Market Glance

Quick Glance At Markets

The end of the calendar year is always “a bit different”, with things like volume taking a dive as Christmas approaches, end of year tax loss selling, expiration of options (month and quarter) and more. This year we also might have a Fed First Rate Rise, so things are more twitchy than usual. Nothing like waiting to lock in positions prior to that long 2 week party in the Bahamas or Paris with the threat of a Fed Hike hanging over a Market Maker or Bank President to dampen the whole “Spirit Of Christmas Just For Me!” thing.

In the news today was oil dropping below $37 / bbl. Saudi is determined to drive someone, ANYONE, out of business. Russia is determined to get cash from someone, ANYONE, via selling. Venezuela is desperate for cash too, but has had a change of government (along with Brazil having impeachment on the cards and Argentina took a hard right turn…) so those folks are thinking more about “more cash flow” and less about “long term stability” or “strategic market pricing” (or even “Monopoly / Cartel Cohesion”)…

So it’s a giant game of “chicken” with everyone running at the price collapse cliff and waiting to see who hits the production brakes first.

So far, nobody. (Though a few rig counts are down so ‘future production’ will come off, and some of the fields have fairly strong natural depletion curves, so it can happen fairly quickly – but that’s a passive “don’t push the go-pedal” not an active “hit the brakes and shut in”.)

CNBC had a report of “low prices through 2016”, so it’s gonna take a while… Highest cost producers (tar sands in Canada) likely to be hit first and most (though paradoxically the low price of Natural Gas cuts their cost basis the most), weakest economies (Venezuela, Brazil, Africa) to suffer the longest. Look for the North Dakota Economic Boom to go flat. New drilling will stop, but a lot of already ordered build out will finish. There will likely be ripples for a decade or more as prolonged low prices in glut cause folks to shelve plans for pipelines, new rail cars, export terminals, and all the rest. Why export LNG to the EU if Russian gas is cheap and Saudi Oil is plentiful and cheap too? Oh, and don’t expect solar and wind competitive pricing to look worth a damn. Only Government Welfare can keep them alive at this point. Electric cars are in the same bucket when gasoline is $2 / gallon and falling ( in the EU with your mandated price rape: YMMV… )

Also in the news was mining and minerals companies on hard times as commodities collapsed in price; but we’ve seen that for many months (is it into years yet?) here. But lets look at the chart and “see what it says”:

SPY vs a mix of tickers.  2 Year daily chart.  RSI MACD DMI/ADX

SPY vs a mix of tickers. 2 Year daily chart. RSI MACD DMI/ADX

SPY

The main ticker of SPY (the S&P 500 ETF) can’t make progress. We had a long slow ‘go flat’ into a ‘topping weave’ as the SMA lines and price intertwine, then the expected “sell off” in August, and back to the SMA lines from below. Then something odd happens. It proceeds through them as in a “buy the dip” extension of the upward bias of the decade, but on return to the SMA lines from above (and the expected “failure to penetrate”) that would confirm the resumption of prior upward trend, has a failure to advance the first week of December (at about the same price as the first week of November and all those prior high points in Jan-Aug 2015). It just isn’t making it any further up.

This argues for moving to a longer time scale chart (the 10 year weekly) to pick up context, and I’ll do that in another posting later. This is just a quick glance. BUT, it sure looks like it is a longer term topping weave / rollover on that time scale just looking at the chart and indicators. That would be the end of the Secular Bull Market and start of a Secular Bear Market which runs for a couple of years. That takes more than a ‘glance’ and some think time…

FWIW, yes, I also have SPY as the ‘blue line’ hidden under the price bars. I’d been looking at something else and it is my ‘benchmark’ and I didn’t remove it in making this chart…

Oil

At the bottom of the chart is the oil ticker. That black line. Dismal and getting more dismal.

Long term bottom fishing folks could take a bit of time here to look for horribly depressed assets (and in coal too), but the risks are very high. Between the Paris EcoLoons Economic Destruction COP meeting, the EPA Brown Shirts, and globally weak economics, it might take many years to decades to get back to where coal and oil are hot commodities again. When “it all depends on what Government does” you can’t plan. Or act. Only hedge and hide.

With oil on the rocks, the whole oil services and related goes on the rocks even harder. With that goes rail car and tanker demand, rig builds, oil services wages and local economies. It’s not going to be pretty in the global “oil patch”. (On the good side, it might give North Dakota a bit of breathing room to let housing catch up with demand, if it doesn’t overshoot in a bubble and crash…)

Copper

Next line up is that orange colored JJC Copper ETF. As China demand tanked (with the USA and EU becoming ‘service economies’ and with demographics that do not need a lot of new homes built, our copper demand for “industry” is ever less important) the price tanked, and with it the global mining stocks like BHP and Freeport FCX and Vale also collapsed. With the low demand also goes the economies of resource mining countries like Brazil, Australia, and others.

Until that copper line shows some increase in demand, the world is not buying much “stuff” and metals, mining, manufacture, transports etc. etc. are just not going to be in high demand. Yes, it’s that big a deal.

For the last month or so it’s had a nice “go flat” attempting to hold a bottom. Then again, in early 2015 it had a 3 month rally. Commodities are very volatile and especially for a single one, you can’t depend on short term trends nor things like ‘crossed the SMA stack’ as being anywhere near as reliable. So look longer term and correlate with a lot of other indications (like specific information that there is, really, an increase in manufactures and sales). JJC is just an ‘indicator’ in this context, and one that needs external validation.

But right now there’s not much “bid” for copper. Which means not much stuff being built and sold. Or transported. Or designed. Or…

The great China Build has halted, and with it, the bubble of demand for miles of copper power wiring, copper motor windings, copper pipes and copper kettles for beer making. (AND all the brass and bronze alloys that depend on it for all those faucets and valves).

EEM

Emerging Markets. The yellow line just above copper. Made a decent attempt to stop the plunge in Sept-Oct. Got back to, and briefly through, the SMA stack (Emerging Markets, being more volatile, will sometimes make it a bit higher than the 23 SMA Stack on ‘retest’. Either allow for that or use a longer term SMA like 30 to keep the peaks on the line). Then resumed the fall.

Clearly with China having a pogrom on industry (their “Warren Buffet” analog was ‘missing’ for a few days and has been ‘found’ ‘helping’ the police… that’s happened to several of their industrial big-wigs over the years. More recently.) and with Brazil in a political food fight over corruption (impeachment of their President in progress) and with Russia embroiled in ‘wars for fun and profit’, and with India not doing much, well, it just isn’t a very interesting space to be.

Of all of them India, is the most interesting; yet they put on ‘foreign currency controls’ a few years back and I ‘dumped and ran’ never to look back. Just not very interested in putting money into places that might suddenly announce I can’t get it back. (Using a US ETF I could still ‘get it back’, IF I moved fast enough and before the crowd hit the ‘sell’…)

Now the world has hung it’s hopes for growth on BRICS and EM. With them not doing much, it’s ah, well, maybe “not so good”…

Gold

More or less weaving with EEM is the GLD gold ETF. Gold is flirting with an ‘under $1000/oz.’ price. The trend is slowly down. It jumps and drops with various news events and makes big moves based on “Whales” like Soros and Government Central Banks buying or selling. India recently announced a new program to “let” it’s citizens melt down their gold jewelry and ‘loan’ it to the government (Shades of FDR and the American Liberal Progressive Gold Confiscation of The Progressive Era in the ’30s and ’40s). So far, very few takers. Maybe the idea of melting down heirlooms and destroying the fabrication value isn’t appealing to most folks… (Yet Another Reason to avoid India for a while. Seems like a desperation move to me).

Folks all over the place sell gold in times of duress and stress. That seems to be what is happening now from the EU to Pakistan. Also not a lot of Central Bank buying to build ‘assets’ as they are printing like crazy to debase their currencies and ‘get the desired inflation’ going.

This also means all the gold (and sliver and…) miners and their suppliers will be ever more ‘on the rocks’ and not digging under them.

People who have no job buy very little jewelry. Huge swaths of the EU and rest of world are out of work. Despite the Obama Official Statistics, the USA is not ‘thriving’ either. Most folks are far less interested in buying a nice gold chain than in figuring out how to pay that $5000 deductible on their un”Affordable Health Care Act” insurance welfare-transfer-payment policy.

The EU

Just above that, the green line is EZU the EU fund in $US. Now a lot of this down trend will be $US strength. Yet the EU is not exactly posting spectacular economic performance reports. LOTS of youth unemployment. A huge burden of a few MILLION “refugees” flooding in to suck on the Government Money Tit (move over Corporations, The Hoard is in town…)

So not a lot of joy from the EU right now.

Expect tourism to be off, too, as the Rest Of World notices little things like Paris being a massacre, and France being a Police State, and Brussels having “no go zones”, and all the rest. IF I want to have out of work angry young Muslim Men giving me the Evil Eye and all, I can go to Flint Michigan instead… (Sadly, no /sarc; on that…)

The last couple of months show EZU trying to ‘base’, but not yet making progress.

Sidebar on Currency: You can make an argument that it is ‘unfair’ or somehow doesn’t tell the whole story to report the EU in $US. BUT, since currency flows often given an early indication of just where the Whales are moving, I find it helps the predictive skill more than hurts. As I’m more interested in the big picture of ‘what is favored, or not’, the currency x stock-price composite indicates that better, IMHO. The problem is how to see that ‘outside view’ for the US stocks…

Bonds

On this chart, bonds are represented by the TLT 20 year bond fund. It’s the dark red line just above SPY. It had a nice peak / pop in Jan 2015, then has been a slow slide down since. All the while the Fed Fiddles on interest rates.

When interest rates rise, the existing bonds are worth less (since you can buy a new bond paying more for the same face price). It’s a bad idea to hold a lot of old bonds in the face of a Fed Rate Hike.

The only real question here is “How much for how long?”. Is this going to be ‘one and done’, or “a percent a year for 5 years”? Nobody knows, but it’s not likely to be good for bonds.

Tech

The ‘thin gray line’ at the top is the QQQQ Nasdaq tech bundle. HEAVILY weighted to Apple Computer. It has had a ‘failure to advance’, but is not yet showing a full roll off and drop.

There might be a bit of room left in tech (since it does have great growth stories), but just how many iPads will that unemployed Spanish 20-something NINI buy? The retiring ’60 something’ in the USA Baby Boomers? Or the EU equal? Sure, you will sell a lot of them to terrorists in Paris, but that’s a pretty thin business plan… (They do smash their cell phones these days… Silly, really. All they need to do is remove the SIM card… from a dumb phone anyway.)

Tech often ‘runs ahead’ in rises, but also falls with a general bear market. I’d not want to depend on it being ‘different this time’.

In Conclusion

So this Glance tells me that nothing much has changed.

The world markets have “topped out” and have not shown any signs of robust recovery / growth going on. There’s too much ‘crap’ in the news to have tourism or retired folks on junkets bailing out pretty-but-poor places, and the Boomers have already bought most everything they need (while the next generations are less ‘stuff’ oriented anyway and mostly looking for a job somewhere – or marching in streets for fun and profit…)

When folks are busy doing Street Theatre Rants for political purposes, having “Green Rope and Castrate Industry” parties in Paris, and coping with W.W.III on the drip-drip-drip plan, they are not all that likely to have a huge industrial Renaissance… nor are services likely to have a big bump with an appetizer of Machine Gunning followed by a dessert of Concert Suicide Bombs.

Most of the global Joes and Janes and just trying to get by. In that context, you get more hunker down and not a lot of “load up the credit card, we’re going to vacation like it’s 1999”.

Then season lightly with Chinese Sichuan BBQ Business Leaders, Indian “give us your jewelry” begging, Russian Adventures, Muslims On AK-47 Parade, USA “Suicide Pill Paris” and the ECB “Nothing for Cyprus and Ukraine for free” variable banking ‘rules’ and, well, it’s chaotic.

Folks don’t like to buy things or invest in chaos.

Me? Sitting in cash. Looking for a few acres of dirt off somewhere with fishing, and a place to park the RV (to be bought if I sell the house) or put up a tent and ‘camp out’. To quote Gandhi when asked what he thought of ‘Western Civilization’: “I think it would be a very good idea.” At this point, I’m willing to extend that comment to Eastern Civilization as well.

“When the world around you goes crazy, smart folks go fishing. -E.M.Smith”

Highest on my list right now isn’t gold futures, or Government toilet paper bonds, but a quite place with peaceful waters and a few fish willing to entertain me. (Oh, and “open carry” preferred…)

FWIW, I’m not very good at ‘shorting’. I see the set-ups, but it just doesn’t sit well with me. So while I don’t see any “big short” to work at this point (the ones in oil and minerals are likely behind us now), there might well be others I’m not seeing. I just don’t look for them. It’s a fault, but that’s who I am. YMMV.

For now, the charts are not showing a whole lot of ‘long’ gains, and while a ‘big short’ in stocks might be setting up, the world is just too unsettled to say what is going to happen, IMHO. We could get a Trump President and a giant hot war globally as the Jihadis go bat shit crazy, and suddenly find demand and production of weapons through the roof; or we could get a Hillary ‘Obama Lite’ and the slow decay of western values into a sewer of festering poverty. Or anything in between. It’s all ‘on the wind’ right now. So the charts are ‘down to flat’ and waiting for a resolution of some of the ‘known unknowns’ while fearing the ‘unknown unknowns’ and just not having much conviction.

Sorting that out takes a lot more than a quick glance.

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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14 Responses to Market Glance

  1. Larry Ledwick says:

    Interesting comments here about how OPEC may be in the the process of dissolving as it pretty much gives up on quotas, since no one actually attempts to follow them.
    http://www.crossingwallstreet.com/archives/2015/12/cws-market-review-december-11-2015.html

  2. E.M.Smith says:

    @Larry:

    Saudi, as the “swing producer”, periodically must enforce discipline by opening the taps and driving the others to the wall. (Or having a believable threat of it).

    The threat had become unbelievable, so time to do the real deal.

    Ought to take about a year. Maybe two.

  3. Richard Ilfeld says:

    Once again the markets prove stronger than the interventionists.
    One hopes that the increasing gap between promise and performance will leave those tilting at windmills looking like, well, that they are tilting at windmills, with the lack of reality that implies.

  4. Graeme No.3 says:

    EMS.
    The week end Australian (Dec 12) carried a piece by their Environment Editor Graham Lloyd – unfortunately pay walled – but the key bits were
    “Like a magic pudding**, the climate change response will unleash economic forces to rival the Industrial Revolution, liberate continents from poverty, boost food security….
    Trillions of dollars will be marshalled..
    John Kerry sees it as ‘the most extra-ordinary market opportunity in the history of mankind’. He is planning nothing short of “the gradual transformation of the global economy… ”

    ** the magic pudding is an old australian fable about a pudding from which you ate your fill, and which then magically renewed itself at night.
    Much of the rest of the article is Lloyd in full sceptical mode as to where the money will come from, whether it will be returned, whether the proposed energy projects will work this time, and whether the public will be asked etc? (And why the banks are so keen on it).

    It does raise the question whether this is the reason that the EU and ‘liberal USA’ have been so keen on AGW etc. and ignoring the facts. Do they fear that the neo-Keynesian Welfare State approach has reached its limit, that there is no way they can boost economic activity, and that deflation will force debts to be repaid or repudiated at the cost of chaos? Not least them losing control and possibly a lot more. The French Revolution only got nasty after the aristocrats lost the support of the middle class.
    Is it their answer to having overspent for 60 years to ‘print money’ and overspend a lot faster, and delay the final collapse until they, their families and assets are safely gone into hiding? Or am I reading too much into some flapping lips (Kerry, Andrew Steer -WRI Pres., Ban Ki Moon, Nicholas Stern etc.)?

  5. Larry Ledwick says:

    @E.M.Smith
    Yep although this time around there is some question if they can burn enough money to get the job done.

    http://www.ft.com/cms/s/2/01948d2c-ef49-11e4-a6d2-00144feab7de.html#axzz3u9QGTCVg

    They are also facing a demographic time bomb of their own:

    https://www.stratfor.com/video/saudi-arabias-demographic-challenge

    On the question of where our economy is going to go in the near future, like you I have worries about how long they can keep the Ponzi scheme going. It is looking more and more like the lead up to 2008.

    http://davidstockmanscontracorner.com/december-16-2015-when-the-end-of-the-bubble-begins/

    Today I got to looking at the funds handled by my retirement account and happened on a page that listed their annual returns over recent years (yes current performance is no guarantee of future performance). The majority of them lost between 30% and 35% during 2008 with a few getting into the 40% loss range.
    Skillfully hidden at the bottom of the list was a fund that concentrates on short term cash based investments. During 2008 and 2009 it actually gained value (about 2.9% in 2008).

    It might be time to shift my investment choices as I expect most investors are going to take a huge bath soon if things go south as many expect.

    Still waiting for the inversion of the bond yields which typically precede such a down turn but I think I would rather be early than late on that decision to shift to a low return but safer fund.
    http://useconomy.about.com/od/glossary/g/Inverted_yield.htm

  6. Graeme No.3 says:

    Re Graham Lloyd (as above):
    Article available at http://media.wix.com/ugd/b6987c_61afeecd3ab04c89a1dbb2a094f31141.pdf

  7. Larry Ledwick says:

    Although the market took today’s bump in interest rate benchmark in stride, this item from Zerohedge is interesting. If you took the labels off this chart and showed it to anyone with an electronics background and told them it was an oscilloscope trace for a circuit, they would immediately think the circuit was about to go unstable and latch to one extreme or the other in the next few cycles.

    http://www.zerohedge.com/news/2015-12-15/stephen-roach-fed-has-set-market-crisis

    Presented this way it seems to reinforce everyone’s worst case expectations for the economy and the near future.

    The “circuit” either needs the feed back turned down or dampening added to suppress that building oscillation. (please back away from the microphone and turn down the amp gain)

  8. Larry Ledwick says:

    Item on the Texas oil patch and their expectations of declines in employment in the near future.
    http://www.cnbc.com/2015/12/22/texas-hunkers-down-for-another-oil-bust.html

  9. Larry Ledwick says:

    Happy new year to all here, hope your year goes well!
    I am inclined to think it will be an unhappy year for the markets and folks who are not paying attention to what appears to be going on.

    Looks to me based on these items that the “big boys” are trying to quietly reduce exposure until the the happy talk no longer works. Of course it is all just a big gamble for everyone we just take our best guess for the future and hope we get lucky occasionally.

    http://www.zerohedge.com/news/2015-12-30/wheels-just-fell-us-trucking-has-not-been-bad-financial-crisis

    http://www.zerohedge.com/news/2015-12-30/next-time-your-financial-advisor-tells-you-buy-stocks-show-them-chart

    http://davidstockmanscontracorner.com/the-deadly-truth-about-the-great-boom-and-this-recovery/

  10. Larry Ledwick says:

    I mentioned in the recent past that Saudi’s might be biting off more than they can chew with their effort to save market share.

    Recent events have obviously added additional risks to that issue:
    http://www.zerohedge.com/news/2016-01-04/saudi-default-devaluation-odds-spike-mid-east-careens-chaos

  11. p.g.sharrow says:

    @Larry; Yes, that and with events of this last week, with their rivalry with Iran and the Shea, The Saudi may well have really lite the fuse to the bomb. The Americans have been much reduced in their ability to manage the Sunni-Shea conflict. Likely a good thing in the long run. These people really want a “to the death war” to determine who is the real Muslim. We really need the Radicals to burn themselves out…pg

  12. Larry Ledwick says:

    In the abstract I agree, but like any cop knows, one of the most dangerous situations you can find yourself in is to get involved in someone’s family quarrel. The trick will be to avoid getting singed or cindered in the conflagration which is almost certainly to come. With highly complex alliances and agendas in play it is really difficult to stay out of the way of all the crap that will be flying around if they finally go to the mat to settle their differences.

    To add to the complexity, they (SA) like Japan just prior to WWII are in a financial vice of their own making as they piss away their sovereign wealth funds due to the global collapse in commodity markets as we head into correction territory.

    http://davidstockmanscontracorner.com/now-comes-the-great-unwind-how-evaporating-commodity-wealth-will-slam-the-casino/

    As the country most deeply immersed in this mess I assume that Israel has been on a crash nuclear production program for about a year now, since it became obvious that the current administration was going to give away the store to get a signed (non-binding) agreement with Iran.

    Likewise I assume that Saudi Arabia has been in negotiations with Pakistan for some time to buy nuclear capability as they don’t have time to develop their own. For all we know they already have limited nuclear capability.

    https://en.wikipedia.org/wiki/Nuclear_program_of_Saudi_Arabia

    http://www.bbc.com/news/world-middle-east-24823846

    Add to that the rancor between Obama and Israel’s leadership and his de-classification of information on Israel’s Nuclear program in March of 2015, and you see that very likely he has squandered all moral restraint by our administration on Israel and provided substantial motivation for Israel to go all out on nuclear production.

    Based on this unclassified report (below) in about 1987 Israel was on the threshold of hydrogen bomb technology and has had 29 years of R&D with much faster computers to develop that capability. It would be extremely naive to presume that they have not gone as far as the US did in a comparable increment of R&D meaning that their nuclear technological capability is now very probably comparable to the US in the late 1980’s early 1990’s the peak or nuclear proliferation in the cold war.

    —- translation they can build as big a nuclear device as they want and have the materials to manufacture: their only limitations would be logistical not technological.

    http://www.israelnationalnews.com/News/News.aspx/193175#.VosqXFJZLrA

    That all ends up pointing to a very bad day for a lot of people in the world if the players ever lose the handle on this situation.

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