The Market Perspective

Stock Rally Continues all Asset Classes up Friday

Weekend August 29 2021

We need a close under 162 to get things going to the downside in bond price.

The Advance Decline Line is not confirming the Move up in the NYSE. Index at top, A/D middle

Hot Stocks at the Top Generate Market Experts

Weekend 8/28/21

 

How "Hot" Stock Market Ideas Can Burn Investors
The Meme Stock Index sees a 36% decline since January

By Elliott Wave International

On July 30, this headline appeared on a well-known investment website:

It's Definitely Possible to Make a Fortune Off Meme Stocks

And, it's definitely true that many investors, especially newbies, have tried.

As you probably know, "meme" stocks may be loosely defined as stocks that become a white-hot focus of interest due to social media hype. The price of these shares can skyrocket within a short period of time. However, as you might imagine, these highly speculative issues can just as quickly turn southward.

Indeed, take a look at this chart from the recently published August Elliott Wave Financial Forecast, a publication which provides Elliott wave analysis of major U.S. financial markets. The accompanying commentary is below the chart:

Legions of new investors continue to chase the latest hot ideas. ... Meme stocks are [a] mutant strain reflecting bullish enthusiasm despite price weakness. This chart shows a steady decline in an index of 35 meme stocks. Despite a decline of 36% since January, many headlines in July insist that the "Meme Stock Revolution" lives on.

This is from an August 10 CNBC article:

Short seller Jim Chanos said retail investors are not considering all the downside involved with speculative trading in so-called meme stocks.

Yet, let's pivot from here and state that all stock market trading is speculative, even with the so-called "blue chips." In other words, the main stock market indexes can significantly decline just like the meme stock index.

So, while "traditional" investors may largely steer clear of meme stocks, many of them may be unprepared for a possible trend turn in the Dow Industrials and the S&P 500 index.

Why will the majority likely be unprepared? Well, consider this quote from a July 18 Wall Street Journal article:

Throughout 2021, a range of surveys, fund-flow figures and options activity have shown investors big and small to be exceptionally bullish.

The best way to avoid getting caught flatfooted when an inevitable trend change occurs is to see what the Elliott wave model is revealing about the broad market's price pattern.

If you're unfamiliar with the Wave Principle, or need to brush up on your knowledge, you can read the online version of Frost & Prechter's Elliott Wave Principle: Key to Market Behavior -- 100% free!

Here's a quote from the first page of Chapter 1 of this Wall Street classic:

In the 1930s, Ralph Nelson Elliott discovered that stock market prices trend and reverse in recognizable patterns. The patterns he discerned are repetitive in form but not necessarily in time or amplitude. Elliott isolated five such patterns, or "waves," that recur in market price data. He named, defined and illustrated these patterns and their variations. He then described how they link together to form larger versions of themselves, how they in turn link to form the same patterns of the next larger size, and so on, producing a structured progression. He called this phenomenon The Wave Principle.

All that's required for free access to the book is a Club EWI membership. Club EWI is the world's largest Elliott wave educational community and is free to join. Members enjoy complimentary access to a wealth of Elliott wave resources on financial markets, investing and trading. You are under no obligations as a Club EWI member.

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This article was syndicated by Elliott Wave International and was originally published under the headline How "Hot" Stock Market Ideas Can Burn Investors. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

 

Seasonal Weakness

Thursday August 26 2021

Social Mood in Decline

 

According to McKenzie, the Taliban and U.S. share a “common purpose” of finishing the ongoing evacuation mission by August 31.

General Kenneth McKenzie US Central Command

Do you find that reassuring? No criticism of the Marine General implied. The Presidential Press Secretary as I write is announcing we do not trust the Taliban.

Over the last few weeks we have noted that there is not enough positive social mood to support current high stock prices. With the crowded conditions at the Kabul Airport, it made a perfect target for a suicide bomber. Before the US even left by August 31, ISIS K is back.   The idea was to deny terrorists an entire country from which to plan world-wide mayhem. That goal is gone. Hard to imagine we will take out terrorists as we are literally run out of town on the Taliban deadline.

We thought oil prices were headed to the mid 50s. But prices reversed at the low 60s level. As I write Thursday oil crept up 38 cents to $67.78. Energy shares are off recent highs. Bell weather Apache has fallen from 24.30 to 17.70.

Natural gas prices spiked today up 7.29% to $4.20. There is tremendous demand in the Far East and this is a bonus for US gas producers.

The single most reliable stock market indicator is the New York Stock Exchange Advance Decline line. It peaked at the end of June. I has been sideways since.   The percent of stocks over the 200 day MA in the S & P 500 has dropped from 96% in April to 80% today. This indicates breadth is declining while new highs are being seen in various indexes. This means fewer stocks are supporting the move up.

All of this supports our idea that stocks indexes will decline into the seasonal weakness of this fall.

Bonds ddrop a Point

Wed August  25 2021

T bonds dropped a full point today so headed in our direction which is down

TBF

TBF jumped nicely today. I think we are on our way to higher prices for TBF in Sept

Oil rices are also looking better, must be all that fuel demand at the kabul airport.

MVO

Several energy trusts charts look like this, oil prices are moving up invalidating our thought price would go to the mid 50s.

Frontline

24% dividend and a weekly buy signal looms

Yields Moving Up,Well Finally

Tuesday August 24, 2021

Yields are finally moving up.  Here is the short bond fund, price moves up as bond prices move down.

TBF has re traced a near perfect 61..8 %.  And T  Note Yields are moving up, this is the third higher low.

50 bvar MA is beginning to flatten suggesting a change in trend.

Dow Theory Non Confirmation, SPX, DJIA Possible Top

Weekend August 22 2021

The SPX and DJIA both topped this past week, And they did so amidst the disastrous pull out from Afghanistan.

Andy Kessler ran an interesting column a week ago in the WSJ about the significance of August. Bob Prechter in his latest EWT notes that eight  market tops occurred in the July to early September period.

The Dow Theory non confirmation continues with the Transports perhaps already completing a Wave Two corrective move up.

The Transports topped back in May along with the Composite, Industrials, Transports, Utilities at exactly the same time. The topping see first chart of multiple indexes in the Juy to Sept time period id significant.

Charles Dow in creating his Dow Theory held that the Industrials and Transports need to move together, one confirms the others. The firms that make goods should be confirmed by those transporting the goods.  Clearly we have a non confirmation. Here is another non confirmation, bfreadth is rapidly deteriorating.

The maximum number of new highs peaked in April before the May tops of the Transports and Composite. Do you see how this is all coming together?

Add in the Afghan disaster, already inviting comments from China, rising crime in major cities, the lack of a Southern Border, and it all begins to look more like the late  1960s period finally leading to the similar disastrous exit from Saigon. We have noted that rising negative mood world wide was not supporting the stock advance.

NYSE Advance Decline Line

The single most reliable indicator is shown above the NYSE Advance Decline line. Looks like the NYSE topped in August as the A/D line fell, again a signal of a lack of breadth. Note PMO collapsing at bottom.

Inflation or Deflation

We have noted that Jerome Powell may be right that this burst of inflation, recall lumber prices, may be transitory. And that may be predicting a world slowdown. Already automakers are slowing production due to chip shortages. China is cracking down  on various industries, their largest property developer Evergrande is in too much debt, retail and travel expectations are cooling amid another covid outbreak. I am not so worried about covid as I am falling commodity prices. Recall the  200877 run up in oil to  $140 and then a six month collapse to  $35. Crude oil has fallen from  $75 ot  $62 in the last two months.

 

 

 

 

 

 

 

 

 

Connect the Dots

A Dangerous Combination

Bringing the troops home does not end the war with terrorists. It just moves it to a location and time of their choosing.

Letter to the Editor Wall St Journal

The United States has at least 2,500 troops in eight different countries around the world.   The hasty withdrawal from Afghanistan has left Americans and US Afghan operatives stranded. Worse, it strengthens Taliban influence on nuclear-armed Pakistan. Putin has already denied the US use of Central Asia for survey activity. Worse Afghanistan will now be a safe harbor for terrorists around the world. The original idea was not to turn Afghanistan into Belgium, but to deny terrorists a safe haven to plan world-wide mischief. And now Team Biden also abandoned the Bagram Air Base, an improvement the Taliban would likely never have constructed on their own.  And then there re the billions of dollars of Humvees, helicopters, airplanes and MP-4s the Taliban are now brandishing for TV crews.

So let’s connect the dots. Team Biden rejected all things tinged with oil and gas as noted in this space last week. Now the Team, unable to rely on domestic oil and gas, is begging OPEC to increase production. But wait; team Biden claims oil producers pollute. And this is the war on Climate Change. How does relying on a barrel of OPEC oil rather than Permian Basin oil, fight climate change? Worse this makes Iran’s oil more valuable in that Biden’s EPA will soon descend on US producers with massive new regulations.

After decades of recovery from the Saigon exit disaster, now America is seen as an unreliable ally. Already the President of Taiwan has stated “our only option is to become stronger and more united.” Team Biden failed to get the withdrawal in the correct order, Remove Americans and Afghan translators, destroy or remove weapons of war, then bring home troops.   The temptation to take hostages for ransom will surely occur to someone in the new regime. And the usual adversaries, china, Russia, North Korea will certainly use this calamity to test the resolve of Team Biden in the near future.   India has long feuded with Pakistan. Danger in Pakistan and an emboldened China are not good news for India.

Our suggestion that oil prices are headed to the mid 50s appears to be correct This Friday WTIC prices dropped to the $63 level. That turns the daily trend down.  

We also expected stock prices to fall into the seasonal lows of September-October. The NASD 100 has likely completed its first leg down from 15,175 to 14,775, Expect a rebound and the a lower low probably near 14,000.

Stock Sell Off Gets Underway

Thursday August 19, 2021

We have expected a sell off lasting at least into mid Sept. It is getting underway now. the 1200 day MA is 32542 which seems a reasonable target.

Bond prices are still stuck in a narrow range. Oil prices are weakening, we may see the mid 50s in the next month.

Yahoo.com has been featuring various famous women in the latest 'swmsuits' which is to say near nothing. This is to be expected at DJIA 35,000.  Higher stock prices result in frisky fashions. Today's WSJ features a return to the Fllapper look of the  1920s. Consider this photo, an interesting near century anniversary.

Bonds Firm Amid Market Uncertainty

Monday August 16 2021

TBF looks bbetter on the  60 minute chart. TBF had a big move up and then this correction which filled in the gap on the way up  August 6-9

Let's see what happens tomorrow.

TBF Shorrt Term Correction

Weekend August 15 2021

TBF the short bond fund pulled back a bit Friday, that may extend into Monday Tuesday before resuming uptrend again

 

S & P We have a breadth problem

The percent of stocks above the 150 day MA is falling while the S & P itself makes a new high, this is a breadth problem typical of a how a high is set.

We expect sell off at least into mid Sept if not later, Sept Oct is annual seasonal weakness.

Transports

The Dow Theory Non Confirmation continues with Transports making a new low while Industrials make a new high.  Looks like Transports are in a modest Wave Two up in a larger overall move down.

 

S & P Small Cap Index

the sell  off was not as pronounced in the Small Cap index. But the MAS are converging which is a sign of trend change.

We anticipate falling bond and stock prices into the seasonally weak Sept Oct period.

Social Mood

Socxial mood continues negative with more violence in large USA citeis, ,21 murders in Chicago just last week.  SW Airlines is warning of weaker bookings amid concerns about other strains of COVID. South America appears lost with Peru electing a elft wing type, Venezuela is gone, and previously Stephen Moore noted Chile lost its Milton Friedman roots from the 19790s. Team Biden does nothing to stem the border deluge of immigrants despite plleas from border communities.   The hemline indicator dictates that women's fashions get more frisky at market tops We had the flapper in the  1920s, the bikini swimsuit was introduced in  1946 before the  1948-19+66 bull market but later supplanted by the topless swimsuit. Now we have on yahoo.com no less, the loincloth variety, a new high or low depending on POV in revealing fashion.  I have no idea who Lala Kent is but this is one of the less revealing  photos that has been on yahoo.com lately.

Elsewhere the fal of Afghanistan is happening in weeks rather than the months the Pentagon suggested. Fires rage in CA and Greece.