The Market Perspective

The jury Is Out

Friday January 31 2020

The Jury is Out

Crude oil closed at its lowest level since August, copper prices have fallen 12% since January 14, and the Chinese Virus Roils Emerging Markets.

Wall Street Journal Today

Our headline refers to the stock and commodity markets rather than the endless impeachment hearing.

Crude oil fell apart on January 8 dropping from $65.65 to $59.61. Yesterday’s close at $52.14 was another 2.2% drop. The problem is two-fold. The fears that the China Virus Coronavirus will spread has lead to reduced expectation of fuel consumption on every manner of human transport. Airlines, rails, trucking and autos have all been hit, not to mention casinos in Macau. West Texas Intermediate now sits right at former support around $51. Will this triple bottom hold?

The rest of the energy complex has fallen as well with unleaded gasoline trading at $1.50, down from $1.80. The most troubling event in the complex is the waterfall decline of natural gas. It has fallen from $2.90 in early November to $1.83 yesterday. That price set a new low for the move. The last big low was in 2016 at $1.61.   That is the level to watch at this point.

This sort of analysis reveals the truth that low energy prices reflect a lack of confidence in the economy rather than a great bargain for consumers.

Copper prices have fallen 12% since January 14. Copper is an important economic indicator with China as the big buyer the last few years. Copper prices just had the worst eleven-day stretch since 2011. China will not be buying as much as it quarantines its giant cities.

The DJIA has fallen below 28,800 this Friday morning to 28,652. A weekly close under 28,800 turns the daily trend down.

Emerging markets have also been hit hard. The US Dollar has rebounded making foreign stocks more expensive. And the lower copper prices are also forecasting less growth in those markets

Industry giant Exxon Mobil dropped to $64.79. This is barely above the late 2018 low at $62. The ETF for FRAK, the Shale producers, has fallen from $11.60 to $9.77 threatening to take out previous lows under $9.40.

Overall the stock markets in the US are overbought, not having touched the 200 bar moving averages in years. The last visit on the weekly chart was in 2016. With the DJIA at 28, 652, the 200-week MA is 23,342. Given the uncertainty of all of the above plus the election, I would not disregard the potential for further weakness.

Our Best Long Teerm Indicator

Tuesday Jan 28 2020

Our best indicator is the NYSE advance decline line.

At top the RSI is clearly way over bought. At bottom MACD is rolling over.  The A/D line itself bounced today which is expected after a 90% down day like Monday.

Crude Oil

In retrospect, the big reversal  on the 8th doomed any rally. Crude is now oversold to the point of needing a bounce. But do not be fooled, oil and stocks rallied together for many months, oil still leads the wauy, lower prices are eventually ahead.

Apache APA

Apache has lost 2/3 of its value since 2014.And it is till falling

So lower prices should be expected, oil is down $12 this month and quite over sold, expect a relief rally in stocks and oil but don't put much faith in it.

DJIA Down 450 Points

Monday Jan 27 2020

Transports lead the way down, a return to the Sept low is realistic.

It ahs been over ten years since a test of the 200 bar MA, old tops are new bottoms and that would be  2007s 14,000, that would be a return to the linear uptrend, see below, market is now clearly parabolic.

The linear uptrend is at  14,000 about half way back to where we began in  1982

protests and riots around the world may be a precursor to a much larger correction

total polarization in the USA in politics

narrowing breadth in FANG and NASD stocks

 

Yield  now  9%, could easily return to 13.50.

I dumped all energy positions save MRTand AMLP, with a smal profit will probably exit those tomorrow, but SKT is a hold for now

USO is in waterfall decline, further analysis not possible,August lows may not hold, check XOM the leader

Exxon Mobil

XOM took out all its 2019 support, las Dec it stopped at 62, I am not nearly so optimistic that will hold as we are at 64.74 already.

Big Correction has begun, do not be casual or naive about the possibility of what might happen, and Trump got his wish, the FED lowered rates, not much left FED can do to help interest rate picture now, ie not interest stimulus left

I will update more frequently this week.

OIl Topped Followed by Stocks

Weekend Jan 26,   2020

PMO has finished a clear five waves up, Support is now at the previous fourth wave low of 27,5000.

Crude oil topped, I was incorrect about a five wave pattern crude ended wiith an ABC corrective pattern. II doubt the previous lows of 51 will hold given the rapid descent of price.

NATGAS is getting clobbered and accelerating the rush out  of anything energy.

Again I doubt 1.81 previous low holds.

The China virus threat has all things in transport under pressure. China is trying to isolate a city of 11 million.  That is twice the size of the entire DFW metroplex.

I had hoped the energy trusts would hold with their great dividends but I am out of those as well. I suspect this year will look like 2018 which was up and down, with the fourth quarter down hard. That would make sense as we approach the election in November.

More this week.

OIl Rally Ends

Friday Jan 24, 2020

Energy Rally Ends

A slide in oil prices pushed shares of energy companies in the broad index down 4.7% so far this month including a .4% fall Thursday.

Sagging Oil and Gas Sector Darkens S & P Profit Picture, WSJ

We had thought the price of West Teas Intermediate WTIC would stop around $57 and rally to $70. This scenario is now a low to no possibility as energy markets declined to new levels across the board this week.

WEehad mentioned the huge outside reversal eleven days ago might e a big negative for WTIC. This has turned out to be the case. That day oil topped over $65 and fell below $60. It has never recovered above $60. The daily price is now under the 200-day moving average MA. On Thursday the price dropped below last support of $55.02, touching $54.77.   The close of $55.59 is probably just a last attempt at a come back which is failing again this morning.   Crude has a triple bottom going back to June around $51. That becomes our near term target. But double bottoms tend to hold while triple lows often do not.

Energy ETFs XOP and XLE are in free fall. Ominously XOP failed just under its 200-day MA. At $20.60 it is below all four moving averages I track. XLE has just violated its uptrend line and is also below all MAs.

The price behavior of Exxon Mobil has been troubling for quite a while. The reason is that it appears XOM is not generating enough cash to run the company, re-invest to replace oil sold, and maintain its dividend. XOM never came close to its moving average now at $71.23. It is already back at the previously mentioned triple bottom for energy prices which is $66-66.50 for XOM. As the ‘big dog’ in energy, XOM is often an early warning indicator both up and down.  Again,nothing positive from XOM is occurring.

Speaking of early warning indicators, natural gas is really falling out of bed. It topped in early November at $2.90. This week it collapsed from over $2.20 to $1.90 today. This waterfall projects much lower prices amid an already over sold condition.

Our bottom line is to expect lower not higher energy prices. China virus fears are also slowing trade world wide as cities are quarantined in that country.   Declining energy prices are also potential evidence of an economic slow down world-wide. Protests leading to near riot conditions around the world are also negative social mood events in terms of stability.

Crude Oil Taking Its Time to Correct

Weekend

USO Crude Oil

 

The correction in crude seems to be taking forever. But it looks a lot like what happened int September. Then after a big run up, it took some three weeks to bottom.  Now price has stopped or at east paused at the 200 bar line. this is two hour or 120 minute chart.

 

I have looked at the four hour  240 min charts for all the energy service stocks I track.. I believe we just need to be patient, a bottom looks a week off.

More to follow in Sunday update, check back.

Sunday Update

The arrows highlight what appears to be a two year cycle. If that is the case, the Dollar is topping as various energy shares continue a bottom process.

WTIC has a positive correlation to the Canadian Dollar

Dems What's the Problem?

Friday Jan 17, 2020

Weekly Newspaper Column

Dems, What’s the Problem?

 

The vote was 89-10 as an overwhelming majority of senators of both parties supported the agreement, as expected. Last month, the House of Representatives approved the revised agreement by a similarly wide margin,

Senate Approves USMCA Trade Deal 89-10

And in the same week, the Chinese apparently decided Trump will be the next US President and signed Phase One of a trade deal with the US. The thing to note is that the Chinese did not wait for the November election. They are not hoping to revert to another go along to get along, ‘yeah we know the Chinese cheat our pants off on Intellectual Property Rights but so what?’ that sounds like a bet on a Trump victory to me.

P T Barnum was the ultimate showman in his day but the Donald is surely his .The Democrats can’t wait to discard the the first two amendments to the Constitution as well as the Electoral College but roundly endorsed the document in Impeachment Proceedings this week. To cap it off several stock indexes hit new all time highs and Google topped a trillion in market value. Oh, and Trump held a rally in Milwaukee as the Democrats ‘debated.’ Years ago Democrat strategist James Carville noted it’s the economy stupid, and that has merit today.    Top that with record low unemployment for Hispanics and Blacks, and well, I am guessing Americans will vote their pocketbooks.

This column has taken the position that the energy sector hit a long term low last August.   Share prices and crude oil itself advanced to about $65. We have had the inevitable correction since, with crude up Thursday and another 36 cents today.

Predicting oil prices also requires a look at the entire energy complex. I would call for the low in crude oil based on the last couple of days BUT (gee there is always a but) heating oil set another low Thursday.   Let’s hope it turns up today.

Energy trusts like PBT and MVO had nice advances, Prudhoe Bay BPT jumped 50% since November but gave back a lot this week. The increase there and in Nustar NS and Alerian AMLP is also encouraging.

Natural gas futures like heating oil sagged again Thursday. Looks like it will test the August low at $2.05, now $2.08.

Our bottom line is this. The overall stock market is behaving like early 20158. Then there was a similar parabolic advance. That was followed by an eventual DJIA 3,000 point correction and up and down movement until a larger collapse in the fall. My take is that the FANG stocks are overdone here and a top is likely this next week. The surprise may be in beaten down energy and metals, if the US Dollar continues to weaken.

Follow Dennis at http://www.themarketperspective.com

OIl Drops Five Straight Days, A Bottom in SIght?

1/14/2020 Tuesday

The headlines look terrible for oil prices, so are we closing in on a bottom?

USO an ETF for oil can be tracked intra-day on stockcharts

240 min chart USO

Okay this is but a  .66% move up but this is about where I expected some support. Note the bap in early Dec at far left, we might have to fill that yet. But time to start looking for a low.

Natural Gas

Okay it is only .23% up but amid these terrible headlines, this is the sort of thing to watch.

Iron Ore CLF

 

CLF advanced 3.95% today right off its trend line.

Tanger Outlet Mall SKT

 

One can hardly find a parking spot on the weekend, SKT pays a 9% dividend, an everyone hates brick and mortar retail.

SKT Weekly

 

The moving averages have not turned up yet but are converging. It may take another dip or two.

Nustar NS

Bill Greehey bought $15 M of NS stock recently at the $28 level.  It dipped after he bought but is rising wel.

William E. (Bill) Greehey. Bill Greehey is Chairman of the Board of NuStar Energy L.P., and NuStar GP Holdings, LLC, both of which are based in San Antonio, Texas. NuStar Energy is a publicly traded master limited partnership that is one of the largest independent liquids terminal and pipeline operators in the nation.

now

The weekly chart shows why Bill is interested in NS breaking the $28 level.

I remain bullish energy. The trend in the USD has turned down on the daily chart. This will be suportive of higher energy and iron ore prices.

Thanks for reading the Market Perspective.

 

OIl Price Conosolidates

Friday Jan 10, 2019

 

Oil Prices Consolidate, A Bottom for Natural Gas?

 

US crude futures edged down Thursday to their lowest level in four weeks.

 

Wall Street Journal Today

 

This is a column about energy markets, which makes sense as our newspapers are in the Permian Basin. The Permian Basin has returned to its rightful place as the largest producer of crude oil in the USA.

 

This column often has a currency focus as oil is priced internationally in US Dollars. Hence a weak US Dollar tends to bolster crude prices and a strong Dollar weakens the price. Sure enough the peak in the Dollar three months ago in early October was at 99.25 That saw a low in WTIC around $52.50. The Dollar index has fallen since to 96 and now risen to 97.16. Crude oil raced to $65 plus.   The column has been consistently bullish on oil prices, noting a low in the complex last August.

 

At present our view is for a weaker US Dollar in 2020. . This would be supportive to commodities, like oil, natural gas, and metals, priced in dollars.   The US Dollar sold off from its October high and has rebounded. Likewise, the Canadian Dollar, a currency in a commodity based economy, rose and is correcting. I expect this will end in a week or so with the US Dollar falling again.

 

Critics will no doubt point to the Iran dust up as having ‘saved’ my prediction. But there is typically a fundamental event in any of these markets to justify the technical analysis.

 

The result of taking out the Iranian General and his subordinate was a step back by Iran. While I have not read anyone commenting, surely the reality that the US can take out two autos and passengers with no loss of US life and all loss of Iranian life made an impression on their leadership.   And so crude oil prices posted an outside reversal week to the down side. This is normally a negative. But after a big rally of $14 I three months, a correction was due.

 

USO is an ETF proxy for the United States oil price. Despite the sharp correction, it remains in an uptrend from the October low.

 

Our suggestions have worked well. Various Energy Trusts such as PBT, BPT, MVO, and MTR have advanced in price. And they are still paying fat dividends.   Alerian Master Limited Partnership AMLP an ETF of MLPs, rose from $770 to $8.70 and also pays a 9% dividend. And our long suffering benchmark Apache APA has soared from sub $20 to over $30 on an overseas oil discovery.

 

I would rather buy out of favor energy plays paying nice dividends than dabble in Apple at $300 + in its upward parabolic arc, but to each his own.

Are We Completing Wave One for Energy Trust?

Tuesday Jan 7, 2020

Permian Basin Royalty PBT

 

It appears we have completed Wave One up for PBT.This makes sense as the fifthe wave was caused by taking out the Iran General. A  50% re tracement is 3.85 which is also the 200 bar EMA, and the previous 4th wave low. Note we have alternation  with a quick sharp wave 2 but a slower long sideways Wave 4.So this looks pretty textbook.

Now we should expect an A B C correction,  A Down which is underway now, B up and then a final C ending around  3.85.

 

And over all the move up from Dec to early Jan should be a Wave One on the daily scale.