The Market Perspective

Critical Juncture for Markets

Friday Aug 30 2019

 

Markets at Critical Juncture

 

 

I have been expecting lower oil and stock price. The main reason is that both have been falling together. And the Art of the Deal President alternately threatens some measure, the market drops hundreds of points, and then he makes a conciliatory gesture (Xi is a great guy but Friday he was our enemy) and then the market bounces a couple of hundred points back up. Finally September – October are seasonally weak periods for the stock market. Panics have typically occurred in October such as 19259 and 2008.

 

As I write Friday morning at 10 00 AM CST, the DJIA range has been 26,385 to 26,513. This puts the Industrials right at the upper resistance of 26,400. This is a three day weekend and I expect we will see ‘position squaring’ today. . That means those heavily in the market are likely to buy puts as a hedge to the downside.

 

Another reason for my caution is the lack of a fresh Dow Theory buy signal. The This means the Transports should be making a high along with the Industrials, one confirms the other. Instead the Transports are below all four Moving Averages I track. Transports bounced up at 9700 but have not had a strong close above the 200 day moving average this August.

 

The small cap Russell 2000 looks much like the Transports. These two indexes are usually the leaders in overall market direction.

 

And today is the end of the week and a volatile month. So many analysts will be looking at the final numbers for clues at the close. But again given that as well as the three day weekend, traders may not show their true feelings until later in September.   At the moment that would be my best guess.

 

Crude oil has fallen from $66 to the mid $50.   It is down $1.72 this morning. The feeling has been that stalled trade talks will lead to less world commerce and less demand for oil.   And we have noted the move to electric cars in Europe by 2025.

 

The Eagle Ford and Permian producers remains victims of their own success. Pioneer Resources is down from $175 to $125 since April.

 

The energy ETF XLE has much the same pattern as Pioneer which is to say down since April. Energy service XES is down another 2% today.

 

In today’s Wall Street Journal Stephen Moore urges re-financing all U S Debt at these record low interest rate levels. He is correct. The risk in world bond markets has never been greater. Multiple European countries are now selling negative yield bonds. Any move up in rates would make such an issue virtually worthless.

 

Weeks ago amid rosy White House predictions I urged caution. I see no reason to change that warning. Check www.themarketperspective.com for updates this weekend.

Refiners

Monday August 26 2019

An article on the last page of today's WSJ warns that electric cars may make half of all cars on the road by  2040.

I have noted the weakness in refiners. And this weekend we see reports that the Keystone Pipeline is finally approved.

This means more oil than ever will flow to Texas  Gulf Coast Refineries. But all that refined oil may find increasingly smaller markets.

CRAK Refiner ETF

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Valero VLO

VLO is trading  at 62% of last year's high, the market is seeing something,  Refiners make money on the spread between the price fo oil and the refined product, not just the oil price.

Lower Prices Ahead

Weekend August 25, 2019

In days leading to the G 7 summit in France Trump

escalated the trade war with China

blasted Denmark for not selling him Greenland

declared the world is in recession

blasted his FED Chair Powell

threatened tariffs against various G 7 members

called for Russia te be re admitted to the G 7

So it should be no surprise markets tanked Friday

NFLX - providing lots of clues

It is not a stretch to see NFLX returning to the last December low.  the rest of the FANG group was lower as well. This is a clue where the  major indexes are liable to go.

IINDU and TRAN

No Dow Theory Buy signal here!  Both Industrials and Transports are headed down hard, already bback to the June lows for the Transports.

2016 - Today

 

Here is an earlier attempt to identify five waves up from teh  2016 low. Looks like a throw over occurred in June July this year.

Honestly I am not sure of the wave count.  But I would not be surprised that that the high for the year has now been recorded.

24,000 looks like support but if Trump continues bashing the rest of the world, well market disdain uncertainty and prices could fall

further. A break of 24,000 would violate the uptrend and  suggest a re-visit of the December low. That is not a prediction but would leave the market still above the 200 bar MA.

Eenergy Crude Oil WTIC

 

Charting 101, the market broke through the uptrend line to the downside. It then re-tried and failed to resume the uptrend. Now the MAs are coming together, usually a precursor to a change i trend. This is at least setting up a test of the December low at  43. Taking that out as with the stock market would allow for much lower prices. Energy is leading stocks lower as investors since growing economic weakness  world wide.

Last week I mentioned watching the refiners.  CRAK broke it s three major MAs. VLO dropped 5% this wee.  FRAK the shale producer ETF is falling off its chart closing at  9.66.

XRT Retail ETF, the Economy at a glance

XRT dropped 3.79% this week. It is possible to talk an economy into a recession.

XRT Weekly

XRT is right back where it started in January  2016 when the other markets took off.  This is a sensitive indicator  Retail stores are closing as online shopping gathers steam. This has a domino effect on shopping malls and  stand alone retail strip centers. Someof the latter have been standing vacant for years in my north side affluent San Antonio neighborhood.

Cullen Frost Bank

The best managed independent bank in Texas closed under its 200 bar weekly MA.  Falling interest rates and lower energy prices took it to  book value in early  2016.  Could that happen again?

CFR Monthly

 

We are a week away from the end of the month. But the PMO monthly at bottom has turned down.  ANd CFR is down  13% for the month so far. This may be setting up a great buy later this fall.

XAU

This looks too over done to buy in now. But the gold and silver rally continues. Given the recent multi year extreme in the gold silver ratio with silver out of favor, we like silver.

The Tariff War is not Working

Friday Aug 23 2019

The Tariff War is not Working

 

When President Trump casually announced that tariff trade wars were easy to win, we warned that would not be the case. After a stunning two year rally, the markets are now mired in verbal insults , mostly from our side. This morning China threatens to make good on its promise to retaliate for higher tariffs imposed by the United States. Not surprisingly the DJIA is down about 250 points.

 

After bragging about his stock market success, lately the President has been using what one observer calls the Trump put. A put is a hedge on a move down in a security. When we have had days like this, a sudden drop in equity prices, Trump has followed up by relaxing the latest tariff threat. And so far the markets have accommodated this ‘talking up the trade deal.’ But as it becomes more and more obvious that China will wait Trump out until the election, surely lower prices are in store.

 

Gold and silver are rallying which is not a particularly good sign for the US Dollar or equity markets. But that is in line with our current predictions.

 

Trading at 26,008, the DJIA has not been able to surmount 26,400. At this point a move back tot eh late May low of 24,800 looks like a reality.

 

And speaking of lower prices, crude oil dropped 2.89% this morning on the China trade threat. Clearly the markets see trade threats as eventually slowing the world economy, as if the rest of the world were not slow enough already. That one-day drop is a good example of just how dangerous this kind of brinksmanship can be. Do not be fooled by those citing lower gasoline prices. Lower oil prices are signaling a much slower economy.

 

Halliburton sags to $18.25 and Apache looks like it is headed below $20, now trading at $21.15.

 

Social mood world-wide and in the US is particularly negative.   Inflation estimates for Venezuela are now in the million percent category. The Chicago Teachers Union just visited that economic train wreck.   The Union noted Maduro had not closed any schools, never mind there is nothing to eat. Protests continue in Moscow and Hong Kong.   Italy had another government collapse but what else is new in Rome?

 

With the elections a long fourteen months away, look for more ‘sudden surprises. ‘

 

Correcting into late August mid Sept

Weekend Augusts 18, 2019

The weekly charts indicators usggest we have further to go on the down side.

 

MACD is just breaking down at bottom.The MAs in the main chart have come together which is usually a sign of a change in direction.  ANd with multiple varying signals on th tariff trade wars, riots in Hong Kong and Moscow, collapse in Argentina and Venezuela, crisis on the border, and ten years after the low of March  2009, Xi will surely wait for the elections before agreeing to anything, well, stand by.

Transports were actually down for the week.

Russell 2000 looks very much the same. And given the seasonal weakness of summer, here is best guess for a low.

DJIA

Crude Oil and Stocks have traded together with oil leading the pair lower.

Note the  similarity of the oil and then the DJIA chart above it.

RIG just made another new low, AXAS is trading at 50 cents,    

Hard to get bullish on oil and here is why

weakness in energy and energy service shares, XES at new ten year low

plenty of world supply

economies slowing, less demand

new laws against carbon auto emissions in European cities by  2025.

cold weather months away

natural gas still making new lows.

Gold

How bullish is the new bull market in gold?

Gold could certainly correct here. This may be a Wave three following a Wave one and then corrective Two into the May low.

So expect a fourth wave correction but this all may be stronger than most think.

Silver

Silver has finally broken out of tis downtrend. Looks like good support at 16..25-16.50. Add there on any pullback.

Social mood remains negative world wide not just in the USA.

Germany

 

Unlike the USA, German stocks did not make a new high on the re  -bound from December.

Hong Kong

Needless to say none of this is playing out well in Hong Kong.

This past week a 92 year old told  Kamala not to mess with her heallth care.

 

Dems have been  completely tone deaf to the 170 M who like their plans.

Biden's bid is likely to fail just as his pas efforts have failed.

Which leaves no Adult Dem in the race. 

Insults are exchanged regularly between Trump and various Dem candidates. The two Squad members headed to Israel were denied entry.

Trump told no on Greenland.  (?)

All in all look for more correction in markets  until some bottom forms.

 

 

 

Deflation

Weekend August 18, 2019

Deflation on Hand

 

The yield on the thirty-year Treasury bond fell below 2% yesterday. J C Penny is trading at 59 cents, may be de-listed from the New York Stock Exchange, and will begin selling second hand clothes with thredUp. Energy Service XES not only fell below $8 as predicted, it traded under $7 yesterday, a new low.

 

What’s going on? The correct answer is disinflation possibly leading to outright deflation. We noted that oil prices have been falling since the $140 high in 2008.    The fracking revolution has simply been too successful. The world is awash in producers from Russia to Saudi Arabia to Iran to the Eagle Ford wanting to sell for higher prices. But oil is one-half of Russia’s economy. And so the selling and weak prices have continued. Take notice of the demonstrations not only in Hong Kong but in Moscow.

 

The Commodity Research Bureau index of 19 commodities hit a new low last week.   Copper, palladium, and agriculture prices in particular have all made new lows. Amid headlines expecting lower natural gas prices for years, natural gas rallied from $2..05 to $2.23   on lower than expected supply. That does not signal a bottom but the hysteria over lower prices does suggest enough negative social mood to look for firming natural gas prices as cooler weather approaches.

 

But the most ridiculous valuation is a thirty-year Treasury bond yielding but 2%. I started trading bonds in 1984 when yields were 12-14%. And should the economy sag, the FED will find itself out of ammunition,, there is just nothing to be gained when by lowering rates already at, as Jim Grant put it, 4,000 year lows.  FRAK the shale ETF and CRAK the refiner ETF both appear to be approaching some sort of August low.

 

The New York Stock Exchange Advance Decline line is bouncing back today.  The most positive thing about the economy is that retail sales rose .7% in July The biggest uncertainty is not our economy but the tariff wars and whether China will crack down on what it terms as terrorism inn Hong Kong.

 

Crashes can take different forms. Lakefront property along the Guadalupe River has soared to the high six figures. ] The dams creating several ‘lakes’ out of the river date back to 1931. There have been two recent spillgate failures the last two years. Fearing a more failures at the four dams, the Guadalupe -Blanco River Authority has decided to drain the lakes, letting the lake levels drop twelve feet. Residents now have a mud bank frontal. Property tax revenue will be decimated. It is not known if there is a way to raise the estimated $180 M to repair 90 year old dams or when that might even happen.   How far prices will now fall or whether sales are possible is unknown.

 

As with any speculation, the buyer needs to beware.

Breakdown

Wed Augusts 14, 219

 

the A/D line is the most consistently reliable indicator. We are headed to teh late My low at a minimum and possibly back to the late Dec 2018 low.

Banks and energy service is already testing or near the Dec 2018 low, that is probably our lead indicator of where the rest of the market is headed.  XES Energy Service closed at 6.999 welll under the 2009 panic low.

 

Transports lead as we have said so many times and they are near the June low. And TRAN has closed under all the MAs, an ominous sign. Should China send troops into Hong Kong, the result would be a world wide melt down.

Stocks and Oil Begion the Week to the Downside

Monday August 12, 2019

Crude oil, black line, and stocks have had a pretty high orrelation. Crude looks like it is headed back to the December low.  Breadth in  the overall stock market continues to narrow with the inverted bond yield flashing a warning. Weekly  PMO looks about ready to break down at bottom as well as RSI at top.

Caution

Inverted yield Curve Prediicting Recession

Wed August 7, 2019

The ten year note now yields less that the 3 month T Bill. Normally investors demand a higher yield for assuming a longer holding period, most anything can happen in ten years.

The black line is  IRX the three month yield.  The red bars are the ten year yield, now beneath the three month yield.

Since 1974, 45 years, an inverted yield curve has always predicted a recession. Given the 700+ point drop i the DJIA, weakness in world stock markets, a trade war spinning out of control, riots in the streets of Moscow and Hong Kong, a new low in the British pound, soaring gold and silver prices, there is reason for concern.

The XES Energy Service ETF broke below 8.00 yesterday continuing to telegraph weakness in the energy sector.

XLE Energy

I suspect thee 58 level falls today, oil is trading down pre market this morning. That suggests a re test of the December lows.

 

Stocks and Gold Top, XES makes New Low

Weekend August 4 2019

Still recovering from hand surgery so very difficult to type.

Stocks topped this past week. Now looking for sell off similar to the last three since Feb 2018.  That should bring a good entry in late August to mid Sept.

Gold probably topped around 1460, support at  13 60 - 1380.

Silver may be finally making a final low as we have higher lows and higher highs. Again let's judge the pullback the next 45 days. This is particularly important as silver is just now breaking out.

Crude oil has dropped below all four MAs with XES service ETF making a new low for the last ten years.

The news says natural gas may take years to recover.  This is similar to headlines in 2016 at $1.90 which declared nat gas would have to go to zero  or free to ever work off the supply. Indeed the way gas is being flared it is free, there is just not enough ways to get it to market. At 2..12 we are probably within 25 cents of a bottom.   Social mood is just too uniformly negativee.

 

So for now be patient waiting for late August to mid Sept.  That should b be a great opportunity.