The Market Perspective

Ger,amu Bans Short Selling

Tuesday March 12, 2019

 

IN desperate times politicians in particular do desperate things.  The most typical example is what we see now in the democratic socialist movement. All things will be free, AOC says our economy is garbage. Apparently she has not been to Caracas where the economy now literally is garbage. Hugo Chavez thought he could rule an economy by FIAT, simply ordering things to happen. It did not work and never does.

Elliott Wave is always an interesting read for their historic perspective. Here is an example.

 

 

Save Fintech? Ban Short Selling. It's Not That Simple

By Murray Gunn and Brian Whitmer

The pinhole puncture in the global "Fintech" bubble keeps growing, despite drastic attempts to seal it shut. The most recent and radical attempt occurred on February 18, when BaFin, Germany's financial regulator, issued a temporary short-selling ban in Wirecard after its shares plunged 40% in less than three weeks. Wrote one news source, "Germany bans speculative attacks on Wirecard stock", as if those shorting the market were wielding pitch forks and lobbing actual threats against the stock's upside.

Incredibly, vilifying short sellers is as old as the market itself. The first short-selling ban occurred in 1610, after the Dutch East India Company crashed. Notorious short-seller Isaac Le Maire was barred from the market, leaving Amsterdam a pariah. In the 1790s, Napoleon Bonaparte charged short sellers with treason during the financial chaos of the French Revolution.

And, most infamous is Jesse L. Livermore, the brilliant trader who shorted the U.S. stock market in September 1929, earning $100 million ($1.7 billion in today's money) in the ensuing crash. Livermore was publicly skewered in newspapers as the "Great Bear of Wall Street."

Still, history shows that the draconian move of banning short selling is hardly effective. Amidst the Livermore debacle, the newly minted U.S. Securities & Exchange Commission made plans to reinstate a century-old short-selling ban, which didn't go into effect until 1934 -- after the U.S. stock market had already lost 89% in value.

In 2008, the SEC, acting in concert with the UK Financial Services Authority, prohibited short selling in 799 financial companies to stem the bleeding from the subprime mortgage meltdown. SEC Chairman Christopher Cox gave this assurance of the ban's efficacy: "The emergency order... will restore equilibrium to markets." Yet, instead, the global financial sector entered an accelerated and prolonged period of chaos and value destruction.

Now, we have BaFin's attempt to save Fintech by banning short selling in one of the sector's most iconic companies. BaFin noted the importance of Wirecard to the German market and economy, and heartened: "There was risk of further downward spiral without restrictions on shorting the stock," echoing Christopher Cox's confidence in 2008. The strategy won't work, because short selling isn't causing the market's decline; an ongoing negative social mood trend in Europe is. As the most sensitive meter of social mood, Fintech stocks warned of this shift long before there was a sustained downturn. (See other signs of a negative shift in social mood across Europe here.

The first signs began to emerge last fall. In September 2018, we observed how the financial technology sector had become another benefactor of society's blooming optimism. But that optimism had then reached a dangerous extreme, as evidenced in the soaring valuations and growth forecasts across the industry. Soon after, Wirecard replaced Commerzbank, a 149-year old institution, on the DAX 30 index. We warned, "The Global fintech Thematic Index [is]on course for a jaw-dropping setback. … In fact so many mania symptoms plague the sector that the sell-off could be catastrophic."

Depicted below is the sudden reversal in Wirecard and the Global fintech Thematic Index that followed, in which the latter's shares dropped 57%.

Jesse L. Livermore, the trader blamed for the 1929 U.S. stock market crash, was known to have said: "All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope."

When there's hope, and prices are rising, short selling is deemed a necessary part of a balanced system that encourages free will speculation. When that hope turns to fear, short selling is then vilified as the cause of market crashes. We believe many of the components of that shift are well underway in Europe now.

Radical politics. Secessionist movements. Crumbling economies. Follow this link to discover more signs of a shift toward negative social mood across Europe.

 

 

Measuring the Social Mood

Weekend March 10, 2019

The talking heads on CNBC and such would have you believe nothing can go wrong as

the economy is just great

unemployment is low

Trade picture is improving

Tax Cuts worked

Socionomics allows us to anticipate change, what is the social mood. All one has to do is leaf through the Weekend WSJ and San Antonio Express News which carries lots of

syndicated stories.  Consider these headlines

WSJ

Hiring Lull Taps Brake on Growth

CohenTestimony

Warren Calls for Break Up of Tech Companies

US China Trade Talks Hit a Bump

Country wide Blackout Hits Venezuela

Get Ready for the Struggle Session

Chinese Economy Slows

Earlier this wee, auto inventories hit new high

San Antonio EN

France's Yellow Vest protestors Persist

There is plenty of un rest and we did not touch on the  14 declared Dem candidates

John Murphy notes this is literally the tenth anniversary of the March  9, 2009 low, no stock market rally has ever gone more than ten years.

SPX

 

The PPO correctly predicted the  2016-2018 rally. Now it is has turned down as SPX has traced out a lower high.

Daily SPX

Again the PPO predicted the post Dec 24 rally but now has topped and turned down.  

The stock market usually leads the economy by 6-9 months.

 

NYSE Advance Decline

The top shown in the A/D line is clear. This is not good news for Trump who has touted the stock market gains as a measure of his success. Let the markets slide for the next year and the Dems will jump on that.

Yes the employment stats are wonderful that is called a market high.  But we have multiple signs of worsening mood.

Consider China

Military moving to the South China Sea, three op eds this past week in the  WSJ suggest either we have already lost the West Pacific or no one there

trusts us to come to their rescue.   The latter will certainly be correct if the Dems take the White House, and  probably if they do not.

Monetary-Asian Infrastructure Investment Bank

https://www.aiib.org/en/index.html

 

Transportation - The New Silk Road

China is moving ahead on all fronts while here the Dems are investigating a sitting President

Gold and  the Transportation index have an inverse correlation. As the Transports sold off this week, Gold perked up.

Could the markets be worried about currency stability? Of course they could.

Stocks came back Friday to erase most of their losses, look for a two to three day counter trend bounce to the upside starting Monday.

 

 

 

 

Markets Begin Correction

Thursday March 7, 2019

Stock markets finally rolled over the last couple of days.

The DJIA closed under  25,611 turning its intra-month trend down. I was too early on calling a fourth wave top but it has now occurred. If my count is right the markets are now entering a fifth wave down which should  take out the three wave low at 22,000.

Hedge HDGE is flashing a buy signal at  7.01. This is about as good an entry as one could get.

 

 

It's Not the FED

 

Perception of Powell Put in Place – QE4 Looms

By Murray Gunn

For better or worse, the markets perceive that Fed chairman Powell has showed his hand.

The recent Federal Open Markets Committee (FOMC) minutes of the January meeting revealed almost unanimous agreement to announce a plan soon for ending the Fed's policy of balance sheet reduction. This is the first step in an inevitable march towards the fourth round of quantitative easing (QE4).

If any more evidence were needed pointing to the fact that Fed policy is led by the markets, this surely is the icing on the cake. Stock markets tumble in the fourth quarter and, in January, not only does the Fed signal a reversal in its interest rate path, but the FOMC members have a collective buttock clench over its policy of reducing the trillions of dollars of new money created after the financial crisis of 2008. Music to conventional analysts' ears. The "Powell Put" is in place. From this moment on, whenever stock markets fall, the buy-the-dippers will be full of confidence thinking that the Fed will come to the rescue.

And therein lies the problem.

You see, it's all about causality. Or more succinctly, the perception of causality. Most market participants think that the stock market rally since December has been caused by the reversal in Fed policy. Not so. It was the decline in stock markets during the fourth quarter that caused the Fed's U-turn. FOMC members are human. They have emotions. They herd, just like the rest of us.

The Socionomic Theory of Finance noted QE's impotence with respect to moving market prices. Chapter 2 (read an excerpt here) shows that stocks did not respond commensurately to the Fed's quantitative easing program. And forget about commodities. In July 2008, just two months before the onset of QE, commodity prices started their biggest bear market since 1932. As the author Robert Prechter noted, "Anyone applying exogenous-cause thinking to these data would have to conclude that QE worsened the collapse in commodity prices."

Nevertheless, the fairytale of central bank policy dictating how financial markets and the economy perform persists. This will last until that ephemeral thing called confidence ceases to exist. In the next downturn, or the next, when QE4 is seen to make no difference whatsoever, at that point the market's perception of the omnipotent Fed will falter. When it does, when markets come to the realization that the Fed is not the "secret sauce" that keeps stock markets going up, the fallout will be cataclysmic.

For more on monetary policy and market prices, read an excerpt of chapter 2 of The Socionomic Theory of Finance here.

 

 

Jury Still Out on Correction Versus The Top is In

Weekend Feb 9 2019

 

Most forecasters do not follow the NYSE rather the SPX  or DJIA or NASD. But it is a much broader picture of what is happening.

I don't see much encouraging here despite the late day Friday rally in the DJIA.  this is a lower high and below the  200 day MA.

NYSE Advance Decline Line

This looks topped out to me MACD and RSI over done and price in a parabolic condition.

VLO looks to be completing a 4th wave up

I read a variety of letters and  cannot recall when I saw so many different opinions.

 

At Insiide Track Erik Hadik believes markets have ompleted five waves up from  2009.But he suspects this will be a long drawn out top like 2000 - 2002.

Art Hill and John Murphy at stockcharts note the rally will be ten years long next month and no rally ever lasted this long.  Their posts look like the above charts.

Tom McClellan is optimistic pointing to expanding breadth and a third year in the Presidential cycle. I think this President is so different that prior comparisons with other cycles are likely to be flawed.  He also points out a couple of days of ten to  one up to down volume.   And indeed the markets are up the last seven weeks. 

But,  the PMO on the NYSE is clearly over bought and trying to turn down. Same for the AD line

And I see the bullish percent charts are just at the 50% level. Take a look  at the  150 day CP chart

The indicator is right where it was turned back twice in November. I had thought the markets would have turned one way  or the other by now but that has not happened.

GLD is probably ahead of itself.

I am very bullish on  gold and silver but GLD is maxing RSI at top and MACD at bottom.  So expect some sort of pullback during February.

FRAK

I don't see anything encouraging about this chart of FRAK the Eagle Ford group.

The refiner chart for CRAK looks much the same.

Bottom Line  I am still epecting some pull back in stocks and gold. Stocks are certainly not the buy they were seven weeks ago.

Social Mood remains incredibly negative with the political parties further apart than ever.Chaos reigns in Virginia. Every week another progressive Democrat joins the Presidential race lurching further to the left than the one the week before.  Howard Schultz is right, most of these ideas are just plain ridiculous.

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.

Stocks Reverse at 50% Re Tracement Level

Tuesday January 22, 2019

 

NYSE Advance Decline Line

 

Today marks the fourth failure of the A/D line to vault the 61.8% re tracement level. Note RSI rolling over at top and MACD topping at bottom.

This suggests that the vigorous rally from Dec 24 was in fact a bear market rally.

 

VIX bounces at support

 

This is ominous.  VIX has bounced at support suggesting it will attack previous resistance at 36. VIX is up, MACD is bottoming, RSI is turning up below 50, all this is very negative.

SPX

 

SPX if failing just above the 50% level. All this adds to a picture suggesting this really is a bear market.

Scan the headlines in the  WSJ today. There is little positive mood. China sags, PM May cannot find a way out of Brexit, Gridlock abounds in the USA,

Hedge Two Hour chart

 

I am adding Hedge shares tomorrow.  IO suspect the counter trend rally has ended from Dec 24.

 

 

 

Will Trump Be Removed from Office?

Friday Jasn 11 2019

 

Will Negative Social Mood Oust Trump? Watch the Stock Market

By Elliott Wave International

---

Special Q&A With Alan Hall on Elections and Impeachment

At the end of this article you'll have the opportunity to hear Alan discuss his impeachment research with ETV Correspondent Dana Weeks.

You cannot afford to miss Alan's insightful political analysis. Please login to view the interview after reading the article.

---

Those who want President Trump to stay in office should hope the stock market rises, and those who want him ousted should hope it crashes.

Why? History shows that the stock market is a useful indicator of people's attitudes toward the president. Socionomic theory proposes that society's overall mood regulates both stock prices and the public's perceptions of its leaders. Positive social mood makes society feel optimistic, bid up stock prices and credit leaders for their good feelings. Negative social mood makes society feel pessimistic, sell stocks and blame leaders for their bad feelings.

These tendencies are evident in presidential re-election outcomes. Presidents Hoover and Carter, for example, lost bids for re-election during trends toward negative social mood as reflected by declining stock prices. In fact, the stock market is a better re-election indicator than inflation, unemployment and GDP growth combined, as my colleagues at the Socionomics Institute demonstrated in a 2012 paper.

Social mood's influence is also evident in the results of U.S. presidential impeachments and near-impeachments. Twice in history the U.S. House of Representatives has voted to impeach a president. In both cases social mood was trending positively, as reflected by rising stock prices, and in both cases the Senate voted for acquittal.

Figure 1

Figure 1 illustrates the timing of the first presidential impeachment. On March 2, 1868, the House of Representatives formally agreed to eleven articles of impeachment against President Andrew Johnson. The Senate took three separate votes, and each fell one vote short of the two-thirds majority necessary to remove Johnson from office. The Senate acquitted Johnson on May 26, 1868, during a stock rally that added to the 250% increase since October 1857.

Figure 2

Figure 2 shows that a substantial trend toward positive social mood preceded President Bill Clinton's impeachment in the House and subsequent acquittal in the Senate. Note that some of the most serious events in the Monica Lewinsky scandal coincided with the largest downturn in the Dow during Clinton's presidency. Yet, as the Dow recovered, so did Clinton's approval ratings. And despite a $70-million prosecution of Clinton's related perjury and obstruction of justice charges, the Senate acquitted the president as positive social mood lifted the Dow, Dow/gold and Dow/PPI to important peaks.

Figure 3

President Richard Nixon's near-impeachment and resignation from office serves as a textbook case of how social mood influences the fortunes of public figures. Figure 3 shows the Dow Jones Industrial Average surrounding his time in office. The soon-to-be infamous Watergate break-in occurred toward the end of a strong 67% rally in the Dow from May 1970-January 1973. That trend toward positive mood helped Nixon win re-election in a landslide. But as mood trended toward the negative, the public's view of its leader darkened, its appetite for scandal increased, the investigation accelerated, and Nixon's fortunes changed. With almost certain impeachment looming, Nixon became the first president to resign from office on August 9, 1974.

Figure 4

What does this history tell us about the probability that President Trump will serve a full term in office? We considered this question in the June 2017 issue of The Socionomist. Figure 4 is a chart from that issue, updated to the present. It depicts the trend of social mood as reflected by the Dow. We left the gray arrows showing our 2017 analysis in place, and we added red arrows to indicate the possibilities going forward. In July 2017, Congressman Brad Sherman formally introduced an article of impeachment against the president in the House of Representatives. Yet as the market rose during 2017, President Trump--despite low approval ratings, tremendous staff turnover, unrelenting criticism from the political left and numerous indictments and charges of Trump associates in the ongoing Mueller investigation--did not face an impeachment vote. After the stock market peaked on January 26, 2018, however, the tone changed, and even some on the political right became more critical of the president.

Since the October 3 stock market peak, disapproval of the president has grown steadily louder and more strident. At the same time, the Mueller investigation has implicated more and more of the president's inner circle in illegal activities. The Democrats won control of the House in the 2018 midterms. A November 26 Gallup poll revealed Trump's disapproval rating had hit an all-time high. On December 10, Fox News's senior judicial analyst Andrew Napolitano said Trump could be charged with "three separate crimes and could be indicted while serving as president." By December 17, the Mueller investigation had issued more than 100 criminal counts and charged 34 people, 10 of whom have been found guilty. That same day, Wired published its list of "All 17 (Known) Trump and Russia Investigations" and said, "it's increasingly clear that, as 2018 winds down, Donald Trump faces a legal assault unlike anything previously seen by any president."

In the weeks since, the Trump Foundation agreed to dissolve, and Secretary of Defense James Mattis and diplomat Brett McGurk have resigned. On December 24, Time reported, "National Christmas Tree to Stay Dark During Holiday Due to Government Shutdown," and several news organizations ran stories with versions of The Atlantic's headline, "President Trump's Nightmare Before Christmas," as the stock market plunged. Of course, stalwart supporters of the president remain. Yet the number of oppositional voices is rising. A December 19 NBC News/Wall Street Journal poll found that 41% of Americans favor impeachment hearings.

We don't know what the Mueller investigation will ultimately reveal, but for Trump, the facts may not matter as much as the social mood. Fasten your seatbelt and keep your eyes on stock market indexes, our best reflection of the trend of social mood.

Q & A With Alan Hall on Elections and Impeachment

You've read his essay, now hear from Alan Hall himself -- including how he connects the dots from election research to impeachment, plus how he hopes to "get thru" to people whose minds are already made up.

Don't have an EWI Login? No worries! Join Club EWI, our free Elliott wave educational community, and gain free access to this resource plus a full catalog of other valuable lessons. Plus, we'll keep you updated with new resources, exclusive invitations, and deals.

This article was syndicated by Elliott Wave International and was originally published under the headline Will Negative Social Mood Oust Trump? Watch the Stock Market. 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.

 

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.

Monday Meltdown

Monday Dec 24 2018

I was in broker school from Oct 1973-April 1974. I have followed markets since I re entered that business in 1983. I do not ever recall a Christmas Eve day like this.

CNBC reports this is the worst Dec since 1931 that is the very heart of the Great Depression sell off.

The DJIA sold off 250 points the first hour. It then rallied back to 22 300 so it could fall another  500 points the last two hour. Clearly the smart money is getting out while the rest of the country is stuck in buy and hold mode.

Worse crude oil sold off  $3.06 to  42.53. Next stop $40 but this kind so shellacking suggests that 40 will not hold, and 26 is the next stop down.

It is near unbelievable that CNBC is still debating whether this is a correction. This is as the Brits would say a bloody awful prelude to a total meltdown.

NYSE Advance Decline - falling off the chart, this is the first reversal like this since teh turn down in  2008

Gold had a great day up $13. I am beginning to think stocks sell off into the end of the year and gold rallies into a top this week

and then we reverse in the new year with gold pulling back while stocks move up but that is a sheer guess.

 

USO

$8 on USO corresponds to $30 for crude oil at top. I am guessing USO goes to $5 given the PMO at the bottom. The last three months took out over a year of advance and sideways action.

Few are even beginning to grasp the significance of all this. The markets are flashing not just trouble but serious trouble for  2019.

 

Social Mood is crashing to the negative side.