Weekend Oct 14, 2018
Copyright and membership prevents me from re printing John Murphy's spot on comments in his last update.
But to paraphrase
bond yields re rising and home building stocks are falling fast
My take, 34 years of lower interest rates forced more and more investors into the stock market
As rates rise the risk of one week 8% corrections will cause many to go back to the bank, already newspaper ads tout .752% CDs, a pittance compared to 1981 but that
was an interest rate high.
Yes the economy is strong but the stock market anticipates chnge, at market tops talking heads always claim this is a correction not a change
The fact that so many indicators have reversed so hard below February lows is surely an early warning sign.
NASD A D
One week erased the entire advance in this indicator since April.
Bullish Percent 50 Day SPX
Here is an example of an indicator below the February low and again in one week's time. And the MACD has yet to bottom. Only 15% of SPX stocks are in bullish formation suggesting some sort of bottom is near.
It really took until April for the February low to resolve to the upside. So expect some erratic behvior ups and downs in this typically seasonal weak period of October.
NASD New Highs New Lows
Here is another example of an indicator taking out the February low. The multiple examples of this suggest a fifth wave top.
Cullen Frost Bank
CFR has been falling since its April top and now the entire year advance has been wiped out. No bottom in MACD yet.
CFR tripled from its$40 low at book value. Banks should do better in a period of rising rates. This is one to watch.
Bottom Line
Watch the XAU and HUI for a sign of a bottom this week.
Expect choppy action in stocks but the low BP in SPX suggests an eventual bounce is possible.
Not sure of the wave count but should stocks tank again, evidence mounts this is a top of significance.
Social Mood
Mary O'Grady on the WSJ Editorial Board months ago noted that Trump was making a big mistake showcasing the stock market as evidence of his success. The stock market
will go where it wants. If the market has topped, Trump will be hard poressed to explain why amid his early successes. And rest assured the Democrats will pounce on just that. Stock prices fall seven times faster than they rise. This is thelongest stock expansion on record, none have lasted longer. All this suggests the big correction may be looming.
If the one to seven ratio is correct that means we could have a repeat of 1973-74 meltdown. It has been two years since the DJIA visited its 200 week moving average . That now lies some 5,000 DJIA points lower at 20,000.
Such a move would simply correct the last fifth wave up.Social mood is at least as divisive s it was on Nixon's re election in 1972. We are now seeing that negative mood migrate into the stock market just as it did in 1973. Should the Democrats take the House or Senate expect the climate to worsen.
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