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”:
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…
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…)
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).
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”…
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.
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…
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.
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’.
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.