyo.

In similar fashion the Trump has unleashed tariffs and a strong dollar with repercussions around the world.  

The Turkish ETF TUR has fallen from 46 to 19 this year recovering to 21.36. Emerging market EEM has dropped form 51 to 41.77. Copper is down from 3.30 to 2.62.   Gold is down from 1,360 to a new low for the year of 1,184.   Likewise, silver is down from 17.50 to 14.50. It is a wonder crude oil has only fallen to the mid 60s.

But let’s take a closer look at TUR.   Market tops take time to form as they happen amid positive social mood think, hey, this party will never end as with the dotcoms. Market bottoms however form from extreme negative mood, think, sell at any price I will never own this junk again! And so bottoms often take a parabolic drop accompanied by hysterically high volume. TUR fits that profile. Volume the last two days was 10x normal. Wednesday’s drop was 20% of its price. Thursday’ volume was 25 million shares. TUR has lost half its value since April 1.

But amid this gloom and doom, TUR recovered Thursday from 19to 21.36. Copper rebounded 2.2%.   The Dollar was down .8% against the Mexican peso and lost .6% versus the Korean won.

In short, amid massive negative social mood regarding beaten down markets, it is time to consider some contrarian ideas. Ten times normal TUR volume and a recovery suggests most of the sellers may have finally give up at the bottom.

Gold is down form 1,360 to 1,184. Silver reversed form its sub 14.50 low Thursday to close at 14.71. That certainly did not reverse the daily trend but is in line with reversals in TUR and copper. Mining shares have been clobbered with the XAU of gold and silver miners down from 92 in January to 64.27 Thursday .

I am not recommending buying any of these plays just yet, but it is time to pay close attention to potential bottoms in washed out shares that have been tossed on the Wall Street trash heap. That is how the March 2009 lows in the stock market were formed amid the worst sell-off in decades.

XAU in Free Fall and that is Setting Up a Good Thing

Thursday August 16,2018

 

What one really wants is a panic low for a good set up entry. The XAU is getting there and in a hurry.

ASA

Another set up example

 

CDE

Need I say more about an entry set up coming?

US Ahead of the Rest of the World, Correction Ensues

Weekend August 11, 2018

Tom McClellan on seasonality

Tom McClellan points out the markets are in a weak seasonal period of August September. That and the fact that the US is way ahead of the rest of world markets had more to do with Friday's sell off than the weak Turkish lira.

SPX versus VEU Vanguard All Word ex USA

The SPX and VEU, purple line, fell together in early February. The strong US Dollar has caused the VEU to fall back to its February lows. The SPX has simply gotten too far ahead of the rest of the world markets. And so right at the previous January resistance high, the US markets turned back Friday.

On Balance Volume

 

On balance volume looks rather toppy in the bottom panel.

US Dollar and Gold

The strength of the US Dollar has tanked gold and silver and mining shares. Note the strong up move of the Dollar Friday. The Weekend WSJ has an excellent chart of the Turkish Lira.

Trump's negotiations for Turkey to return an imprisoned American pastor failed so now he is turning up the heat with both currency wars, halving the Lira, and threatening new tariffs so Turkish goods are not attractive due to the weakened currency.  See social mod section below for comment.

US Dollar and Gold Shares Negatively Correlated

Here I substituted the XAU index of gold shares for the price of gold. I added the correlation below which is near completely negative.

So we wait for a top in the dollar to enter a gold or silver position.

Energy Service XES Two Hour Chart for Two Months

On a day when the DJIA was down  196, ES actually finished the day up 20 cents.  And notice the MAs are all converging, the usual preliminary to a change in trend. I am guessing our new direction will be up.

Bottom Line

 

Expect a stock market correction lasting into September.

Interest rates fall in this situation.

Watch the US Dollar versus gold silver mining shares for an extreme and what should be an excellent entry on the long side of metals.

Energy service finally appears to be bottoming.

Social Mood

NFL Players take knee despite NFL policy

Erdogan Defiant as Turkey Slides to Financial Crisis

Venezuela Meltdown

I suspect that Trump is making a point to all the tin pot dictators on the planet that taking Americans hostage to further their private schemes is a very bad idea. And it is certainly past time to do just that.The Weekend WSJ warns that such financial instruments should be used sparingly.To which I posted a question, gee would you be so cautious of Editor Paul Gigot was jailed in Istanbul?  And I suspect this part of his strategy for dealing with North Korea and Russia.  This is what Trump fans like, Trump strikes back.

That said, I worry that the tariffs will take a toll on American business, there are continue to be many reports on just this outcome.

Chuck Thompson at the Socionomic Institute   had an excellent article on the popular decline of football.The players are creating their own demise and do not realize it. Trump realizes this 'protest' which will not stop a single of the  70 civilian shootings in Chicago last weekend, resonates with his base.

Maxine Waters  urges open attacks on Republicans, and the November elections are 2.5 months away, What will she want by election day?

Tom McClellan may well be right that markets bottom in Sept. But my recollection is that all the crashes happen in October.

As Trump ramps up the Tariff Game, social mood is declining, see SPX versus VEU in the first graph, world wide.

Caution,

US Stocks Ahead of the Rest of the World

Weekend August 11, 2018

Cost Effective, Maybe, Maybe Not

Robotization is taking many forms. But I am not sure this is as cost effective as the firms’ who are adopting these methods believe. Surely the most aggravating is the robot voice adopted by, yes, AT&T. Attempt to call them and Mr. Robbie the Robot answers. Supposedly voice recognition kicks in and one gets a response. The caller is then subjected to this ridiculous sound of a non-existent computer beeping as though something is happening. If, as often, Robbie does not understand, it is the caller’s fault and one is in a helpless loop with no human intervention in sight. How demeaning and insulting to a paying customer is that?

Wal-Mart in a never-ending attempt to boost sales, built a medium sized grocery in an upscale neighborhood nearby. Apparently hopes were high as there are dozens (make that over one hundred)of empty shopping carts in the cart bay. And by golly it is q1uick and easy as there are very few shoppers in the store, so parking is near the door. But the imagined revenue targets are surely missed by the proverbial country mile. Why is this? There are never more than two humans who will check out the purchases on a register. The other aisles are do it your self scan the item. That sort of works but requires two more employees standing by to approve alcohol sales and re –set the machine when interruptions occur. My guess is that this model will never be more than a large convenience store. Shoppers will duck in to grab a few items which they will check out themselves. But rare is the shopper filling the cart with a week’s worth of supplies. Shoppers simply will not spend the time checking themselves out for numerous items.   Hire some help and watch sales soar.

Meanwhile the US Stock market is way ahead of the world markets.   The US SPX fell from 2,860 to 2,540 at the end of January. Since then it has climbed back to 2,860 Where is previously collapsed.   But the Vanguard Foreign ETF VEU has not regained its former high.   Not doubt this is partially due to the strong US Dollar and tariffs imposed on commodity exporting countries. But it is not realistic to think the US stock market can outdistance the rest of the world all by itself. Mark Hulbert recently noted the US market is as overvalued as in years 2000 and 2007.

Crude oil prices have retreated form their upper channel resistance to the lower channel support around $67.   And price has done this in spite of the strong US dollar.