The Market Perspective

Again Five Waves Up Anyone?

First Weekend Post FEb 29 2020

Is the daily chart a buy yet, Liz Claman asked if it was Tuesday afternoon, and of course the answer was no, that is still the answer, check out the PMO in bottom panel

The daily chart has had multiple 'air pocket' drops, this is a result of an imbalance of orders, the sell orders over whelm the buys and the price must go lower to fill the sell demand. Note the PMO is no where close to a bottom.

Five Waves up on the Monthly Chart

This is a log chart percentage change is a constant

 

The arithmetic chart shows just how far the index is above the MAs.

 

A 50% drop would be 29,548 / 2 = 14,774. The 200 bar MA is 15,094, close enough!

Add the RSI indicator

RSI has dropped significantly in a short period of time suggesting a more significant top.

Sicne  2008

Has the Bubble Popped?

Friday Feb 28 2020

Has the Financial Bubble Finally Popped?

.Look for a needed pullback in stock prices and lower oil prices over the next month.

Last line of this column Feb 23

This column and the website, themarketperspective.com, have cataloged numerous examples of ‘top market’ social mood thinking over the last several weeks. We noted that Schwab’s $26 B stock deal for TD Ameritrade, now that many commissions are zero, was typical of how social mood from the last market bottom is ‘unremembered.’ Even more remarkable was J P Morgan’s purchase of E Trade at $13 billion, declaring the wealth manager was ‘ready to take on Fidelity. ‘

Amid a 14% market decline over four days, I just saw my first ever Aston Martin television ad, lease your Vantage for just $1,699 a month (but zero down!). Again this is expansive top of the market evidence.

As always, brokerage firms are recommending all stand pat noting how many times the markets have recovered in months after a big decline. I would remind readers that months before the October 1929 crash, the smart money sold out and left America for extended vacations.

Indeed the same thing has been happening now. The Transports peaked in September 2018.   The small cap S & P 600 did so a month before that. Neither has returned to those highs. This is termed distribution as the early buyers sell to those late arrivals

As a matter of full disclosure, while working for Ross Perot as a broker I was on the front lines of the 1973-74 50% DJIA decline. We heard all the same assurances then as now, amid pretty much the same negative social mood. Then scorn was heaped on Nixon, now on Trump.

Here are some reasons to wonder if this is a repeat of 1973-74, 2000-2002, 2008-2009 bear markets, rather than a short term pullback like December 2018.  Yes there will be a low and a bounce but will that be repeated over the net two or three years?

Political social mood is irreconcilable. No matter which side wins in November, the other will be even more furious.

There has never been a stock market rise that lasted more than ten years. The two most important indexes peaked over a year ago.

Breadth has been declining with ownership focused on the FANG stocks.

Outlier Tesla recently traded at a price-earnings ratio of 183 to 1 while the S & P as at 20.

Yes brokerages were absorbed in the 1974 sell -of but for nothing. Professionals who should know better paid billions (the sellers were willing to take stock not cash) for companies now already at a discount to that purchase price.

The energy sector is already in a bear market.

Trump has his wish, the FED lowered rates to near nothing. If this is the start of a major bear market, the FED has nothing left to offer in terms of stimulus.

As noted on tehmarketperspective.om,, the next target for oil is the December 2018 low of $42.50. But with prices dropping over a dollar a day, now $45.72, even lower prices seem likely. There is no sign of a technical bottom in oil as of this writing.

Stocks Close Down Again, Energy in the Dumps

Wed Feb 26, 2020

Here is a comparison of the bullish percent of energy stocks versus the price of XLE. XLE is fallling faster than the Percent of stocks.

The black line is XLE, price at left, the vertical bars at BPENER. XLE usually mimics the percent but this time is making a lower low.

My guess is that the extreme weakness of Exxon, now at 54 is dragging XLE lower than usual. For some time it has been thought XOM was not generating enough cash to pay the dividend, run the company, and explore and replace the oil sold. That reckoning may be near.

As I expected, oil broke 50 today closing at  48.63. Next stop is likely to be the low low 40s. Low in Dec 2018 was 42.50.

Dow Industrials

Liz Claman was talking  buying bargains in the last hour of trading today. But hte PMO at bottom suggests we are not near the bargain level yet, And this is just the daily chart! It looks like this is  a third wave of the first formation but

the average has already dropped about  2600 points and taken out the 200 day MA in just eight days.  Stocks tend to fall seven times as fast as they rise, witness the above. 

NASD 100

Tech has been the rage and actually caught some buys today.

Again he  200 day MA seems a good target.

Patience, buys for dividends should include REITS, DIV, MSB, and possibly some energy trusts.

Remember the Transports are the leader.

Transports look poised to take out the four previous lows at 9700. That will be an ominous indicator of lower prices ahead. And of course the virus scare is hitting those stocks world wide.

Social Mood was in chaos last night on the Dem Debate Stage, it sounded more like a cage fight than a contest for leadership of the Free World.  The results from Carolina should be interesting. As Jonah Goldberg observed on Fox, this is like the big pack of Republicans running against Trump, most agree several need to drop out to give someone a chance but all think the drop out should be someone else. If Bernie gets another leg up with Carolina results it may be impossible for anyone in the field to catch him.

 

 

Market Drop Continues

Tuesday Feb 25, 2020

Holy Reversal Batman!  Our NYSE Advance Decline line is our most reliable single indicator. This is an incredibly abruppt change, once again social mood is unremembered.  The MACD is nowhere near a  bottom in the lower panel and this is just the daily chart.

Here is what the Fall 2018 reversal looked like.

Notice in Sept the market trended side ways before dropping.

Now this is a reversal

This indicator is already lower than the previous reversals ascribed to the virus. That suggests to me that Elliott's five wave up on some basis are now complete. This is a serious reversal.

Crude Oil Likely Beginning a third wave down.

 

The $5 level will surely fall this week, I am  surprised it did not do that today.XOM closed at 54.20 a rare event for that giant.

IN my column this past weekend I suggested the  200 day MAs would be a likely correction, bad news, the DJIA already took that out.

The  27,081 close is already under the 200  day MA of 27,229. The gains since last November are wiped out

Weekly DJIA If this is the start of Wave One, teh 200 week MA at 23,555 becomes a very realistic target

And notice the PMO is just now beginning to turn down!

 

Yikes look out below!

 

 

Five Waves Up Anyone?

Monday Feb 24, 2020

The market closed near the low of the day. Announcing the sell off before the markets opened today a friend commented that I had been talking top of the market for two years. Fair enough let's take a look.

This is the last two years of the SPX. It hit  2600 in Sept of 2018. It then took till July of  2019 to surpass this level. Finally

Since this past Sept the index finally tacked on another  11% to complete a parabolic high. This kind of formation is called a distribution top, those who bought way back when are alternately buying and selling to the late comers.

Transports

The Transport average is much more economically sensitive. It peaked in Sept of  2018 and never saw that high since.

The Transports are a typically early warning sigh that something is amiss. Note th Transport average dropped 2750 points in three months  after that high.

Russell 20000 Small Cap via Rydex

For some reason stock charts is not finding the Russell 2000 so I used rydex, same thing, no new high since Sept 2018.

Oh WTIC closed down 3.65% in line with major stock averages, i expect $50 support to give way soon.

There are numerous reasons for concern here.

Parabolic run up in  major indexes at the end of a ten year run

No stock market rally has ever lasted more than ten years, we are ten months past the March  2019 ten year anniversary.

Breadth has narrowed with a concentration in the FANG stocks like the Nifty Fifty of the  1960s.

Tesla just traded at  183  price earnings ratio.

Total political polarization in the US.

 

Five Waves Up Anyone?

Monday Feb 24, 2020

The market closed near the low of the day. Announcing the sell off before the markets openned today a friend commented that I had been talking top of the market for two years. Fair enough let's take a look.

This is the last two years of the SPX. It hit  2600 in Sept of 2018. It then took till July of  2019 to surpass this level. Finally

Since this past Sept the index finally tacked on another  11% to complete a parabolic high. This kind of formation is called a distribution top, those who bought way back when are alternately buying and selling to the late comers.

Transports

The Transport average is much more economically sensitive. It peaked in Sept of  2018 and never saw that high since.

The Transports are a typically early warning sigh that something is amiss. Note th Transport average dropped 2750 points in three months  after that high.

Russell 20000 Small Cap via Rydex

For some reason stock charts is not finding the Russell 2000 so I used rydex, same thing, no new high since Sept 2018.

 

 

The Correction Begins

Weekend Feb 23, 2020

Here is an update on the  % stocks over their  200 day MA

the actual SPX index went to a new high while the  200 day MA did not.  This is a divergence and explains the pullback in the averages Friday.

 

A ten to twelve percent correction would put the SPX between teh  200 and  125 day MAs, that sounds about right.

Crude Oil

The pullbaack in stocks was joined by a pullback in the price of oil. Oil finished a big Wave One down from 65-50. A weak Wave Two has run its course by 54.  Note the MAs are converging usually a sign of a trend change. Look for much lower prices ahead.

Ten Year Yields Fall

Our conclusions of lower stock and oil prices seem confirmed by lower still bond yields. buying bonds amid a big stock rally is surely a defensive move.

Social mood continues to trend negative. the two political parties could not be further apart. Within the Democrat party, there are fears of a McGovern type loss with Bernie at the head of the ticket. Interestingly Bernie is certain Barack will endorse his candidacy if he wins the nomination.  We'll see.

Gold has rallied along with the dollar, another defensive measure, so brace for a stock retreat.  If this gets more serious over the next  few moths a Trump second term could be in jeopardy.

 

Markets Marking Time

Friday Feb 21 2020

Markets Marking Time For Now

It shows he’s (Buffett) certainly willing to swing at a fat pitch when it comes across the plate

Thomas Russo, holder of Berkshire shares

Well Thomas, I would say it shows that even Warren Buffett has succumbed to expansive social mood at what is surely a broadening top of the stock market.

Buffett spent $36 billion upping its Apple stake according to its 2018 report. My point is that there are lots of contrarian plays going on, the exact opposite of how the same players began in the bull market of the 1980s.

Back then, Buffett turned Bill Gates down on an offer to buy Microsoft shares. Warren said he didn’t ‘understand’ the company. Granted, Apple is a computer/phone maker while MSFT is a software firm. But back then, Warren was buying Coke and later Dairy Queen, as well as his favored re-insurance shares. All are, well, easy to understand. Berkshire shares have underperformed the S & P 500 while Apple has tripled the S& P 2019 returns. It looks like Warren is playing catch-up.

Expansive social mood results in new market highs, and an urge to for an ‘inclusive let’s get together feeling.   BRK buys Apple, Schwab spends $%26 billion oi TD Ameritrade and now, Morgan Stanley sped $13 B to buy E Trade.

This is the biggest deal, granted in stock, since the 2008 financial crisis. Of course it is as DJIA 29,000 is the biggest market plateau since then as well.   Morgan Stanley CEO Gorman declares he is ready to take on Schwab and Fidelity. So Wall Street Wealth Manager Morgan wants to be Wal-Mart to eight million E Traders. A the market bottom of 1974, Merrill acquired White Weld and Shearson did the same with Loeb Rhoads, both on the cheap. At this market top, firms are paying big bucks for competitors, the exact opposite of when the DJIA was 577!

Meanwhile Victoria Secret has been sold at a one billion valuation, a fraction of what Lululemon went for with half the sales. The news article states Victoria Secret has ‘lost its way.’ We would argue the opposite, social mood towards racy lingerie has changed as the stock market has matured. In the1980s Victoria Secret was all the rage with gaga models gracing runway stages.   Of course, expansive mood brings on that ‘Let’s Misbehave’ social attitude.   Bear market attitudes are not so frisky. Are we seeing the first shot across the bull bow, remember there is always a mix of moods as markets slowly reverse.

Crude oil prices have managed a weak rebound after falling over ten dollars. This is in spite of a strong dollar. That strong dollar has weakened emerging markets and resulted in more narrow breadth in US Markets. Look for a needed pullback in stock prices and lower oil prices over the next month.

Junk Bond Spreads Narrow

Posted Friday Feb 21 2020

My weekly newspaper column posted next suggests that markets are tracing out a broadening top. Here we see junk bond yields are finally increasing, investors are recognizing the danger of low rated debt.

 

Junk Bonds: 2 "Golden" Junctures
A recent low in the "CCC yield minus AAA yield" chart occurred very near a key Fibonacci level

By Elliott Wave International

The Golden Ratio -- 1.618 or .618 -- is ubiquitous throughout nature.

You'll find this mathematical proportion in the shapes of galaxies, sea horses, pine cones, the arrangement of seeds on a sunflower head, and numerous other natural phenomena... including the chart patterns of financial markets.

Yes, chart patterns of financial markets are also parts of nature, because they're created by the interactions of human beings.

Moreover, the Golden Ratio is highly useful in setting price targets and forecasting key junctures in those price charts.

Indeed, Murray Gunn, Head of Global Research at Elliott Wave International, mentioned the Golden Ratio in his analysis of the junk bond market in our February Global Market Perspective. Here's a chart and commentary:

The chart shows the yield of CCC-rated corporate bonds minus the yield of AAA-rated bonds, each denominated in U.S. dollars. Junk bonds (the CCCs) underperformed in the second half of 2018 and the subsequent retracement in the yield spread reversed around the [Fibonacci] 0.618 (inverse of 1.618) retracement in May 2019.

Another period of junk underperformance ensued into the beginning of December 2019 from where the spread contracted into last week's low. That low, curiously, was within 4 basis points (0.04%) of the 0.618 retracement of the rally from May to December.

In our February Global Market Perspective Murray also indicates what he expects next for high-yield bonds.

And, while mentioning Murray, you may be interested in knowing that before joining EWI, Murray had worked as a fund manager in global bonds, currencies and stocks. He held long posts at Standard Life Investments and the Abu Dhabi Investment Authority. He then joined HSBC Bank as Head of Technical Analysis.

The bottom line is that Murray brings Global Market Perspective subscribers a wealth of valuable experience beyond his stellar Elliott wave analysis.

And, as you may know, Elliott Wave International President Robert Prechter co-authored a well-known book on Elliott wave analysis, which is titled Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter.

You can now access the digital version of this Wall Street classic 100% free.

Get access now.

 

 

Market Up Against Resistance

Weekend Feb 15, 2020

 

The actual S & P Idex is in purple. The negative divergence is the number of S& P stocks above their  200 day MA, Fewer stocks above that average means that breadth is deteriorating. The move to new highs is carried by fewer stocks with heavier weightings.

This has been going on for some time, the MAs have not been able to better the  80+% mark which is understandable.

And we have a double top on the index stretching from early  2018 to now. Correction in store anyone?

Exxon Mobil

 

No bottom yet, note no cross on PMO at bottom.