The Market Perspective

Perspective on Metals

Friday July 29 2022

 

 

Aluminum, Copper, Zinc: The 3 Horsemen of the Upcoming "Econocalypse"
This suggests "a burgeoning slowdown in economic activity"

By Elliott Wave International

It may seem strange to bring up deflation when surveys show that inflation is the public's number one worry.

But who would have thought that inflation would become a big issue, say, just two years ago?

Right -- a relatively small percentage of people. The point is: Things can unexpectedly change -- fast.

Consider the price of commodities: The Goldman Sachs Spot Commodity Index hit a high on March 8, and so did the Bloomberg Commodity Index. Crude oil futures made an intraday high on March 7 and a closing high on March 8. Platinum reached a closing high on March 7.

The July Global Market Perspective, a monthly Elliott Wave International publication which covers 50-plus worldwide financial markets, mentioned other commodities which also made highs during the same time as it showed this chart and said:

Aluminum, copper and zinc topped [on March 7], as did nickel and lead. The significant price declines since March 7-8 suggest a burgeoning slowdown in world economic activity and may mark a tipping point from inflationary pressures to deflationary ones.

So, you see why deflation is not such a far-fetched notion after all.

Indeed, at least a couple of other factors point to "a burgeoning slowdown in world economic activity."

The first is widespread layoffs. Just a few months ago, technology companies were on a major hiring spree, which is in stark contrast from what's going on now (Marketwatch, June 21):

From Great Resignation to Forced Resignation: Tech companies are shifting to layoffs after a huge ramp up in hiring

Layoffs have also been notable in cryptocurrency and real estate companies.

Another indication of a global economic slowdown can be summed up in this headline from FreightWaves, a supply chain industry information company (June 7):

US Import Demand is Dropping Off a Cliff

U.S. containerized imports from all countries declined 36% year-over-year.

Getting back to commodities, the Elliott wave model can help you determine "what's next" with a high degree of confidence.

While no analytical method can see into the future, Elliott waves do reflect the repetitive patterns of investor psychology. Here's what Frost & Prechter said in their Wall Street classic, Elliott Wave Principle: Key to Market Behavior:

The Wave Principle is governed by man's social nature, and since he has such a nature, its expression generates forms. As the forms are repetitive, they have predictive value.

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 (about 500,000 worldwide members and growing).

A Club EWI membership is also free and opens the door to complimentary access to a wealth of Elliott wave resources on financial markets, investing and trading.

Click the link to get started right away: Elliott Wave Principle: Key to Market Behavior -- get instant and free access.

This article was syndicated by Elliott Wave International and was originally published under the headline Aluminum, Copper, Zinc: The 3 Horsemen of the Upcoming "Econocalypse". 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.

 

Looks Like a Short Term Bottom

Thursday July 21, 2022

this is the most reliable indicator the NYSE advance decline line. I drew in the blue line when after the market clearly topped last November. Now it looks like a double bottom and indeed the indicator has risen above the multiple moving averages. Best guess is that this might support a rally of sorts into September before that worst of month October takes hold.

INDU

the market took out the June 28 high. We then focus on the early June high around  33,250. I suspect we get there this is a four hour chart and as mentioned could allow for some pullback the next few days as it is getting over done.

TLT long dated bonds rallied today up 1.73% but still in the cluster range we have recently experienced.  NO real change in the closed end municipal bond funds.

Crude Oil down 3.53% today

Near term prices are still above more distant prices and as predicted, they are coming down. I thought near term might get into the 80s.  Price has been turned back at the  13 day moving average  pretty much the entire month of July. That suggests 90 low may not hold.

The strong dollar is keeping silver in the range of 18. I suspect we will need the dollar to finally weaken a bit to stimulate silver. IT is already backing off a bit.

Calling Dr. Copper!

Tuesday July 19, 2022

Copper is an important component of building and all things electrical. It is called Dr. Copper for that reason, the price of copper reflects demand.  An article in today's WSJ makes the case that things are not looking good by that measure. copper prices peaked after the stock market indexes in March. Now prices have fallen from  5.0 to 3.35. china's covid lock down is partly to blame but

Scan the WSJ today, the headlines are uniformly negative. Sri Lanka and Afghanistan collapse. OK hardly economic centers but..

Karen House has perhaps the harshest evaluation of the Bident trip to the Mid East - he should not have gone, comparing it to Chamberlin's visit with Hitler in  1938. And noting that despite claiming he brought up the murder, a Saudi official does not recall that, Biden again insisting he did.  And he came away without an oil deal. Gerard Baker notes Biden has always just followed his party, now going right over the cliff with it. And he has harsh words for Kamala Harris continuing word salads.

 

Stocks actually had a  500 oint down day Monday.  A  300 point early rally fizzled into a  215 point loss.

Prices are still in a downtrend channel.

Bondo prices weaken our decision to take a short term profit in closed end munis was correct.

TLT hs lost almost a third of its value this year. PMO is approaching zero and about to roll over.

 

Signs of a Weakening Economy

Friday July 8, 2022

Signs of a Weakening Economy

This year the prices of tin, copper, lead, aluminum, and zinc, have declined between 33.1% and 12%. The message is less demand for industrial metals which suggests a weakening economy.

WSJ today Recession Fear Sinks Copper to 2 Year Low

The stock market rises amid positive social mood. Individuals set aside any fear of risk preferring the thrill of the FOMO, the Fear of Missing Out. This column warned that all the major indexes topped between November 2021 and January 2022.

A scan of the headlines shows the move to negative mood world wide.

Crypto Market Tumult Shows Lack of Investor Protection

New York City Employees Fear Returning to Work

26,300 NYC small businesses close permanently

British PM Boris Johnson resigns (negative mood politically results in a throw the bums out mentality, Team Biden take note)

Investment firms fall back on buzzwords to explain how they never saw the sell-off coming. It’s a perfect storm it’s a black swan event (rare and unpredictable), we’re not bankrupt, the new climate, no karma in a bubble. The reality is better summed up by Nassim Taleb, author of the Black Swan. You have to be a moron to think these are rare, unpredictable events.

 

As noted in our column in mid June, the bullish percent of energy stocks collapsed from 95% to 5% in the first half of that month. Now crude oil has traded below $100 with a bounce back the last two days to $105. But backwardation exists in the oil futures market. This means distant future oil prices are trading for less than current prices.   Usually the more distant months are higher due to storage costs. So in the near term expect crude oil prices to descend to the level of future prices. November 2023 crude oil is trading at $80. So a move to $85 in the spot market is reasonable. That will lower gasoline prices. But like sagging metal prices it also suggests a weaker world economy.

Stock prices have at best staged a fractal Wave Two weak rally from the June 21 low . The SPX managed 3,740 to 3,901. This moves the index right up to the down-trend line. January high to June low, SPX and DJIA are down about 22% this year while the tech heavy NASD has already lost 34%.

Worse most self directed 401K plans have rules preventing one from frequently switching from long to cash or short. That is a formula for long term loss in a period like this.

Over the next two years only one strategy will work, and it is not buy and hold. We suggest using this short bounce to exit positions. Otherwise baby boomers’ retirement will be ‘aback to work.’

https://professorelam.typepad.com/markets/

dennis.elam@att.net

Commodity Prices Short Term Top

Tuesday June 7 2022

Everywhere we look, radio, cable tv, newspapers, all are screaming about high gasoline prices. When financial items make front page news,

we are usually near a short term top at least. That may be where we are now.

Gasoline

This is  a parabolic rise in price, hard to imagine why or how it would retreat a bit but that is the logical next move

TBF reverse bond fund

Wave 2 was pretty much downwhch suggests wave 4 will be sideways bu let's see. If stocks tank bonds may rally more than most think.

the Importance of Point of View

weekend May 14 2022

I have students read the fab le of the Six Blind Men of Hinidustan and the Elephant to emphasize the importance

of point of view. Here are two views of NFLX, one suggesting a deeply oversold condition and the other suggesting the rout is just getting underway.

Here is NFLX on a log sacale, this makes changes shown ni a constant percentage. Point being that NFLX started from near nothings and soared to 700.  the plunge so far is still a fraction of the overall gain.

Now here it is on a non log chart.

The drop on this chart suggests NFLX is a great buy or at least shold be nearing an important low.

I just finished reading Bob Prechter's latest EW Theorist. He makes the point that this is a higher degree of trend than the  1929 high. That high erased 90% of the DJIA value in by summer 932. Now as then as we have reported a handful of heavy weighted stocks, now FANG, have held up the averages. As shown several tiimes the percent of NASD stocks above their MAs peaked way back in February  2021 around 85%. Friday's rally carried it out of single digits to 12%.

While the market was over bought  on just about every indicator the last few yeasrs, one must mentally adjust to the other way of thinking. the major trend is now down.

 

Industrials versus commodity prices

The FED and Congress have inflated the money supply the last few years and given us inflation. Here is the non log chart as with NFLX.

Log scale

This view suggests inflaton is just getting started. /and it is not baby formula or Putin's war, it is throwing money at imagined problems.

Conversely the CRB has just bottomed in  2020.

Are Stocks Topped Out?

Weekend Jan 16, 2022

 

Evidence accumulates that major stock indexes have finally topped out.

Transports

Transports lead and the spike in early November looks terminal.

NASD 100

this has been the hottest index and looks to be cooling as well.

Small Caps

Notice the same pattern is repeating across the different markets.

The NYSE is the last to top.

Markets do not top all at once,  topping in different time frames allows the talking heads on cable business to continue pointing to new highs making it appear that the bull is still in force.

30 Year Bond Yield

30 Year Bond Yield

 

Everyone from Jerome Powell to the experts at Goldman is being too naive about the rise in bond yield. Here the long bond jumped from 1.7 to 2.1 in just over a month, higher rates are here.

GSG Goldman Commodity Fund

GSG is more than half weighted to energy prices which are making new highs so no surprise this one is making a new high.

Earth to Jerome Powell, You are not in Charge, the Market is in Charge

Tuesday Jan 4, 2022

Jerome Powell FED Chair actually thinks he sets interest rates. Well then explain to Jerome that the ten-year note rate increased yesterday and today without asking  his permission.

Ten Year Yield

Note the gap up today, rates are soaring from all time lows. Bond prices move inversely or opposite yields so there is the note performance.

A Backstone analyst today suggested the ten year yield would go to 2.75 in  2022 and the FED would have four increases, assuming a quarter point each.

I'd say that is a very conservative forecast considering the yield just went from 1.3 to  1.65 in one month!

Ten Year Note

IN two days the market erased a few weeks of price advance. The reasons are not the meat prices cited by Biden, rather the meat prices are advancing due to

huge increase in money supply

huge purchases of debt by the FED which cause number one above to expand

huge injection of money by Dem Congress which we did not need

jump in prices of oil due to excessive regulation and war on energy industry

TBF Bear Bond fund betting on lower bond prices

As you can see this duplicates the first chart of the rise in rates.

What it the long term potential profit in TBF, look at TBF back to inception when the ten year rate was around  4%

At that point the price was  $50 or three times today's price. And the better news is that rates rise faster than they fall, again see daily chart above.

Here is another long term hold, GSG the Goldman Commodity Index Trust on the NYSE

NUstar is on fire and pays a great dividend

 

 

Whoops What is Going On Here?

Thursday Dec 16 2021

I thought the markets would soar on the FED announcement, not so

 Gold silver and oil soared  markets sagged

 

the market is not believing Team Biden can tame inflation as they ask for trillions more in spending

 

 

Forget Inflation Think Deflatioin

Forget Inflation, Think Deflation

Farrell Rule #9

9. When all the experts and forecasts agree – something else is going to happen.

Translation: This rule fits with Farrell's contrarian streak. When all analysts have a buy rating on a stock, there is only one way left to go (downgrade). Excessive bullish sentiment from newsletter writers and analysts should be viewed as a warning sign. Investors should consider buying when stocks are unloved and the news is all bad. Conversely, investors should consider selling when stocks are the talk of the town and the news is all good. Such a contrarian investment strategy usually rewards patient investors.

I originally wrote this column Tuesday focusing on inflation. Friday, today, was a shortened trading day closing at noon CST. This is the typical Friday after Thanksgiving and usually consists of low volume and little movement. That was not the case today.

The Goldman Sachs Commodity Index declined 6.65%, today.

Crude Oil declined $10.24 or 13.06%, today. This reminds me of 2008 when crude soared to $140 and then collapsed to $35 by Christmas.

The Dow declined 905.04 points or 2.53%. Small caps lead so the Russell 2000 dropped 3.67%. the DJIA and S & P made new highs in November but have dramatically reversed.

while the media blames this on increased Covid, the truth is that the markets have completed a five wave pattern dating back to the lows of 1931. It is highly unusual for such a reversal to occur on what should have been a minor day but here it is.

See https://professorelam.typepad.com/markets/ ofr charts and more commentary this weekend. My opinion is that this is NOT a buy the dip opportunity. We have detailed the warning signs for months via lack of breadth, focus on electric car and a handful of FANG stocks, wild optimism for meme stocks which are not earning any money, and the crazy crypto fad. Add in the mania for art and real estate and we have a market mania top at hand.