The Market Perspective

Team Biden's Unintended Consequences

Thursday July 8, 2021

Unintended Consequences of Climate Change

The Biden administration is facing a $15 billion lawsuit from the energy firm that owns the Keystone Pipeline System.

President Joe Biden canceled the 1,200-mile-long pipeline, which would have carried roughly 800,000 barrels daily, on his first day in office, which caused TC Energy to fire 1,000 workers, the firm said.

Yahoo News July 6, 2021

Okay let’s connect the dots. Team Biden has done the opposite of everything Team Trump did without bothering to consider the consequences. Shutting down construction of the Keystone Pipeline. That meant 48,000 potential new union jobs were cancelled. Oil from Canada would have to be shipped on the slower and far more dangerous rail lines.

Meanwhile Shale Producers have been reluctant to expand operations given the negative outlook of the current administration. And refiners, sensing change in the wind, have cut back on refining anything carbon based. Instead they are re-arranging to distill food based vegetable oil into more environment friendly diesel.

And now with Covid more or less in the rear view mirror, demand for jet fuel and gasoline has exploded. And so have the prices. Nationwide regular gasoline now sells for about $3.25, a huge run up from the low $2.00 range just a year ago.

Recall that while cancelling a US Canada pipeline, Team Biden endorsed a Russian pipeline to Europe. Notice the lack of continuity here? After railing against Russia for the entire Trump administration, now Biden blocks US Energy Independence while handing a bonus to Russian Energy. Already House Democrats are sounding the alarm about running in 2022 with gasoline prices north of $3.00. What to do?

Team Biden is asking OPEC to expand production to provide more oil for refiners to hopefully increase US supply and lower gasoline prices. In short, this is the very opposite of the energy independence brought by fracking. Biden’s opposition to all things carbon is driving our reliance for energy right back to the volatile Mid-East. What next, will he seek to expand Iranian production as he shuts down US exploration?

Today crude oil is trading for $72.37 after a volatile week.   Higher gasoline prices in the near future, up another 20-30 cents seems a certainty.

This column has noted the increase in negative social mood which does not support higher stock prices. Many stocks like Proctor and Gamble peaked earlier this year. The three million member American Federation of Teachers endorsed Critical Race Theory at their convention this past week. This is occurring as parent protests to School Boards go viral on youtube.com over just those policies.   Expect stocks to exhibit the usual seasonal decline into this fall.

Bankruptcies on the Rise

wednesday July 7, 2021

 

Why U.S. Corporate Bankruptcies Could Skyrocket
"U.S. bankruptcies in the first quarter of 2021 and all of 2020 were above the 13-year average"

By Elliott Wave International

An April 17 article headline on the website of National Public Radio says:

U.S Economy Looking Good As Spending Jumps In March

And, on April 29, The New York Times said:

Americans' spending on durable goods -- cars and furniture and other goods meant to last a long time -- rose at a stunning 41.4 percent annual rate in the first three months of the year.

Considering that the economy is "looking good," economic observers might conclude that a wave of corporate bankruptcies is of little concern.

However, that conclusion would be off the mark.

The June Global Market Perspective, a monthly Elliott Wave International publication which offers coverage of 50+ worldwide financial markets, provides insight with this chart and commentary:

U.S. bankruptcies in the first quarter of 2021 and all of 2020 were above the 13-year average. In March, there were 61 announced corporate bankruptcies, the highest total since July 2020. If companies are defaulting in record numbers in China and at above average levels in the U.S. with interest rates at historic low levels, what will happen when rates rise appreciably?

That's right, defaults would zoom higher.

Understand that in the U.S., "the level of outstanding corporate bonds is the highest in history at approximately $10.6 trillion." This represents almost half of annual U.S. GDP.

A positive social mood has led executives at many U.S. firms to believe that they can issue and service ever-increasing levels of debt.

But interest rates may rise a lot higher than many businesspeople expect. Hence, many corporate bonds would lose value.

Indeed, the June Global Market Perspective provides Elliott wave analysis of the iShares Core U.S. Aggregate Bond ETF, the largest exchange-traded bond fund in terms of assets.

If you'd like to learn about Elliott wave analysis, you can do so by reading the online version of Frost & Prechter's Elliott Wave Principle: Key to Market Behavior for free. Here's a quote from the book:

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.

This Wall Street classic can be on your computer screen in mere moments after you join Club EWI -- the world's largest Elliott wave educational community (about 350,000 members and growing rapidly.)

Joining Club EWI is 100% free and you are under no obligation as a member.

Here's the link to follow: Elliott Wave Principle: Key to Market Behavior -- free and unlimited access.

This article was syndicated by Elliott Wave International and was originally published under the headline Why U.S. Corporate Bankruptcies Could Skyrocket. 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.

 

Markets at Important Juncture

Wed July 7 2021

A fierce rainstorm knocked out our power for a while yesterday. After the compute rshut down the second time I was reluctant to begin again.

Bonds

TLT gappened up Monday which if the market pulls back from here might be a final high. This is one year from the July 2020 high so we are looking for a top in bond prices. The cost of a Sept 18 TBF call has gotten down to $5 which shold be a buy. We are not normally option buyers but this is an interesting juncture.

The thirty year bond hit 163 12 this morning which should be near the high.

Stock prices are also in record territory. We have shown various /DJIA stocks which made highs months ago. The Headline  in Tuesday WSJ indicated small investors poured the most money into stocks since 2014 which was the last $100 hihg for crude oil. Decades ago the odd lot indicator was used. Back then small investors often did not have the money for a 100 share or round lot purchase. Hence they bought odd lots of less than one hundred. A surge in such buying was a contrary indicator as the little guy was usually late to the party. The same thing is happening now with record inflows in stocks.

Bonds are not Done Yet

Tuesday July 6 2021

The fifth wave has not topped out yet. We expect that to happen this week. Crude oil prices were up this morning but faded this afternoon. So bonds are still strong.  PMO and RSI suggest topping action.

The Bull Market Has Been Peaking on Individual Issues

Weekend July 3 2021

I looked thru the graphs of the Dow 30 and here are some that caught my eye.

All these examples had a good run from the last November low. But they all look done for now. After May Go Away.

Back in the 1960s IBM was THE tech stock. And it has come back in cloud computing. But it fell 4.64% Friday.

The big chip maker Intel has a big gap on its chart, Note the MAs are converging the sign of a trend change.

Here is a leading consumer staple, PG.  It peaked last November when others bottomed. the rebound from March is not settinga  new high.

Like Intel, ATT has a big gap on its chart, a good example of how mood turns on the proverbial dime.

We are slowly turning and the top in stocks should be occurring now, indeed new highs on some indexes Friday.

Bonds

 

I was early a week ago Friday but I think we have plenty of time. Bond should top in price with stocks in this time period.

The five waves of the larger C wave are now clear. This fifth wave of C should peak this next week.

 

TBF Short bond fund is the mirror image of TLT above

Five should extend to a new low for TBF, a new high for TLT by this next Friday.

 

Free Elliott Wave Trading Class

Friday July 2 2021

Here is a link to a free 33 minute class on trading the markets.

Link:
https://www.elliottwave.com/free-reports/why-wave-analysis-belongs-in-every-traders-toolbox/signup?utm_medium=aff&utm_campaign=cr-wwabclub2106&utm_term=affem&acn=11tmp&utm_source=11tmp&rcn=affem

The Rise of Negative Mood

Friday July 2 2021

Rise in Negative Mood as Market Make new Highs

Last week we noted that markets moved to new highs unsupported by positive political or international mood. Here is an update since then.

"Anyone who attempts to split any region from China will perish, with their bodies smashed and bones ground to powder," Mr Xi said,

Vladimir Putin said on Thursday that America's global dominance is coming to an end, with the U.S. itself accelerating that process with a string of mistakes "typical of an empire."

 

And these two autocrats for life mean what they say. Xi is targeting Hong Kong, Taiwan, and the USA in that order.

 

The War on Trump continues. Rudy G. loses his law license, Trump’s CFO indicted for grand larceny, and Pelosi begins investigating January 6 fracas with Liz Cheney and a solid Democrat line-up. There will be no investigation of the Portland riots.

We now have a global minimum tax rate of 15%. That will be passed on to consumers world wide.

Gamestop is 15x its value of a few months ago, but is still losing money. Ford stock is finally rallying. Toyota Tacoma sales have more than doubled since June, 2020. But Team Biden wants a 50 mpg standard by 2026 for new vehicles forcing companies to make electric cars. Who is going to buy them when all we see are pickup trucks and SUVs in parking lots?

The war between the states begins anew. California has now banned state funded travel to Texas and ten other states. Oklahoma retaliated forbidding the same from there to California.

The big bull market began in the summer of 1982. The long drought of negativity and inflation from 1968 to 1982 had finally ended. Interest rates were declining stimulating interest in dividend paying stocks. Regan was a popular President with a big win. That is hardly the situation now.

The government says 850,000 new jobs were created last month. Unemployment has dropped under 6%. This is good news. But rumors of a second variety of Covid may allow government meddling in our lives  to continue.

Meanwhile oil has hit $75 for the first time since 2018. As noted refiners are producing less product from carbon based oil. All the analysis of why oil cannot go to $100 is focused on supply and demand as an economic unit. But oil is a financial commodity as well. Expect prices to continue to advance.

Bond prices should be peaking now with interest rates at another low from the important low of March 2020.

Demanding electric cars now has only resulted in higher gasoline prices.

Happy Fourth of July.

Markets Hit Confluence of Weeks, Months

Thursday July 1 2021

We believe that stock indexes are hitting multi-year highs. Bonds registered their 39 year low in price March 2020.

Gam

We are now in a fourth wave of five waves down in price from that high. The next or fifth wave in bonds should take prices to a new low.

We have mentioned numerous examples of why this is a top just like Fall 1987, March 2000, Fall 2007, Fall 1929

One example is the mania for companies that do not make any money.

 

GME is currently losing  1.78 cents per share. There is not P/E ratio as there are no earnings. Yet the stock price is up  15x form a few months ago. All it does is sell new and used computer games and accessories. This is nuts and nutty behavior accompanies market tops

Susan Rice is back as the Presidential Advisor.  She opposed taking out Osama Bin Laden, and really how hard was that.

Consider these comments made this week from two autocratic in office for life

"Anyone who attempts to split any region from China will perish, with their bodies smashed and bones ground to powder," Mr Xi said,

Vladimir Putin said on Thursday that America's global dominance is coming to an end, with the U.S. itself accelerating that process with a string of mistakes "typical of an empire."

We did not hear that kind of talk when Trump was in office, the other side was never sure of what he might do.

Now consider what they are saying.  Susan Rice is now a domestic policy adviser but retains her security clearance. No doubt Putin and Xi have their very best intelligence groups analyzing Team Biden every movement.

I am guessing Xi and Putin assess a near zero chance the US would come to any country's aid if invaded. What do you think?

This  makes for a very dangerous world.  Couple that with investing in no profit companies at  all time market highs, and well

oh let's not omit trillions in spending without the revenue to support that, no southern border,  200,000 a month pouring in with no medical testing, well

It is not the cusp of the Roaring Twenties.

 

Meme Stocks

Thursday July 1, 2021

 

Why This Stock Market Index May Be Headed for a "Bumpy Ride"
"Money losers tend to be high-beta issues"

By Elliott Wave International

On Friday, June 25, the Russell indexes underwent their annual rebalancing.

In other words, stocks were moved from the Russell indexes like the Russell 2000 and Russell 1000 based on their size.

This event usually coincides with a big jump in trading volume -- like it did on June 25 -- but generally it's an annual occurrence of little note.

However, this year's rebalancing prompted these comments from the June 25 U.S. Short Term Update, a thrice weekly Elliott Wave International publication which focuses on near-term forecasts for major U.S. financial markets:

Jeffries and Co. notes that today's reshuffling lowers the quality of the Russell 2000 components to the lowest level since 2000. In other words, there are now more money-losing companies in the index relative to money-making companies than at any time in the past 21 years. The index's largest component is now AMC Entertainment, the meme stock, which has been losing money for seven straight quarters. Money losers tend to be high-beta issues, so the index's volatility should rise.

Also keep in mind that the Russell 2000 is chocked full of money losers at a time when the index is near an all-time high.

Of course, "meme" stocks are those which have received a lot of buzz on social media from retail investors. Gamestop's stock is a well-known example. As you probably know, the price of Gamestop dramatically soared in January, crashed and then eventually rebounded. Put another way, meme stocks may take investors on a very bumpy ride.

The June 23 U.S. Short Term Update took a broader view of these "chat room" favorites:

Meme stocks [are] a key to investors' psyche and their degree of speculative fervor.

Observers of financial markets may put meme stocks in the same speculative category as, say, bitcoin.

The frantic investor behavior surrounding the hot stock of the moment and cryptocurrencies is a major sign that investor psychology may be near a peak.

Elliott waves are a direct reflection of the repetitive patterns of investor psychology.

Frost & Prechter's Wall Street classic, Elliott Wave Principle: Key to Market Behavior, says:

The foremost aim of wave classification is to determine where prices are in the stock market's progression. This exercise is easy as long as the wave counts are clear, as in fast-moving, emotional markets ... .

This quote is used because Elliott wave analysis -- in addition to other indicators like what was mentioned about the "high-beta" in the Russell 2000 -- strongly suggests that a "fast-moving, emotional" market will unfold sooner rather than later.

You can get an in-depth understanding of the Elliott wave model by reading the entire online version of Elliott Wave Principle: Key to Market Behavior -- free!

All that's required for free access to the book is a Club EWI membership. Don't worry about your pocketbook because joining Club EWI is also free.

Club EWI is the world's largest Elliott wave educational community (about 350,000 members and rapidly growing) and allows members free access to a wealth of Elliott wave resources on financial markets, investing and trading.

Here's the link to follow for free access to the Wall Street classic: Elliott Wave Principle: Key to Market Behavior.

This article was syndicated by Elliott Wave International and was originally published under the headline Why This Stock Market Index May Be Headed for a "Bumpy Ride". 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.

 

Holiday Takes Hold

Wednesday June 30 2021 pre market open

The NYSE will be closed Monday July  5 inobservance of July 4.

Trading has already slowed in stocks and bonds. Expect volume to continue to dry up the rest of the week.

No more moves in bonds, will update but doubt there is much to report.