Crude Oil | What does it say about the Stock Market?

Every week I look at one of Tom McClellan’s charts that he publishes. Tom is the editor at McClellan Financial Publications. Every once in a while I find a chart that really resonates with me.

Below is a chart that shows the price of crude oil as compared to the Dow Jones Industrial Average (DJIA). What Tom has done is moved forward the chart of crude oil by ten years.

Over the history of the DJIA, crude oil has been shown to be a very good leading indicator of the DJIA by about 10 years.

Ten years ago crude oil went from over $140 a barrel to under $40 a barrel in about 7 months. This has huge implications for the DJIA in 2018 and is in sync with my view of the market via Elliott Waves.

Rather than go into all the detail that Tom provides in his article, I recommend that you read it.

Memorial Day | We Will Always Remember Their Sacrifice

This following is a post I wrote last year on Memorial Day weekend. I see no reason to change it as I am proud to remember and honor those who have gone before us.  I am living free in this beautiful country because of their sacrifice.

Here in the United States it is officially Memorial Day on Monday. Cookouts, camping, boating, the Indianapolis 500 all part of the official start of the summer season. But on this Memorial Day weekend my thoughts turn to remembering my Uncle Bob.

World War II

Uncle Bob served in the Army in World War II and the Korean War and then at the Pentagon for many years. He was a great guy and my favorite uncle. I was fortunate to have been able to spend some time with him in the late ’80s when we lived in Northern Virginia. Continue reading

Goldilocks Market Forgot About the Bears

Over the last week or so I started to hear the word “goldilocks” again as people were talking about the economy.  I think it started with the low unemployment rate of 3.9% that was announced on May 4th.

And with inflation at or near the Fed’s target rate combined with surging earnings from the corporate world has many folks talking about a goldilocks market.

But let’s not forget about the three bears.

Papa Bear

Papa Bear points to the earning season and that most companies beat expectations but in many cases the stock prices still got hammered or the response was weak. Spectacular earnings were already priced in.

And who can forget the reverberations that came out of the Caterpillar conference call when their CFO said the first quarter was going to be the high water mark for the year. Basically ‘this is as good as it gets’.

And of course companies are still up to their old marketing tricks as there have been several announcements of huge stock buyback programs. But in many cases that has not boosted the stock much. Why? Investors understand that just because it’s announced… doesn’t mean it will truly be implemented.

Mama Bear

Mama Bear worries about security and the geopolitical scene. Yes there’s talks scheduled between the United States and North Korea, but skepticism still reigns. Hasn’t North Korea had peace discussions several times before?

Turmoil is still raging in the Middle East and Trade Wars with China and possibly the European Union, are threatened. Relations with Russia are at multi-decade lows. The United States Navy just announced it is resurrecting the 2nd Fleet to protect the East Coast and North Atlantic due to increased activity by Russia.

Baby Bear

Baby Bear says let’s not forget that interest rates are rising. The 10 year yield minus 2 year yield is back to levels last seen in 2007, just prior to the Great Recession.

But all that is just noise as far as I’m concerned. The real facts are what the stock market is doing on a daily and weekly basis.

The Dow Jones Industrial Average, S&P 500, NYSE Composite Index all peaked on January 26, 2018 with a huge volatility explosion. The Nasdaq Composite and Nasdaq 100 peaked five weeks later on March 13.

The bears are back, out of hibernation…and they’re hungry.

Is Gold Breaking Higher or Much Lower

Gold has been in rally mode since its low in December 2016. But it has been a struggling rally with many overlapping waves. My preferred count has the Gold ETF (GLD) pushing higher over the next few months but the picture has become muddy of late.

The major indexes in the U.S. stock market peaked on January 26.  Gold also peaked about that time and is actually down as of Friday’s close.

There has been much talk recently that inflation is on the rise. There has been and continues to be chaos in the geopolitical scene with possible trade wars brewing and real wars in the Middle East.

So is gold about to explode  and rally to new highs above the August- September 2011 peak or is it about to turn down and plummet to new lows?

I mentioned above that I am short term bullish. But that scenario needs to see gold to rise soon and break out of the trading range it has been in since late January.  But even then, I am not looking for new all-time highs.

The move down from the 2011 peak to the low in December 2015 occurred in 5 waves.  So we are now in a countertrend. This countertrend is expected to be a zigzag but could morph into a couple of other patterns also.

If gold breaks down from here then the odds increase that the rally high in July 2016 is the top of the countertrend and gold will then be starting a new leg down that will take out the December 2015 lows.

Why would gold plummet to new multi-year lows? Maybe the deflationary crescendo hasn’t occurred yet.  Maybe interest rates are going to rise dramatically. Maybe central banks will be liquidating some of their gold holdings.

I don’t know what could cause it to drop. All I know for sure is what I see in the charts. We monitor gold every day in the Insider membership.

Mr Market Says…That’s Just Not Enough

Earnings season officially began on Friday April 13 with several major banks reporting their first quarter earnings.  And beginning with the banks, stocks could not hold their gains after good reports…and in some cases great reports. Mr Market was not impressed.

So after the banks struggled, everyone was thinking well the FANG stocks, technology and even some super industrials will get this market going. Well on Monday April 16 after the bell,  Netflix announced  great earnings. The stock exploded on Tuesday but by the close of trading 5 days later it had given back all of Tuesday’s gains.

Goldman Sachs (GS) and IBM announced on Tuesday, April 17 and both got destroyed.  GS dropped 7.2% over the next  7 trading days. IBM dropped 10% in 3 days.

Big Tech to the Rescue

But tech will drive the market or so everyone was saying.  Alphabet (GOOGL) announced on Monday April 23 after the bell.  If dropped 4.8% the next day and was still down 3.9% at the end of the week.

Facebook (FB) is putting in a gallant effort. It exploded up 9.1% last Thursday, the day after earnings were reported.

Amazon (AMZN) had an amazing earnings report after the bell on Thursday. The stock exploded on Friday, opening up 7.6% at new all-time highs but it couldn’t hold it. It ended the day cutting that gain almost in half.

Microsoft (MSFT) acted similar to AMZN on Friday. Opening up 3.5% at new all-time highs but closing up just 1.6% and at one point during the day was actually down slightly.

Intel (INTC) also reported Thursday night with AMZN and MSFT. And it’s price action was worse than the other two. Intel opened up 4.5% at new multi-year highs but closed the day down $0.32.

Mr Market Not Impressed

So far Mr Market is still not impressed.  There have been spectacular reports and all the FANG stocks have now reported.  Yet from the close on April 12 to the close on Friday April 27, the Nasdaq Composite Index is down 20.45 points and the Nasdaq 100 Index is flat. The S&P 500 Index is up just 5.92 points while the Dow Jones Industrial Average is down 172.06.

The test for these big tech stocks is the price action over the next week.  Apple reports on Tuesday after the market closes. Will Apple come to the rescue?

Did CAT Just Name That Tune?

And with all the big name stocks reporting we can’t forget about Caterpillar (CAT).  People look at CAT as somewhat of a proxy for the global economy with their big yellow machines being used to drive economic growth in every continent on the globe.

CAT reported earnings before the market opened last Tuesday.  They were spectacular and they upped their estimates for the full year.  But then on the conference call with analysts, the CFO said that this first quarter was the high water mark for the year.

Wait…what did he say? This first quarter was as good as it gets? And the stock sold off.  CAT had opened up 3.7% but by the end of the day it was down $9.59 or 9.4%. So did CAT just name that tune? Is what’s playing in Peoria, the tune for the overall market?