The Market Perspective

The Big View

Weekend October  31 2020

My friends at Elliott Wave believe that the long wave of stock market advance topped February  12 2020.

A rapid sell off occurred into late March.  The FED has poured trillions into buying bonds and that money bought stocks and it all focused on the NASD specifically FANG and TSLA. The rebound ended in early September. While NASD and NDX made new highs, no other index did. And no other index around the world made new highs.  That is a Dow Theory non confirmation. 

Now the real sell off is getting under way.

Year 2020

The sell off this week, far right looks a lot like the sell off that began in February.

The reason is that the TECH stocks which have supported the rebound have finally been hit with a wave of selling. Right on schedule, Congress is investigating social media companies. Recall the Federal Govt sued MSFT in  1999, IBM in  1966, and RCA in  1929.

I found this comparison of the  1929 top at right with where we are today. Notice  the  1929 market regained half its loss. Today the FED is much more active and there are far more leverage tools to spur a rally like futures and options. So the rebound now was stronger than in  1930.

 

The low at far left was DJIA 42 recorded in  I believe  1932.  Now at  29,000 five waves across nine decades are complete.

There is also ample anecdotal evidence of a social mood top in the making.

Check out this hlist of new sports stadiums planned around the world.

Here in San Antonio Frost Bank recently completed the first new building in downtown since  1989. 

UTSA is planning a $160 M expansion downtown.

Graham Weston pivots toward housing now that Frost Bank is complete.

My own school is planning a new dorm and a new College of Business building. In addition it has begun an ambitious athletic program.  These are top of the market optimistic undertakings.

The same exact thing happened with the Tower Life building completed in the summer of  1929. It was to be the start of a larger complex of  housing, stores, and offices. The Depression killed that idea.

Frauds and scandals surface at  or near market tops. The anything goes attitude for years as the markets grew allowed those participating to over look the excess. But now we have the stream of Weinstein/Laurer/Cosby scandals, Wells Fargo still in trouble after years of turmoil, Chase pays a  $920 M fine, EY is three troubling audits on its hands, KPMG's top auditors are convicted in a bribe scheme, and even  usually squeaky clean USAA is hit with a  $85 M fine.

The DOW now

The drop  the last week looks a lot like the drop from the February top.  And PMO at bottom is topping, RSI never returned to its February high.

All of this spells potential trouble. It may be that the markets will hold up as they did from  2000-2002.

but then the market stayed above the  200 week MA for quite some time. Now see previous graph, it is already looking to test that level.

October Low?

Friday Oct 30 2020

I suggested a pullback to this area might be support for an October low. could be but let's wait for the election

uncertainty next week.

NDX

NASD 100 has shed 1,000 points. this could turn up after the election given the position of the PMO at bottom.

VIX

the sell off re ignited the VIX, as in the previous chart it could peak by Tuesday.

 

Volatility Rocks Markets and Stocks

Friday Oct 30 2020

Volatility Rocks Markets and Stocks

The markets continue at high levels buoyed by tech stocks trading a valuations typical of past market peaks.   I doubt markets will move much between now and the election. Stay cautious.

Last Week’s Column Ending

The first and third sentences were spot-on correct. The second sentence, not so much.

Indeed this past week saw the most volatility since June. The Dow Industrials dropped about 1,600 points with intraday swings of as much as 900 points. The valuation levels of the FANG stocks took the markets near 29,000. Now the selling in that arena magnifies volatility on the downside.

Crude oil had been steady for a few months around $40. Thursday’s close was $36.17, down about 10% in a week. Europe is shutting down again on increased virus cases. Demand for energy is seen weak with less travel. Prices began the year at $60 and actually went negative in April. The rebound to $40 has ended. Now the daily close is under the 20-day Moving Average at $37.69, a negative development.

As noted last week, Exxon has promised to maintain its dividend now yielding 10%. To achieve that, some 15% of global employees will be cut including 1,900 in the United States.   Shell and BP cut their dividends. Shell cut from just over 45 cents to just over 15 cents deciding to raise a smidge at their last meeting.

Biden promises to eliminate fracking on Federal Land. There are no Federal leases in Texas but quite a few in New Mexico. However hoping that will help Texas is over optimistic. Democrats are not voting for Biden who consistently says little to nothing about his real policy. Rather they are voting for Harris, Sanders, and AOC who will declare war on anything oil related and any business earning a profit. The hunt and production of crude oil will suffer a thousand paper cuts under a Biden Administration. Remember Obama’s EPA crusader who promised to crucify those in the oil and gas business? Like Freddy Krueger on Halloween, he will be back.

Robert Cahaly of the Trafalgar Group, was the one pollster who got it right in 2016, about the election that is. He points to social desirability bias as the reason for incorrect polling. He suspect people do not correctly respond to cold telephone calls fearing their answer ends up on Facebook or Twitter. Simply put it is like asking, Do you watch the Jerry Springer show? Few will admit it but the cable TV outlet results show otherwise.   Trump continues to draw large crowds as the media covers for Biden gaffes and Hunter’s indiscretions.

Thursday Close - Weak Bounce

Thursday Oct 29 2020

 

Very weak rebound today,perhaps this is uncertainty over election, One would think that gap would be filled before downtrend resumes.

Converse on ratio chart

 

Same gap

Small Wave Three Probably topping Now

Thursday Oct 29 2020

This ratio chart of Hedge versus SPX should be of   value in timing entries.  Small wave three is probably topping now.

Wave Progression from early Sept top

As wave 2 was a sideways affair and we dropped so far yesterday wave four should generate a rally of several hundred points before a wave 5 of 3 begins.

 

Wave Three of Three

Wed October  28 2020

Third waves are always the stongest. Today we had wave three of three developing. It gapped down at the open and closed near the low of the day, -943 points.

 

Most of the FANG stocks were down 5% excluding apple. The collapse of the stocks holding up the overall averages with their large weighting is behind the big drop today. Note the Industrials were down 3.4% . This is wave three of three. So a weak wave four up will look good. Wave two of this third was sideways so expect some upside momentum from four before five sets in. But all that will just end Three of Three.

 

More labels to explain will follow tomorrow. But the big picture is that the top of the market is in. Lower prices ahead for some time. The  FANG stocks are just beginning  to break, the very day Congress called those CEOs to testify. Nice going Congress, right on time.

 

We will be  posting more frequent updates in an attempt to successfully trade the market on the way down. for example we will be tracking Hedge versus SPX looking for turns at Elliott extremes.

 

 

Markets Worldwide Falling Out of Bed Part II

Wed Oct 28 2020

NASD 100 is breaking its 50 day MA. This looks like the start of a Wave Three Down. 

Bond prices are up a smidge but not as much as one would expect on this sell off. The die is cast there as well.  Higher rates lie ahead.

 

Markets Worldwide Falling Out of Bed

Wed Oct 28 2020 8 00 AM CST Pre market

I concluded my weekly newspaper column last Friday with

Stay Cautious

Industrials  are dropping fast, down  600 now, oil off 1.50 trading around 37 and change

We noted the rich valuations of the FANG stocks and TSLA at  800 to 1 P/E. We have noted much of the market

energy hotels airlines restaurants banks retail

are in a bear market.  If and when the FANG stocks began falling that over weighting would move things quickly in the opposite direction.  Now that is happening. I was not able to post a chart yesterday afternoon due to a glitch at typepad, But the FANG sector

appears to be forming a  broadening top, a sideways patter indicating distribution. Recall Buffett sold his Apple stake a couple of weeks back, good timing.

And last night on Tucker Carlson a former Hunter Biden partner mentioned Joe's defense of credible deniability if the various money schemes came to light. Now Republican Senators are calling for a Special Investigator regarding Biden. Nothing like payback for the Mueller probe!

Tuesday Pre Market Open, Flat

Tuesday Oct 27 2020

Intradaythe market was down 900 points before staging a come back in the afternoon.

Richard Russell, Dow Theory Letter, referred to such a day as Monday as a 90% down day. Indeed 29 of the  30 DJIA stocks closed lower. Usually such a a lop sided performance is followed by a weak bounce the next two days. But at 8 09 AM CST the DJIA is flat at 

27,592.. This is below the Tuesday Oct 6 low around  27,700.  A failure to rally above that level is negative.

 

Gerry Seib has a column in the WSJ today relating a path to a Trump victory.  More is coming out on Hunter Biden and the harsh treatment of energy and higher taxes. 

Markets Close Rifght on 27,700

Monday  Oct 26 2020

The Oct 6 close at  276,700 is our line in the sand

at the moment.

 

 Åfter a big sell off today expect a modest rebound tomorrowq