The Market Perspective

Refiners Rolling Over, Metals Chug Upwards

Friday July 26, 2019

Refiners Rolling over, Metals Chug Upward

 

Valero reports a 27% drop in second quarter earnings. The refiner was fored to process more expensive crude, cutting into margins.

 

That was the headline for Valero. The stock dropped $2.32 Thursday. But geez, VLO recorded a profit of $632 M, down from $845 M in the same quarter last year.   That sounds like good money in the bank to me. But overall we are looking for a correction in stock prices into late August or mid-September.   The charts of the five refiners as well as CRAK, the refiner ETF, all appear to be peaking now. That should set up a nice pull back over the next two months.   Plan on keeping an eye on this group for later acquisition.

 

We have noted that energy share prices have been falling. That continues to be the case this Friday Morning as XLE and XOP ETFs are both falling. Each of these ETFs is trading below all four daily moving averages of 50, 87, 125 and 200 duration. Benchmark Apache APA is currently not earning a profit. The share price is falling faster than the price of crude oil. APA now trades at $23.93. Chevron CVX is down 1.78% today again suggesting lower share prices across the energy board.

 

Energy service companies continue to struggle. The XES ETF already trades beneath its 2009 panic low Trading at a mere $8.79, it looks to re-test its May low of $8.50.

 

. Higher shipping costs broke a string of higher earnings for Amazon, down 2.41% today.   Better earnings boosted Google 9.9% today.

 

Despite all the publicity the FED Chair receives, a chart of the FED funds rate versus the two year Treasury Note rate shows the FED simply follows the two-year rate. And it lags that. Expect lower two year and FED rates for the next few months.   The FED will probably only drop rates a quarter point this month meaning they will be playing catch-up with the Treasury Note.

 

The one area that is bullish is precious metals. Gold has soared from $1,280 to $1,420 in the last couple of months. It has spent July working off the over bought condition by moving mostly sideways. This has finally ignited interest in silver which has jumped form $14.40 to $16.60.

 

Our bottom line is for further energy share price correction the next two months. Metals may well get a boost from lower FED funds rates.

FED follows the Two Year Treasury Note

Friday July 26, 2019

Despite all the coverage the FED receives, the group just follows the trend of the two year note, and even lags that!

Check out this article authored by our friends at Eliott Wave International

Stocks Topping, Gold and Silver Spiike

Weekend

July  21, 2019

NFLX announced a loss of  130,000 subscribers.

Global Social media Turned Down

 

As tech stocks have led this suggests the start of another correction into late August or mid Sept.

Transports look similar to SOCL.

Major indexes have not turned down yet but are getting to that point.

I  don't have a feel for how far indexes are liable to drop but with six weeks to go, it might surprise us.

The seizure of the British tanker by Iran did not really move oil up much.

XAU

Metals are now over bought very short term but are really breaking out on the weekly chart, the action of the XAU this weeek may provide some clues

Social mood continues negative world wide and

especially in the US

France wants to tax US Tech

Iran seizes a Brit tanker

Trump and he Squad square off, CNN calling Trump a racist dozens of times

Biden popularity dropping

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Stocks Topping. Oil Faltering, Gold Silver Breaking Out

Friday July 19, 2019

Stocks Flash Short Term Top, Oil Falters, Metals Break Out

 

Let’s start with the stock market. The Dow Transport Index and the FANG / NASD tech stocks are the leaders. We are now in earnings reporting season. On Wednesday CSX (railroad) reported per share earnings of $1.23. The analysts were expecting $1.35. CSX dropped 10% that day falling from $80 to $70. Other railroad stocks fell as well. And since CSX is included in the Transportation Index, TRAN fell as well.

 

The Transports now exhibit what chartists term a head and shoulders top. Transports are trading at 10,618. A drop below 10,000 would confirm at least a short term top.

 

The small capitalization Russell 2000 exhibits the same pattern. And its moving averages are turning down.

 

This week Netflix NFLX announced it lost 130,000 subscribers. Wham, on Thursday it dropped from $365 to $325. J NFLX raced from $230 in December to $380 in May. Today’s price suggests the short-term top is now in place. Google GOOGL also looks weak. A lower top seems to be forming at the $1,140 area.   The SOX semi-conductor index is struggling to regain its former high as momentum wanes.

 

Taken together, all this action suggest a sell-off in major indexes into mid to late August.

 

Oil prices are falling. Price is now below all four moving averages I track. Price has dropped from $65 to $55.   This is setting up a re-test of the June low above $50. If that fails expect a return to $42. Notice this is happening in spite of shoot downs of drones and tanker trouble in the Straits of Hormuz.  On the weekly chart, a drop under the 200 bar moving average at $53.03 would be very negative.

 

Natural gas prices are still falling.

 

The big break out is in gold and silver prices.   Gold consolidated around $1,400. It is now breaking out at $1,430. Silver looks to be finally gaining followers jumping to $16..20. We can expect a lot of volatility in these prices. Eventually I expect much higher prices but short term these markets are already getting over-bought.   The weekly chart of silver is up 6.1% as I write Friday. Social mood against silver bottomed last November and is now in reversal.

 

Speaking of social mood, the spat between the ‘Squad’ of four socialist Democrats and Speaker Pelosi and President Trump is exclusionary (send her back!) in the extreme. Eventually, as it did in 1973-74, this negative mood will infect markets already at all time highs. We urged caution a few weeks back. Our outlook has not changed.

 

Markets Begin Falling into August Low, Gold and Silver Rally

Wednesday July 17, 2019

CSX railroad did not make its number, expected 1.35 only earning 1.23 but what a difference.

Money flow at top shows investors have been exiting CSX for the last few months. That expectation capitulated on lower earnings today taking CSX down 9.69%  Note the huger volume spike at bottom That in turn hurt the Transport index.

Transports

Remember the Transports lead and now they are leading to the downside.  Again CMF at top shows money leaving this sector  most of this year. Russell 2000 is down .43% but don't be surprised if a couple of tech stocks miss their numbers and bring this index down as well.

We are looking for a low in stock markets mid August, the descent officially began today.

Social mood turns on silver miners.

 

Again money flow at top shows the dramatic reversal in social mood towards silver miners at the end of May.

 

Energy prices have also turned down, I am moving into the bear fund for energy DUG.

Indexes Topping, Oil and Gold Pull Back

July 7 2019 Weekend

Tom McClellan has  year  2021 as a final high in stocks and for now that looks as good as any call.  I am wondering if that is also a prediction of how the  2020 election turns out.

Stocks Transports

It appeared Transports and Small Caps were breaking out, now not so much.  I suspect the usual summer doldrums have set in. MAs are converging which usually forecasts a change in direction, would that now be down?

Bonds

Ten Year Note

I must admit this vigorous bond rally caught me by surprise, sorry I missed that one!  But it is over done and probably topping now. Which meas despite what Donald Trump thinks of his FED Chair, we are probably at the low i rates now. That makes perfect sense given the way the public has just poured into municipal bonds.

Dollar

The dollar chart looks a lot like the bond chart above.   I am guessing the dollar holds here while gold pulls back.

Gold

The rectangles  speak to over bought and time to correct back to 1340-1360 where price broke out. GDX and XAU look the same.

If October to now is Wave One, we are about to experience Wave Two pullback and then a spectacular Wave Three up. Stay tuned.

Silver

Silver got creamed Friday down 34 cents.

Energy

I cannot get enthused about energy here.

Nat Gas

Nat gas jumped up Friday after I wrote my column in the previous post Wednesday. A low volume day but impressive. A low could be in the making here.

 

July Fourth

New S & P High, Happy Independence Day

 

The third year of a Presidential term is usually an up year. So far so good in 2019.

Tom McClellan

 

Wednesday, July 3, 2019, 10:44 AM CST

 

Last week we suggested that stock markets are reaching their typical summer peak, doldrums ahead. But we also got our wish. We noted the Russell 2000 small cap index and the Dow Transports had not moved above their respective 200 day Moving Averages MA. Now they have.

 

The Transports are trading at 10,492.   Taking out the April high at 11,100 would confirm the new high in the Dow Industrials.

 

The University of Michigan Consumer Sentiment index continues to improve along with the unemployment rate.   Positive sentiment, low unemployment both buoy a strong stock market.

 

Interest rates remain low world-wide and in fact are negative in some European countries.   Indeed most world stock markets lag the positive action in the US market.

 

OPEC and   Russia claim they are doing a great job supporting the oil price. Perhaps they did not notice the 4.81% drop this Tuesday to $56.25. Prices peaked last October 3 around $75. In the really big picture, oil prices have been falling since the 2008 high of $140. Next support is $50 but I am guessing we are looking at a re-test of the December low of $42.50.

 

Some 150 energy service companies have declared some form of bankruptcy since 2015. May 2014 was the final high over $100.  More oil is now being produced with fewer wells drilled. So great efficiencies are pressing the service sector.

 

Share prices are still falling for Halliburton HAL and Schlumberger SLB.   These are the largest energy service firms. Share prices are below the 200 month moving average for both. So expect even lower prices ahead.

The bull market in gold has gotten ahead of itself. The price peaked June 24 around $1,440. Expect a correction to $1,360-70 over the next few weeks.

 

That projected low in gold just might coincide with a final low moving average convergence in silver. Silver has not joined the party with a new high as seen in gold. But a positive sign is a narrowing of the moving averages. . This is one to watch.

 

The bear market in natural gas continues. Now trading at $2.24 prices look headed for $2.00.