The Market Perspective

Bear Market from EWI Perspective

Tuesday Jan 31 2023

 

Here's a Strong Indication That the Bear Market Has Legs
This is what investors look for at or near a stock market low

By Elliott Wave International

Elliott Wave International's analysts have been observing financial markets for decades. They monitor dozens of stock market indicators, in addition to Elliott wave patterns.

No single indicator can tell the whole story of what's going on with the market, but sometimes, a single observation can carry a lot of weight.

One current observation is that many investors are still looking for reasons to be bullish, even though stocks have been in a downtrend for more than a year. In other words, they think the bear market is over.

For example, the view of a prominent market researcher is unequivocal, according to this Jan. 11 headline (Bloomberg):

Bull Market Is Back as Recession Worries Fade, [Market Research Firm Founder] Says

In Elliott Wave International's view, if recession concerns are dwindling, that's a reason to be on the lookout for a recession -- or, something worse.

But, setting aside whether a recession is pending or not, the point is the latching on to reasons why the bull market is back.

This Jan. 11 headline captures the view of a vice-chairman of a financial firm (CNBC):

The market is telling you that the economy's not going to be as bad as expected: Financial services firm

Of course, this is close to the same message as the first headline.

Other headlines mention lower inflation as a reason for rising stock prices.

But, let's get back to Elliott Wave International's observations over the years. The Jan. 11 U.S. Short Term Update, a thrice weekly Elliott Wave International publication which provides near-term forecasts for major U.S. financial markets, noted:

Investors are still searching for rationalizations to buy, which is a strong sign that [the] bear market has yet to run its course. People do not look for reasons to buy at or near a low, they look for rationalizations to sell.

Consider the last major bear market from 2007 to 2009. On Feb. 23, 2009, the "reason" stated for the continuation of the then bear market was "uncertainty about the latest potential U.S. government action to shore up beleaguered banks." As a headline said (Reuters):

Dow tumbles to 11-year low on fear about banks

Fears about a big drop in business in the technology sector was also mentioned as a catalyst for plummeting stock prices.

Well, 10 days after that headline published, the stock market bottomed.

Observations about investor rationalizations is just one sign that the bear market may not be over. There are others, including the Elliott wave patterns of the major U.S. stock indexes.

If you're unfamiliar with Elliott wave analysis, or simply need a refresher, read Frost & Prechter's Wall Street classic, Elliott Wave Principle: Key to Market Behavior. Here's a quote from the book:

In markets, progress ultimately takes the form of five waves of a specific structure. Three of these waves, which are labeled 1, 3 and 5, actually effect the directional movement. They are separated by two countertrend interruptions, which are labeled 2 and 4. The two interruptions are apparently a requisite for overall directional movement to occur.

[R.N.] Elliott noted three consistent aspects of the five-wave form. They are: Wave 2 never moves beyond the start of wave 1; wave 3 is never the shortest wave; wave 4 never enters the price territory of wave 1.

If you'd like to learn more (or continue with your refresher if you're already acquainted with the Wave Principle), here's some good news: You can access the entire online version of the book for free once you become a member of Club EWI, the world's largest Elliott wave educational community.

Club EWI is free to join, and members are under no obligations. At the same time, members enjoy complimentary access to a wealth of Elliott wave resources on financial markets and investing.

Get the ball rolling toward a Club EWI membership by following this link: Elliott Wave Principle: Key to Market Behavior -- get free and instant access.

This article was syndicated by Elliott Wave International and was originally published under the headline Here's a Strong Indication That the Bear Market Has Legs. 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.

 

Slow Down Continues

†uesday Jan  31 2023

The inverted yield curve persists with the 2 Yr Note over  4%, the  10 & 3 about  3.5%.

The headlines in the WSJ today confirm a recession looms.

Us Consumer Slow Downm - the end of cheap credit

Celebrity Cryto Endorsers Face Suits

Samsung Posts  69% drop in profit

Whirlpool psts 1.6 B quarter loss

Phillips to slash 6,000 jobs by  2025

Peru Protrests, one of the few functioning coountries lleft in S America

Stocks Have topped Again

Mnday Jan 30 2023

Notice we have a series of lower highs punctuated by rapid rallies. I suspect the rally from the October low has now peaked in all major stock indexes.

TBF the bear bond fund is basing we will see what it does Wed on next FED announcement

also note have  have a series of higher lows here, patience

Nustar, we are looking to add and NS pulled back 2.42%  today

 

†his could easily take us to the  200 day MA which would be a great entry point

AMLP is an ETF of high dividend pipelines, it also had a nice drop down 2%  if one is looking to add which we are

stay tuned

 

Don't Tread on Me

Friday Jan 27 2023

Don’t Tread on Me

 

Biden Administration Officials have publicly stated they intend to eliminate all ‘combustion appliances’ form your home. That includes your gas stove in the kitchen.

Kim Strassel WSJ Today

I wonder if combustion appliances includes Joe Biden’s Corvette? 

Rush Limbaugh commented that with the fall of the Soviet Empire, all the Centrists of the world gravitated to the climate lobby. Saving the climate would allow them as much or more control over our lives as a one payer medical every system. And that is exactly what is happening.

The Obama Administration wanted to claim every ditch or wallow was a navigable waterway subject to Federal control. Now we will be limited to only purchasing electric powered cars by 2030 or so, Never mind the Texas power grid collapsed amid a four inch San Antonio snow last year.  Not content with running our life outside the house, the climate lobby now focuses on the one great way to manage the heat cooking food- the gas range.

Team Biden denied this among Republican cries of no vote no representation but this is just a mere ploy in the long term picture.  The Sierra Club, the Rocky Mountain institute, and the Climate Imperative Foundation all have this as an objective.  You can add your hot water heater, clothes dryer, and furnace to the list. Never mind that electric appliances are nothing more than a direct short, hardly efficient. Or that natural gas only produces carbon dioxide and water when burned, eliminating methane, not creating it.  Never mind the coal plants in India and China, or John Kerry’s private jet, the problem is your and my catalytic converter equipped near maintenance free I/C auto and that pesky stove.   The real horror is that some bureaucrat in the name of climate can make this happen with the stroke of a computer key, you and I will never have a vote. Mark this down as a consumer alert.

Stocks have been working sideways to up since hitting bottom last October.  After racing from 2.9% to 4.4%, the thirty-year bond is trading at 3.6%. that is slightly above the December low just under 3.5%. This is a consolidation before rates head higher.  The bear bond fund TB F backs up this observation. TBF rises as bond prices fall and interest rates rise. It bottomed at $20.80 this month and now trades t $21.18. TBF is probably a good longer term hold at least into the summer.

The surprise is that West Texas Intermediate is breaking out over $80.  This is confirmed the energy shares which never wavered as crude fell to the low 70s. Get ready for a crude oil rally.

Every time I look at cable business news or the press, another company is laying off thousands of employees. That alone should slow the economy. The inverted yield curve remains with the two-year Treasury paying 4.17% while as noted the thirty-year is 3.6%.  A slow down lies ahead.

Analyzing Natural Gas

Tuesday Jan 24 2023

 

Natural Gas: Here's What Happened After a "Double Top"
A key technical pattern warns of a reversal

By Elliott Wave International

It probably won't be a surprise to you that Elliott Wave International is an advocate of technical analysis. After all, the Elliott wave method is a form of technical analysis.

You probably know that the term "technical analysis" refers to analyzing the behavior of financial markets themselves -- generally by studying charts -- as opposed to "fundamental" analysis, which is based on news and events outside of financial markets.

One of the many classic technical-analysis chart patterns is known as a double top. (Conversely, a double bottom is the same reversal formation after a significant prior down move.) Getting back to the double top, the first price high (or top) is followed by a moderate decline. The price then rises into the same territory as the prior high, which is the second top.

In August, the European Financial Forecast, a monthly Elliott Wave International publication which covers European financial markets and is also part of the monthly Global Market Perspective, said:

Natural gas has formed a bearish double top.

Keep in mind that this analysis was provided even though energy analysts were calling for natural gas prices to remain elevated due to "fundamentals," for example, "supply strains." Here's a July 25 headline (The Financial Times):

Traders expect European gas prices to remain elevated for years to come

Instead of remaining elevated, the price of natural gas fell, which was right in line with our analysis of that double top in the August Global Market Perspective.

The January Global Market Perspective provides a review with this chart and commentary:

The chart illustrates the continuous natural gas futures contract that trades on the New York Mercantile Exchange.

In August, we illustrated this contract along with 15 other key commodities and stated that gas prices had formed a bearish double top. In a matter of weeks, futures collapsed 50% and penetrated a key technical support level at [a key Elliott wave]. The same support level failed again last month.

True, not all analysis based on a market's "technicals" works out as expected, but often, it does -- or at least gets very close.

See how Elliott Wave International's global analysts apply Elliott wave and technical analysis to other financial markets -- free -- for a limited time.

Just follow this link to get the details.

This article was syndicated by Elliott Wave International and was originally published under the headline Natural Gas: Here's What Happened After a "Double Top". 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.

 

NDX Plays Catch Up

Tuesday Jan 24 2023

Judging by PMO and MACD it looks like NDX which lead the way down in  2022, will challenge its 200 day MA, the red line. I am guessing that will top NDX out.

NDX last year

 

NDX has stayed under its 200 day MA since its December 2022 high. No doubt investors are encouraged at teh multiple successful tests of  the  10,500+ bottom.

We remain skeptical but  MAs are flattening and an over sold rally could continue.

Bonds

TLT20 year bond fund

115 would be a 38% re tracement

and that is possible, PMO could rally more here. The continued talk of less FED raises makes this possible.

Notice the cluster of resistance in the  110-115 area.

Market Recovery Depends on Beating Inflation

tuesday Jan 24 2023

Here is an excerpt from a front page WSJ article today

_____________________

Behind this year’s improved start for markets lies a broad wager that inflation will soon post a once-in-a-generation decline.

Market-based gauges of inflation expectations project the annual pace of rising prices will tumble in the months ahead roughly as fast as during the recession that followed the 2008 financial crisis—or when Fed Chairman Paul Volcker used double-digit interest rates to crush the soaring inflation of the late 1970s.

_______________________

 

this is in contrast to the view of socionomic that social action is the  result of social mood. Socionomics questions the causality that the media endlessly claims is the cause of events.

Interest rates bottomed in March 2020 after a 39 year  decline from their peak in 1981. Rates had fallen to near zero and in fact went negative in Europe. Is is any surprise prices are rising in what is now a cycle of rising interest rates?   Or that inflation is rising as the Congress and FED spend trillions they do not have?

We are early in the cycle, it is 1975 not  1981-2 when Volcker attacked rates.  the article says expectations are for lower prices, yet crude oil just topped  $80 from its sub 70 lows, and gasoline at the pump is back over  $3.00  in Texas.

The better idea is examine  price patterns described by R N Elliott's waves of social mood.

 

 

NDQ Rallies, Closed End Munis Hold Gains

Monday Jan  23, 2023

NOt much movement on the closed end munis, holding recent gains.

EV CARZ rallied the last few days, note the tell tale stair step down action in this ETF, but the rally is likely to be short lived.

After losing a third of its value in the last year, NASD 100 is rallying, again likely to be another false bottom.

 

 

Nustar breaks out    

 

Ideal entry was last Oct and sorry I missed that but

this is a year long chart, NS has finally broken out of the  12-16 range that held it back for one year.

Here NS tests the 200 day MA one last time and Boom, off to a new high and breaks out of the year long pattern. /current yield is  9.3%

 

 

Inverted Yield Curve Unwinding

Monday Jan 23, 2023

 

A lot has been said about the two year rate exceeding the ten year rate. This is an inverted yield curve and usually anticipates a recession.

This morning the ten year yield is below  the thirty year yield, so this appears to be returning to normal.

Crude oil WTIC is trading just over $82. That is finally suggesting a break out from the sub 80 area where it has traded for several weeks. As we have observed, the price of energy shares have not fallen which  suggests the market somehow knew oil prices would re bound.

News suggests the FED may be less agresssive in raising rates, we will observe the bond market this week.

Stocks Top Once Again

Weekend January 22, 2023

SPX

Again all major stock indexes topped between Nov 2021 and january  2022/ Since then waves of varying degree have just touched the same trend line, which is down, and reversed again

Yet in the news media one does not see the term bear market. Rather one sees, just becuase 60 stocks 40 bonds had one of the worst years in decades, don't give up on it. I think even more decline lies ahead, my eventual target is the  200 month MA/\.

Here is the long term view on a monthly chart. Notice RSI t top and PMO at bottom, PMO esp, have both turned down. remember this is a monthly chart, such turns are rare. We have not visited the  200 month MA since the  2007-2009 melltdown.  The 200 MA is currently 2161 about half or  54%, of where we are now.

SPX has already fallen 21% from its 221 high but the public is buying stocks like it was  1984.

I expect the downtrend to resume in stocks. IF so that may at least support a siideways move in bonds until the FED or the market starts racheting rates up again.

BLE one of our closed end munis has performed very well, wonderingiif a stock sell off will attract even more money to this sector.

 

Is 11.60 out of the question?  We shall see. I am considering easing into TBF a bear bon fund as a hedge.

TBF bouncing off its 200 day MA