The Market Perspective

Welcome to the Stealth Bear Market

Wed May 29, 2019

Welcome to the Stealth Bear Market

 

Wednesday May 29, 2019, this column is usually written on Friday mornings

Hand surgery this Thursday will preclude blog posts for the a couple of weeks.

 

The 1973-74 bear market never crashed by declining a double-digit percentage in one day. Instead prices just drifted down for two years from 1,051 to 577 in two years.

Dennis on the 1973-74 bear market

 

All our warnings in this space the last few weeks and months are coming true. The market is not advancing but has been in distribution since the first DJIA high of 26,600 in January 2018. The yield curve has inverted with the ten-year note paying less interest than a three month T Bill. Since 1974 this indicator has successfully predicted every recession. Stocks are down for the fifth week in a row. As noted here, various energy service shares are already trading at or near the March 2009 low. Our prediction that the negative social mood (political) would eventually transit to Wall Street is also coming true.

 

The Dow Transports and Russell 2000 Small Cap indexes are market leaders. Both have turned their daily trends down. Transports have collapsed ten percent form the mid April high. The Russell 2000 has had a similar fate; the trend is now down. It is not too soon to speculate a return to the late December lows in both these indexes. The technology XLK is also falling out of bed.

 

Investors have rallied defensive sectors like Utilities and REITs. But Utilities fell yesterday as did REITs. The same is true for he Consumer Staples ETF XLP down over 2% the last two days.

 

The DJIA ended at 25,126 down 221. That is enough to suggest after a modest move back, the down trend is likely to resume. Crude oil has dropped $1.74 to $57.40. The problems are excess supply coupled with the fear of world economic slow down over trade wars. Trump is not going to budge China. China has now contracted for control of the Greek port of Piraeus and now is angling to control Israel’s Haifa. What is the Israeli PM thinking?

 

Recall our warning that the China Belt and Road (transportation) Asian Infrastructure Investment Bank (finance) and thrust into the South China Sea reflects a long term winning strategy-for China.

 

The XLE Energy ETF is already half-way back to its December low.   The XES Energy Service ETF is a mere 80 cents above that same low. Energy is leading the entire stock market lower.

Expect volatility but overall energy prices and stocks look to be trending lower into the fall.

 

Energy Service Has Been Falling for Years

May 27 Memorial Day Weekend

Ratio Chart XES to SPX

The energy service sector has been falling relative to the overall market SPX  since the oil price collapse of  2014.

A look Back at 2007, Then and Now

Memorial Day Weekend May 26

The NYSE index has made a higher high but the PMO has not. In fact PMO is turning negative with black below red line.

The blue arrows show the same peak at an overbought RSI. The red arrows show a bounce at the 50 ;evel now just as we had then.

Short term we have a double top with a lower high.

DJIA Industrials

the same sort of cautionary signals are evident here. This at least suggests the need for consolidation if not more correction.

Monthly charts move slowly but this may be a clue for a Fall Low.  Ten years out from the March 200 low, we now have a new double top high so a follow up low seems logical.

See my list of negatives in the previous post.

Stocks Congest, Oil Falters, Weekly Oil Turning Down, Fed Ex UPS flashing negative

Memorial Day Weekend May 25, 22019

See our previous post about a three year low in the Purchasing Manager index

In today's Weekend WSJ

• Brexit Strife Forces May Departure
• FAA Broadens Boeing Probe
• Tesla down  42% this year, closes under $2000
• Factory Orders point to slow down
• Deming New Mexico Strains to Handle Migrants
• Dissenter Stops Disaster Aid Bill
• War Spreads to Iran's Adversaries
• US China Rift clouds Japan's Economic Outlook
• Franchises are in Union Crosshairs
• China Tech Champion or Serial Theif
• Wall Street Isn't Buying What Silicon Valley is Selling
• Dow Declines for 5th Week
• Oil and Copper Prices Decline

And here in San Antonio the Governor of the State has the FAA investigating the SA City Council kicking Chik Fil A out for not serving on Sunday, Governor says this violates Chik's religious grounds, Council dislikes opposition to gay marriage, do we have enough rules here?

Point being, taken together this is all reflective of growing  negative mood. And mood drives the markets.

Percent of Stocks above MA

On the weekly chart PMO is toppy, not a great spot to initiate a new position.  Stocks did not turn down below  25,200 Friday so expect more congestion.

NYSE Daily  Advance Decline

The advance decline line flattens and the MAs draw closer together

Momentum via MACD and RSI has weakened.

Weekly

Here MACCD is toppy. The chart looks a lot like last Sept Oct, toppy.

Transports

Transports made a lower high and are now under all four MAs, PMO is negative, not good.

Russell 2000

Russell 2000 barely got over its  200 day MA and is now falling, PNMO also going negative.

I don't see any reason to be long the major indexes. Utilities and REITs are hitting  new highs in defensive position but I don't see buying them at new highs either.

DUG Short Oil and Gas

Dug is flashing a buy signal, this is a bear fund for oil and gas shares.

HAL

A re test of the  2009 low is not out of the question for the 2nd largest sesrvice firm. And the price of oil now is higher than at the previous 2016 low.

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.

[email protected]

Mfg Activity Slows

Friday May 24, 2019

Manufacturing activity is collapsing, and “worse may be to come,” said Chris Williamson, IHS Markit’s Chief Business Economist.

Williamson’s grim statement came on Thursday, in response to the latest IHS Markit Flash U.S. PMI report, which showed business activity growth plunged to a three-year low in May.

“Growth of business activity slowed sharply in May, as trade war worries and increased uncertainty dealt a further blow to order book growth and business confidence,” Williamson said.

Specifically, the composite output index dropped to a 36-month low of 50.9 from 53.0 in April. Any reading above 50 signals growth, which means the index is very close to signaling an outright contraction in activity.

Amid the ugly data, “inflows of new business showed the smallest rise seen this side of the global financial crisis,” he added.

WTIC Cracks $60

Friday May 24, 2019

WTIC Cracks $60 to the Downside

 

Thursday US oil futures tanked 5.7%, the biggest percentage loss of the year. The DJIA recouped some of its losses in the final hour after falling 451 points earlier. Chip-makers have been hard hit.

 

Wall Street Journal Friday, markets hit As Trade Tow Escalates

 

We have warned for months in this column that the weakness in the Energy Service XES was flashing danger signals for oil prices. XES is already trading under its 2009 low of $12.50. And our prediction that the Trade War would not be easy to win is certainly coming true. China is surely watching the pain of soybean farmers, bicycle sales, and the 25% tariff on LNG shipments. Dorian LNG dropped 16.48% on Thursday. As previously noted, this will negatively impact the billion dollar investments in LNG export terminals along the Gulf Coast of Texas. Couple that with the Democrat call for impeachment. Indeed I suspect China, if not Canada and Mexico, as well, have decided to wait it out till the 2020 election before committing to anything.

 

Trump gets his wish for cheaper energy. Unleaded gasoline futures dropped 3.89% to $1.89. That and the drop in oil prices reflect inventory builds and the culmination of the 50% rally from $42 to $66 since December.   The world is settling in for a protracted trade war.   US Companies are not necessarily coming back to the US. Instead they are moving out of tariff bound China to other locales like Viet Nam or Mexico.

 

The big drop in stock prices yesterday suggests a short term low. IIf the DJIA does not fall under 25,222 today (now 25,490 and up over 100 points this morning) congestion will probably continue for another week or two.

 

 

 

 

 

 

 

Negative mood is quickly spreading to markets world wide. Prime Minister May looks to get ousted over Brexit woes. The German economy continues to slow. It is doubtful sanctions will oust regimes in Venezuela or Iran. India just re-elected Modi in on bright capitalistic move.

 

Instead of telling fellow Democrats to read the Mueller report, get over it, and accomplish something, Pelosi went for a compromise. Don’t impeach just insult. But that won’t satisfy the hard left. And if it comes to pass, the not so left Democrats may have to vote on impeachment. That will make for s tough sell to independents as a Republican Senate won’t confirm. Republicans need only to regain 18 seats to re-take the House. And now Trump has drooped infrastructure unless the Democrats back off. Expect conflict and impasse to continue.

 

Overall look for low stock and energy prices into Fall 2019.

 

Transports Fall below 200 day MA

Thursday May 23, 219

Transports and Small Caps lead market direction.

Transports are setting up a re test of the  10,000 level. Taking that out would suggest a re test of the  8,600 level.  The weakness in Fed Ex and trucking stocks suggests economic weakness ahead.

Fed Ex could not even challenge its  200 day MA.  UPS looks sick as well.

Trucking Hunt Transport

Same as Fed Ex

In multiple newspaper columns I have wondered just how long it would take for the negative political mood to infect the stock market. We are getting  our answer.

Trump walked  out of a Pelosi Schumer meeting yesterday saying he would not stand for the impeachment talk and a deal.   More Dems call for impeachment which means Dems who won in swing districts would have to vote on the issue. That would likely cause the independent voter some consternation, and Trump is of course aware of this.

Markets dislike uncertainty and that is all we are getting from both the  23 Dems running and various Republicans.

More Bears EMerge on Tesla

Tuesday May 21, 2019

Another bear emerges on Tesla. This fellow suggests $230 but maybe $10-97.

I agree. They are still burning cash and cannot deliver enough cars at target price. And now the majors who have profits from I/C engines, are building and delivering electric cars at the target price of  $35-37 K. Uh oh.   Hello Delorean.

DJIA Fails to Overcome 26,000, Tariff Woes

Weekend May 19, 2019

94% of the world's bicycles are made in China, now they are  25% more expensive.  An op ed this weekend reports on the  problems of mid west soybean farmers in the US.

Trump lifts metals tariffs on Mexico and Canada but I am guessing the Dems block approval of the new NAFTA before the election.

And the DJIA failed to take out 26,000. A recent article suggests all of this has been a dead cat bounce.

Those who bought thousands of points back now rally the market to recent highs. In that way they unload their purchases at high prices to the late comers.

I would suggest what has happened is distribution since January  2018.

  Let's look at that chart again.

Two Year Weekly

The blue arrows  at top show resistance this is as far as the buyers seeking to be sellers could push the average. Then it sells off. The far right arrow is a lower high than the previous two. Those distributing stock are running out of buyers. And notice this is confirmed by the much lower PMO at bottom.

Transports

Transports made  much lower high on the recent rally.  All of this suggests a correction into June. And that may simply be the start of  multiple stair steps down ala 2000-2002.

AMZ AMZN records a lower high as well. And notice the low level of PMO here.

FB looks much the same.

 

And the poor performance of Uber and Lyft suggest waning interest in buying IPOs.

Emerging Markets

Here is another example of markets peaking in January  2018 with distribution taking place since. The high two weeks ago takes on a lore more significance with the failure to rally since.

And as mentioned last week we are now at the typical seasonal high, after May go away. That looks to be the case this year.

 

TLT Bond Market

The rally in bonds looks overdone. Rates may be near the lows for this run.

Ten Year Yield

Ten year yields have fallen to the  200 week MA but are still above the 2016 low.

if this were the chart of a stock it is getting close to an important long term buy level. Kudlow and Trump are wrong, Powell is right, this has been the first of a correction in long term rising yields. And the reason is fear of default as in Tesla.

Gold has not rallied and continues to disappoint. It is probably headed to the e 200 day MA at 1250. Tom McClellan suggest 1210 based on a break of the head and shoulders top.

Silver

No one is interested in silver. The collapse gathered speed this week. Looks like it is headed back to 14. Silver miner shares are really in  the dumps.

Crude oil

rude oil is finding support at its  200 day MA.  Attacks on  shipping via Iran and Venezuela has helped buoy prices.

The increased  tariffs on LNG are keeping natural gas futures at  2.60.

Social Mood

And de Blasio makes 23 Dems now running.. The WSJ interviewed New Yorkers and one suggested announcing April 1 April Fool's Day would have been appropriate as NYC

continues to fall apart.

It is hard to see how one of the 22 are going to overcome Biden's 20+ point lead.

The Dems begin their debates in June and expect the language to be particularly vicious towards Trump, as most have nothing to run on.

https://www.foxnews.com/opinion/andy-puzder-2020-dems-clueless-when-it-comes-to-one-of-the-most-critical-economic-challenges-facing-the-us

Our bottom line is that markets are distributing stock making a 18 month top of some importance. Social mood trends negative.

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.

[email protected]

 

 

 

 

 

Stock and Oil Prices at Resistance

Friday May  17 2019

Stocks and Oil Still Facing Resistance

 

5/17/19 8:15 AMC CST The United States is now a net energy exporter with production exceeding that of Russia or Saudi Arabia. If you are in the USA conducting the energy service business, what could go wrong?

 

Weatherford International delisted from eh New York Stock Exchange. It is now traded on the pink sheets and plans a July Chapter 11 (Reorganization) bankruptcy.

 

China’s decision to impose 25% tariffs on US LNG comes as developers are poised to make final investment decisions for several Gulf Coast Projects.

San Antonio Express-News today

 

Two-thirds of CFOs expect the US economy to enter a recession by third quarter 2020. Half expect a recession by the end of 2019.

Duke University Survey

 

And by the way the SA Express News is owned by the Hearst Corporation which itself is in Chapter 11 proceedings. The Chinese specifically targeted the multi-billion dollar projects underway along the Gulf Coast. If this ‘trade war’ is prolonged (which is my guess) that will lower return on investments for those companies. The construction of export terminals assumed a growing Chinese market for LNG.

 

Volatility is back in the stock markets. The DJIA fell from 26,400 (rounded) May 6 to 25,300 by may 13 and had regained 25,862 by Thursday May 16 close. To challenge the previous 26,600 high the DJIA will need to close over 26,000 today, the end of the week. But the DJIA is trading down 200 points this Friday Morning. For now trends are up but keep the big picture in \mind.

 

The Dow Transports tend to be the leader in direction for the markets. The first peak was in January 2018, the next in September 2018 and then the recent high in April 2019. That last high was lower than the previous two. This is a negative. The Russell 2000 small capitalization index has the same look as the Transports, another negative.

 

The US sent both a carrier and bomber group to the Mid East transiting the Straits of Hormuz with little interference from Iran. Reports today indicate that the US thought Iran would attack first and apparently Iran thought the same of the US. That activity raised thee price of crude 1.37% Thursday.

But if trade wars slow the world economy, demand for crude will ease.

 

All of this reminds one of President Harry Truman’s wish for a one-armed economist. In that case, quipped Truman, he could not say, well Mr. President, on the other hand…..