The Market Perspective

Rally Powers On

Monday  Oct  12 2020

 

Will the rally end at the election, could be?  Here the PMO peaked early in wave 3, Wave 5 is correctly showing a lesser degree strength.

SPX  4 hour chart for two months -  I do not know why stock charts cannot get rid of junk in upper left

This sure looks like the top recorded Sept 2 leading to a 11% sell off.  PMO suggests this could go on till end of this week.

TLT Bond Price

Bond prices are falling but PMO  is over sold and TLT is likely bouncing at the  200 bar MA, hold off shorting, if stocks do top see above, money will flow back into TLT

Bull or Bear?

Weekend Oct  11 2020

I remain firmly in the secular bull market theory camp. We're going higher. Forget about politics, civil unrest, the virus, the deficit, the economy, blah, blah, blah. Money flow, the Fed and historically-low interest rates will fuel higher prices. While each of those is extremely important in the performance of U.S. equities, here are the 3 really big reasons why I believe stocks are heading higher.

tom bowley on Stockcharts.com

His three reasons are  seasonality, Oct is usually the low for the year

Transports breaking out support SPX advance

Treasury yields advancing, bonds are being sold and stocks are being bought.

But my friends at Elliott Wave point out the top occurred last Feb  12, yes the  NDX NASD have made new highs, but those are heavily weighted averages, most stocks are not at new highs. And then there is the election.  Social political mood is totally polarized, which does not suggest a bull market.

 

 

So which is it?

MYSE A D line

Here it appears the Oct low occurred Sept 21. The A D line has broken to a new high and PMO is turning up.

Bullish Percent 150 DAY MA

This indicator has returned to the Feb 12 level where it broke down, not a buy signal.

NYSE Summation Index

This does have a ositive look to it, but PMO is over done. This reflects the internal weakness of the market which we have warned about.

TLR Breakdown, Yields Push Higher

TLT should test its MA this next week A bet on higher yields looks safer than a bet on the stock market at this time.

Here is how to do that

 

 

TBF is a short on bonds betting on higher yields. This should be a very patient long term hold.

Silver is moving opposite the U S Dollar.

Long SLV short bonds seems to

be the ticket here.

 

A Modest Propoisal

Oct10 2020

A Modest Proposal for the Board of Directors

Company	Shareholder Return	CEO Annual Pay
Cabot	- 39%	$ 11,900,000
Marathon	- 48%	$11,000,000
Devon	- 55%	$11,700,000
Apache	- 54%	$14,500,000

CEO pay has risen for the last four years for oil and gas drillers like the four above. But the returns have remained solidly negative in double digits.

Now understand I am a college professor who teaches accounting ethics covering corporate governance and transparency. These CEOs make 100x times my salary or conversely I make 1% of their compensation. Are they really worth that?

Fracking firms have gone for growth over income. One observer notes we have had ten years of consistent value destruction with management teams getting paid for it.

So to demonstrate how to incorporate ethics and governance on a practical basis, I hereby offer my service in replacement of your current CEO. My credentials follow.

I visited my first drilling rig at age 12 with Dad who worked for Gulf Oil at the time.

I have hands on experience with a family owned oilfield construction firm which operated in the Permian Basin.  I developed a personal relationship with Lava soap and Go Jo Hand Cleaner. I will be a hands-on CEO.

I have three college degrees and the CPA designation, I know my way around financial statements. My Series Seven license originally dates to 1973, I know my way around Wall Street as well.

I have written a weekly column on Texas oil and gas for twenty years

Regarding your loss situation, I was the Chapter Seven Bankruptcy Trustee for Midland for five years. I have hands on experience in returning value to creditors.

Oh, I won’t be moving to Houston or Oklahoma City or Findlay, Ohio. The oil is in the Permian Basin and the Eagle Ford not on Memorial Drive in Houston.   And having lived there for many years, I won’t need a map to find my way around Penwell, Goldsmith, Kermit , or Andrews.

So here is the deal. I will take the job at any one of the four for $2.75 M. That’s 25% of what you are spending now. This will build good will with employees and shareholders. AI could hardly do worse than the guys you are using now. I will ask for a four-year contract. Football coaches receive contracts. If they have a record like the coaches you employ now, they would have been long gone seasons ago.

You can e mail me at the link below.

All Systems Go

Wed Evening after market close Oct  7 2020

Transports are making new highs, bond yields are increasing, this looks good, financials are firming and we are going to start buying some energy plays which have been out of favor.

 

check back tomorrow morning

Markets Bounce Back

wed oct  7 2020

so much for the intraday

The NDX has reversal yesterday but really today just erased yesterday sell off.

NDX

The NDX has traded sideways since the Sept  2 top.

DJIA

The Dow has hit this 28,300 area three times since its top Sept 2.

Let's see what the rest of the week holds.

Classic Outside Reversal Day

Tuesday Oct 6 2020

Earlier today we warned that volume did not support the price of indexes returning to June 8 highs. The media blamed the last half hour sell off on Trump declaring no new stimulus until after the election. There is always a fundamental event to validate the technical picture.

The market should be completing  the last upward move of its corrective phase

Hello October seasonal weakness.

Stand by for lower prices ahead.

Hedge

Outside reversal day to the upside

Where is the volume?

Tuesday Oct  6 2020

The  move up Monday took place on low volume and today is lower still. Bull markets require price advance powered by higher volume.

 

I am posting at  12 44 PM CST so the day has not ended . But compare yesterday with  the volume on Sept 2 when the DJIA had a buying climax. Or the sell off Sept  21 a downside climax. This market should be peaking and pretty darned quick.

Small caps look the same way, John Murphy liked this chart but omitted discussion of volume.

 

volume is way less on the upside than the big down day Sept  20.

Small caps Big Picture. Really Low Volume

The index has matched its high from June 8 but with way lower volume, this is a danger warning signal.

Markets Improving

Tuesday Oct 6 2020

John Murphy notes that financials and energy lead the rally yesterday.  Financial like banks are doing better as the ten year yield is increasing, we noted that this past weekend.  Jerome Powell is as wrong as he can be that rates will stay low for two years.

Energy Bullish Percent

 

The percent of energy firms in bullish position  has returned to or near the March low. A slightly higher low would be even better and that may well be what is happening.

XLE Energy ETF

 

The On Balance Volume indicator in lower panel is suggesting the same thing for XLE.  OBV has fallen to its march low and price improved yesterday just a smidge and the MAs are converging. XZLE is paying an indicated  11% dividend. But 21% of this ETF is Exxon Mobil. Near no analyst believe XOM can run the company, find oil, and pay the current dividend. So buyer beware.

but XLE has 75% of its investment in other firms.

Nustar

If you claim to be a contrarian, NS is the stock for you. A year ago there was not enough storage and pipeline capacity to get oil from the Permian Basin to the refineries, and so the oil price went negative.  Now there seems to be storage everywhere. Here is the profile for NS.

https://finance.yahoo.com/quote/NS/profile?p=NS

NS is neck deep in pipelines and storage. And attempting to pay a 15% dividend.  And the firm has negative earnings.

Now the good news, here is the profile of the founding Chairman of the Board.

After graduation in 1960, he started working as a CPA for Price Waterhouse and later became an auditor for Exxon.^[1][6] In 1963, he joined Coastal States Gas Corporation.^[7] By 1968 at the age of 32, he held the post of a senior vice president.^[1] In 1973, he was President and CEO of Coastal Corporation's subsidiary LoVaca Gathering Company which on December 31, 1979, became the Valero Energy Corporation.^[7][8] He was the founding CEO and Chairman of the Valero Energy Corporation and Group and held those posts until January 2006 and January 2007, respectively.^[7] In 2006, he was the founding Chairman of NuStar Energy L.P. and Group.^[9][10] As a philanthropist, he founded the William Greehey Family Foundation in April 2003.^[11]

In November  2019 Greehey bought $15 M of Nustar at a price of $28.44.  Today the stock is trading for less than half that  price.

 

Warren Buffett says he is bold when others are cautious. This could be one of those times.

the same can be said of our proxy stock Cullen Frost trading just above book value around $60. Bottom fishing is dangerous but here it appears the low is in.

 

The yield is  4.37%, better than any CD and way better than the ten year Treasury.

Valero VLO

 

Notice that every chart posted today looks the same.  After a rebound they appear to be making higher lows. VLO is paying a 9% dividend, trading  for about half its February high.

More Rally Ahead

Monday Oct 5 2020

We suspected the rally had more room to advance today made that clear, expect up to two more weeks of rally.

Counter Trend Rally from Late March Slows

Weekend Oct 4 2020

 

The CRB commodity index has re retraced a near perfect Fibonacci 61.8% to  155. It is now turning down see arrow at bottom.

See our weekly column posted Friday.  The market is pricing deflation shown above into  energy, airlines,  shopping malls, and oil wells. An article in today's paper notes there are thousands of uncapped oil wells no longer producing.  An expensive airliner is like an expensive off shore drilling  rig, it is only of value of there is demand. Otherwise it is an anachronism of a by gone age.

Energy

Not surprisingly energy looks like the CRB right to the .618 re tracement. AT bottom utilities were bought friday which is defensive.

Volatility Index

I don't think the markets are ready to break down quite yet.

The VIX is higher than it was at the Feb 12 top and refusing to go lower, that warns of weakness ahead. But VIX needs to break higher to signal a more important sell off.

New York Stock Exchange Index

Looks like  the NYSE has topped but not really rolled over to the downside, RSI is about  50%. But again the MAS are converging, it may take two to three weeks for this to complete. So don't get too bearish just yet.

DIV the Dividend ETF

Here the converging suggests the topping process is complete or will be by the end of October. Best I can tell DIV is a highly leveraged ETF.   the yield is  10%. But  among the top ten holdings the highest yield is B & G foods at  6.9%. This means the fund has borrowed to leverage its holding to a higher level. And it  must be chock full of master limited partnership and REITs both of which are in danger of cutting dividends.

 

Thirty Year Yield

There are five MAs displayed on this chart. Three of the shortest are converging. This occcurs before a change in trend. NOt that price in this case yield, is above four of the five. Message to Jerome Powell - your prediction of lower rates for the next two years does not square with reality. Higher rates ahead. Note this is happening as commodity and energy prices fall. Why?  It would see rates should be low if deflation lies ahead.

The bond market is warning of impending defaults.   The world is awash in debt, and more so as Central Banks have encouraged all to pile it on via low interest rates. As we noted  last week, one analyst asks what happens if long rates just return to  2.5%. That does not sound like much but it is 40% higher than 1.4% where rates are now. The interest cost for all from the Fed Govt to corporations will soar. I read stories about how airlines, cruise lines and and shale producers are 'bolstering their cash position' by securing lines of credit. This is nonsense, all they are doing is adding more debt to the precarious debt they now owe.  It is estimated XOM would need to add $15 B in debt the next two years to continue the dividend. If XOM does not have the cash to pay the dividend, where will the cash come from to pay the debt?

Social Mood

the best summary I read of the so called debate had Trump as a brawler and Biden as a name caller-everyone knows Trump is a liar and he is a clown.  Pretty harsh for someone now in the hospital, and Biden claims to have withdrawn negative ads. Don't expect him to talk AOC's unpopular policies. With Trump sidelined he need do nothing but depend on his lead in the upper midwest.

The $920 M fine levied by the CFTC against J P Morgan Chase for violations  of  15 traders scarcely raised an eyebrow.  That is because the elevated stock market still reflects positive mood. Let the market drop below 256,000 and that will start to change.