The Market Perspective

The Week Ahead

Weekend Jan 6, 2019

 

The blue rectangle represents a 38-50% re tracement of the entire 4Q fall. That will be our target this week. This should be closely monitored on the 2 hour chart.

Two Hour

 

the two hour chart is a lot further along to potential over bought status. It is important to re calibrate thinking to bear not bull onditions. Rebouds are sharp and short.

 

GLD

Stocks should reach a bit higher this week while GLD pulls back in reverse correcting fashion. This may take longer than a week but note teh sharp parabolic rise of the last couple of weeks.

Crude Oil

The weekly PMO is a long way from turing up, look for a relief rally her but it will take a much weaker dollar to get things going.

Will The Markets Follow Through?

Weekend Jan 5 2019

 

Our most reliable indicator found support exactly where it bottomed last February.

We will look at the longer picture shortly.   On the positive side MACD turned up from its lowest point as has the A/D line itself. On the negative side, the last two attempts failed at the upper MA and the 50% RSI line.  At top notice how RSI flipped during Sept Oct from above 50 to below 50. And we will get another test of the 50 level this next week.

Carl Swenlin has at Decision Point Stockcharts created a  Price Momentum Oscillator PMO which is an improvement over MACD. Here is the longer term picture. The PMO monthly rarely gives a sell indication.

The crossover in fall 2007 ushered in the huge financial collapse.  The crossover in  2015 resulted in a sideways correction. Now we have a third cross over. I placed the PMO on the main screen to emphasize just how far it could fall as it did in  2007. And notice it is falling from a lower high which is not good. It has been ten long years since the 200 month MA was tested.  And no stock market expansion has ever lasted more than ten years.

Now let's use the same indicators for the last three months. While the DJIA 1,000 point day and Friday's 700+ point day seemed dramatic, in context below, not so much.

Again having PMO behind price demonstrates that on the two hour chart PMO is just now back to zero and in danger of topping again this next week. Relief rally anyone?

Here is the same configuration for the DJIA

This looks worse in that we have lower lows and lower highs, a bear market indicator.

INDU Daily the last four months

Bear markets can  produce some remarkable rallies.  But the  1,500 points in the Santa Rally just got the market back to the big down day Dec 19 which now becomes resistance. And notice the stochastic at bottom has not budged above the 50 level. The STO is also flashing a series of lower highs.

Transports, yikes even worse

All the MAs are falling in the main panel and STO is under 50 at bottom despite the short rally.Let's hope for a calmer day Monday which would allow us to exit any long positions on the heels of a rally.

Bonds TLT

 

Investors finally made the dash to safety in bonds. Despite the FED hike bonds have rallied leading to Jerome's comments at the FED. This is attributed to the big day Friday and TLT pulled back as stocks advanced.

Energy Ratio chart of Oil to the US  Dollar

 

This illustrates just how beat up the energy markets are. USO is the oil ETF and it has a long slog ahead. Since oil is priced in dollars, the WTIC chart looks the same.

 

WTIC would have to take out the 54-5 level  to turn the trend up.Apache APA has been cut in half the last three months, yikes!

Gold

The first leg up form August is complete. A pullback to 1255 at the  200 bar MA seems likely. That will be a good spot to add to position.

Kirkland Lake

 

KL is a gold miner which actually makes a profit. KL and Wheaton WPM need to be on the buy list for this pullback.

Volatility Continues

Weekend Jan 5, 2019

 

Volatility Continues

 

We did not forsee the magnitude of he economic deceleration, particularly inGreater China.

Apple CEO Tim Cook announcing lower sales, Apple stock drops 10%

How could he have missed it? The Chinese stock markets have fallen 50% the last few years as we have regularly noted in this space. Now Apple is a one trick pony. I phone sales account for 62.8% of revenue. And prices start at a whopping $800, ten times what I paid for my LG phone.   Apple occupies the spot IBM held in the 1950-1960s. It is in near every major index. So a down day in Apple makes it near arithmetically impossible for an index like the DIA which is weighted towards Apple to recover that day.

Okay, amid the 600+ point drop in the Dow Industrials Thursday, here is a true false question. Did the number of new lows expand yesterday on the sell-off? The answer will surprise you and makes an important point.   The number of new lows actually declined by 35 Thursday.   And the number of new highs to new lows actually expanded by 45.   The volume of shares traded actually declined by 2.83%. The important point here is to watch what the markets are saying, not the headlines on CNBC.

This appears to be an up down up formation prior to another relief rally attempt. The DJIA needs a close today over f Wednesday’s 23,346. That may be a bit much to epect today with the index up about 250-300 on a positive jobs report of 312.000 increase.

This column suggested the strength of the US Dollar would have a lot more to do with improving the oil price than anything OPEC might do. That prediction is coming true. The US Dollar has fallen raising oil over $48 as I write.

Resistance is still at the $54-55 level. As noted, increased supply next year with expanded pipelines will make it even harder for oil prices to rally.

A second prediction was that all firms would not survive the lower prices, especially service firms with the XES in single Digit. Sure enough, banks extended loans to Parker Drilling which is now in Chapter 11 re-organization.

Social mood is uniformly negative around the world. The stumbles in the market suggest more bearish than bullish tone. For now that is my expectation.

New Year's Day, A Turn in Progress

Jan 1 2019

I remarked on the widespread level of fear among market writers last week.

Here is our most reliable market indicator.

THe MAs are begining to turn up which is positive as is MACD at bottom and RSI at top.

Bullish Percent 200 Day MA

 

A drop from  70% to near 10 percent in three months is a real correction. Again the MAs seem to be bottoming and MACD as well.

NASD New Lows Has Returned to its 'normal ' reading.

 

It is hard to imagine a new torrent of selling with these charts in this position.  Readers are again referred to McClellan's 10-1 article posted last Friday.

 

Weekly NYSE Bullish Percent

This view is one we have not heard on CNBC or Fox Business. The rally peaked early in  2018. the rest of the year represented a orrectionwhich collapsed in the fourth quarter. That done we may have a buying opportunity at hand.

 

Put Call Ratio Chart Supports Other Indicators Suggesting a Low is in Place

Weekend Dec 31 2018

This is a hart of the number of puts, negative mood, versus the number of calls, positive mood. A high reading indicates maximum fear like a high reading on the VIX or the high number of new lows shown at top, a collapse in the MACD indicating the air is out of the CPCE balloon, and finally a lower VIX at bottom.The message here is that the stock market should be turning up in  the New Year.

Now Versus 2016

Weekend Dec 312 2018

Her is the New Low chart marking the February 2016 low

 

2009 has this same look.  Yesterday's post showed new lows dropping 97% this week suggesting a final low for now.

2016 New Lows Versus New Highs

 

NASD McClellan Oscilator

This looks very positive

VIX appears to have made its high as new lows have shrunk

I read several market letters including the group at stockcharts.com.  All of them remain quite fearful that a resumption of the selling will take place this week.

You tell me, but the charts of market internals I posted today and yesterday  seem to indicate an improving situation and possible bottom.This is particularly true for New Lows and New Highs versus New Lows.  Oddly I don't see any comments about year end tax selling or window dressing by funds on the last day of the year.  This is usually a big deal at year end. And again, re read McClellan's update on teh  10-1 indicator.

Let's look at metals.

Ratio Chart of Gold Bug INdex to SP

Well there you have it.  We have a textbook island reversal where price makes a new high and then immediately reverses leaving a gap on the chart. RSI and MACD are in the process of reversing as well.

SPX versus HUI mirror image

 

Here the SPX appears to have bottomed against the gold shares.

Seems to me the logical thing would be for gold to top here and pull back to say 1250.  At the same time SPX stages a ferocious rebound causing most to think all the worries are now behind us.

Gold

 

The 20 day MA is 1256 a retest of that break out would be a logical thing now that RSI and MACD are at the top of their ranges.

Silver

 

Silver is finally joining the gold party challenging its 200 day MA.

Al of this of course is speculation but a two week stock rally with gold pulling back while oil does little is my best guess.

The extreme weakness of the entire energy market suggests economic slowdown world wide.

dennislelam@gmail.com

The Market Perspective bases its information on techniques and sources that have been found to be reliable in the past, and The Market Perspective tries to base opinions on sound judgment and research, however, we do not guarantee that future results will match past performance and no guarantee can be made that advice will be profitable. The Market Perspective accepts no money for stock recommendations and is purely motivated by its own research in recommending any stocks. Put another way, the responsibility for decisions made from information contained in this letter lies solely with the individuals making those decisions. The editor and persons affiliated with The Market Perspective may at times have positions in securities mentioned. Nothing contained herein represents an offer to buy or sell securities. The Market Perspective encourages investors to be diversified, and to maintain sell stops and risk control over their valuable investment capital. No guarantee can be made to the accuracy of text or predictions.

Terminator Trading

Weekend Dec 30 2018

Computer Trading Gone Wild

 

The Dow Jones has rallied 1400 points off its Wednesday intraday low and the Volatility Index VIX is still at 30.  That ought to tell us something about the market environment we're in.  One piece of bad news could easily send us back to the recent lows, so keep that in mind if you're trading short-term. Crude oil ($WTIC) is higher by 1.50% this morning to $45.28 per barrel, also remaining rather close to its recent lows - not a great signal for global economic conditions.

Tom Bowley, Stockcharts.com this morning

 

Energy

 

While speculation reigns whether stocks are in a bear market. there is no question that is the case in the energy market. As energy prices rose to $76, they led or moved in tandem with stock prices. Monday’s drop to $42.53 was suggestive that $40 will soon be tested. Yes price rebounded Wednesday only to retreat Thursday to $44.61.   If the energy market is indeed setting the tone for the overall stock market, notice that many share prices are already below their 2008-09 levels.

 

XES Energy Service hit another low this week at $8.14. That is well under the 2008 level of $12.   One statistic says it all, I filled my tank for $1.99 a gallon this week. That is an indication of low prices, plenty of supply , and a world-wide lack of demand.

 

Dan Neil in his latest Rumble Seat WSJ column, speculates that electric cars will be upon us much sooner than most think, noting major European cities are banning internal combustion engines over the next few years. Yes electricity will still be required but probably from natural gas powered generators. As he put it, that $70,000 fancy pickup may be worth a fraction of its original cost. In addition the maintenance cost for electrics, no fluids, no ignition system, no fuel system may make Mr. Gooodwrench a modern day equivalent of the 1900s Blacksmith. Are low crude prices forecasting just this change in oil demand?

 

Stock Market

 

The two weeks around the Christmas Holiday season is usually very quiet. Yet this is the worst December since 1931. The culprit is identified in Michael Lewis book Flash Boys. He describes the construction of elaborate high sped networks capable of trading thousands of stocks per minute for cents on the dollar. Algorithm computer programs make the decisions. This volatility is not being driven by Mom and Pop re-balancing their 401Ks.   With professional managers on vacation, the machines rein, hello Terminator Trader!

 

But various indicators are at January 2016 levels so a temporary bottom may well be at hand. If so look for a rally into mid January. The extent of any rally should tell us a lot more about 2019.

Potential Short Term Bottom, Various Indicators Confirm Ten up to One down

Weekend Dec 30 2018

Please review Tom McClellan's 10-1 chart

Advance Decline Line confirms this idea as do other indicators

The last double bottom led to a rally in early November. This may be a low of more significance gven the action of this past Wednesday up 1,000 and the thursday test and re bound

New Lows NYSE

Look carefully and yes in one day new lows shrunk forom 1,256 to 29, a 97% drop!  I have repeatedly mentioned the expanding new lows displayed in the WSJ. Bottoms usually are resolved in such a spike fashion.

New Highs to New Lows Confirms this idea

The ratio of new highs to new lows decreased in one day from-695 to  - 26 a net change of 1,031 from the day before.

New Lows NASD

This is a drop of  73% in one day,again a dramatic reversal.  SO NYSE and NASD new lows seem to be confirming a low in the making.

 

Summation Index

This indicator looks to be bottoming as it did in late October .

 

% Above  200 Day MA

This indicator looks to be bottoming in the same area where the  2016 low took place.

Same Indicator Last six months

This has not turned up but as with the others looks to be seeking a bottom.

ETFs and Stocks

Financial ETF

All the Economy ETFs are trying to turn up,

this is the financial index of banks, I took a position in this.

XRT Retail

 

Retail looks much the same oversold and trying to bounce.

Cullen Frost Bank

It is said that investors toss perfectly good companies over board in bear markets. Here is such an example

 

A rally back to  100 seems reasonable.

BRKB Big reversal in Berkshire Hathaway

187 to 2015 in three days, another confirmation

Transports 2 Hour

Transports two hour chart is turning up but obviously needs a lot of follow through.

Okay that's good for now.

 

The continued weakness in the energy sector is troubling and probably predicting a world slow down in the economy.

dennislelam@gmail.com

The Market Perspective bases its information on techniques and sources that have been found to be reliable in the past, and The Market Perspective tries to base opinions on sound judgment and research, however, we do not guarantee that future results will match past performance and no guarantee can be made that advice will be profitable. The Market Perspective accepts no money for stock recommendations and is purely motivated by its own research in recommending any stocks. Put another way, the responsibility for decisions made from information contained in this letter lies solely with the individuals making those decisions. The editor and persons affiliated with The Market Perspective may at times have positions in securities mentioned. Nothing contained herein represents an offer to buy or sell securities. The Market Perspective encourages investors to be diversified, and to maintain sell stops and risk control over their valuable investment capital. No guarantee can be made to the accuracy of text or predictions.

Possible Short Term Bottom, New Lows Shrink Dramatically

Weekend Dec 30 2018

The  NYSE A/D line has double bottomed on the 2 horu chart

The lst double bottom at the end of October led to a brief rally.

A Ten to One Up Day in Volume

Friday Dec 29 2018

Today is the last day of the year to arrange  for window dressing by funds.

Typically a fund wants  to show it is in the stocks that are moving up. And the holdings are printed as of the last day of the quarter.

As Dec 31 falls on a Sunday today is the day for last quarter buys and I suspect tax selling.

a ten to one up volume day

Please read this link to Tom McClellan carefully. He shows that ten to one volume days, ten times as much one way versus the other, mark market tops and bottoms.

We finally had one Wednesday. 

I am looking for an explosive move up this next week.