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Top Energy Fund Breaks 9-Month Resistance


Top Energy Fund Breaks 9-Month Resistance

By Alan Farley | December 22, 2017 — 12:15 PM EST

The broad-based SPDR Energy Select Sector ETF (XLE) has rallied above March resistance this week, reclaiming broken support at $70, and it could add substantially to gains in the coming weeks. More importantly, the fund and sector are now well positioned to attract strong 2018 buying interest that could trigger the next phase of the uptrend that began after commodities bottomed out in early 2016.

In turn, that would set the stage for the fund to break out above the 2017 high at $78.45 and head into a critical test at the 2014 bull market high just above $100. The timing could be fortuitous because the prior year’s laggards often become the New Year’s leaders when market players sell their winners and rotate capital into less overvalued equities. That perfectly describes the energy sector and this popular fund, which has lost more than 4% in 2017. (See also: Why Energy Stocks Are Suddenly Hot.)

XLE Long-Term Chart (1998 – 2017)

The fund came public in the mid-$20s in December 1998 and sold off quickly to $21.09. The subsequent uptick continued through the first year of the post-millennial bear market, topping out at $34.90 in May 2001, while the subsequent decline accelerated following the Sept. 11 attacks, dropping into the 1998 opening print. That support level got tested into January 2002, yielding an oversold bounce, followed by a breakdown to an all-time low at $19.38 in July 2002.

A steady uptick completed a round trip into the 2001 high in the fourth quarter of 2004, yielding a breakout and strong trend advance that lifted the sector into a leadership role during the mid-decade bull market. The uptrend peaked in the low $90s in May 2008, rolling over in a steady decline that accelerated during the economic collapse, dumping the fund to a four-year low at $37.40 in March 2009.

It took nearly five years for the subsequent bounce to reach the 2008 high, triggering an April 2014 breakout that hit an all-time high at $101.52 two months later. It failed the breakout in October, triggering major sell signals, ahead of a nasty decline that continued into a five-year low in the first quarter of 2016. Price action since that time has carved a rally that stalled at the 50% sell-off retracement in December 2016, followed by a pullback that found support in August. (For more, see: XLE: Energy Select Sector SPDR ETF.)

XLE Short-Term Chart (2014 – 2017)

A Fibonacci grid stretched across the 2016 rally organizes 2017 price action, with the decline finding support at the .786 retracement level in August. The bounce into the fourth quarter mounted the .382 retracement, while the trading range between October and December held support at that level, ahead of a week-long rally that has lifted the fund into the .786 retracement level at $72. It could easily consolidate at or near this price zone into early 2018.

The fund ended a long string of lower highs in December 2016 when it rallied above the November 2015 high at $71.93. However, it will take a rally through the 2017 high at $78.45 to end the equally long string of lower lows because that price action will complete a 100% retracement, confirming that the decline into August 2017 marked a higher low. In turn, that would signal the next stage in the two-year uptrend.

On-balance volume (OBV) topped out in the last decade and posted a lower 2011 high, ahead of a steep distribution wave that carved lower lows in 2012, 2016 and August 2017. This bearish positioning signaled abandonment by institutions in favor of stronger sectors while pointing to a long-term capitulation that may finally be nearing its end. However, it will take months for volume to overcome this persistent exodus, telling market players to act cautiously while they build new long positions. (To learn more, see: Uncover Market Sentiment With On-Balance Volume.)

The Bottom Line

The SPDR Energy Select Sector Fund has rallied to the highest high since March and could eventually break out above the 2017 high at $78.45. More importantly, the energy sector may be entering a leadership phase, set to outperform broad benchmarks in 2018. (For additional reading, check out: Big Oil Set for 2018 Bull Market.)

Published at Fri, 22 Dec 2017 17:15:00 +0000

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Tax plan optimism propels Wall Street to record highs


Tax plan optimism propels Wall Street to record highs

NEW YORK (Reuters) – Wall Street hit record closing highs on Monday as optimism increased about the likelihood of lower corporate tax rates as the Republican tax bill moved closer to passage.

The Nasdaq surpassed the 7,000-point mark during the session but closed below that level.

The Republican-controlled U.S. Congress is expected to begin voting on sweeping tax legislation on Tuesday, aiming to get the bill to President Donald Trump to sign into law by the end of the week. Republican U.S. Senator Susan Collins said she would vote for the sweeping overhaul, all but ensuring its passage.

“This Congress has shown an inability to pass anything over the past five years,” said Michael O‘Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut. “If a major piece of legislation is passed, you’d expect the markets to be happy.”

U.S. stocks have enjoyed a near year-long rally, with the benchmark S&P 500 .SPX and the blue-chip Dow Jones Industrial Average .DJI set for their best year since 2013.

The bill would cut corporate tax rates to 21 percent from 35 percent, which investors are betting will boost profits as well as trigger share buybacks and higher dividend payouts.

Another expected outcome of lower taxes is cash repatriation, which market analysts say could boost mergers and acquisitions.

“A lot of the things in the tax proposal are better for stocks than anything else,” said Rob Stein, chief executive officer of Astor Investment Management in Chicago.

The Dow Jones Industrial Average .DJI rose 140.46 points, or 0.57 percent, to 24,792.2, the S&P 500 .SPX gained 14.36 points, or 0.54 percent, to 2,690.17 and the Nasdaq Composite .IXIC added 58.18 points, or 0.84 percent, to 6,994.76.

Besides the three indexes, the Nasdaq 100 .NDX and the S&P 100 .OEXA also hit record highs. The small-cap Russell 2000 rose 1.2 percent to a record closing high.

The materials index .SPLRCM gained 1.5 percent, the most among the major 11 S&P sectors. The utilities index .SPLRCU had the largest decline, with a drop of 1.2 percent.

Utilities suffer from higher interest rates, which the Federal Reserve announced last week, and they are expected to see less upside from tax cuts than other sectors, Stein said.

On Monday, investors were treated to a flood of deals.

Shares of Amplify Snack (BETR.N) soared 71.6 percent to $12.01 after Hershey (HSY.N) said it would buy the SkinnyPop popcorn maker in a $1.6 billion deal. Hershey rose 0.1 percent.

Snyder‘s-Lance (LNCE.O) rose 6.9 percent after Campbell Soup (CPB.N) said it would buy the Pretzels and Cape Cod chips maker for $4.87 billion.

Casino operator Penn National Gaming (PENN.O) said it would buy Pinnacle Entertainment (PNK.O) in a $2.8 billion deal. Penn National dipped 2.2 percent, while Pinnacle’s shares were up 0.7 percent.

Twitter (TWTR.N) jumped 11 percent after JPMorgan said it expects the company to post double-digit daily average user growth in 2018.

Advancing issues outnumbered declining ones on the NYSE by a 2.43-to-1 ratio; on Nasdaq, a 2.13-to-1 ratio favored advancers.

About 7.1 billion shares changed hands on U.S. exchanges. That compares with the 6.8 billion daily average for the past 20 trading days, according to Thomson Reuters data.

Additional reporting by Sruthi Shankar in Bengaluru; Editing by Chizu Nomiyama and Nick Zieminski

Published at Mon, 18 Dec 2017 21:41:06 +0000

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No bears here! Market on the verge of making history


Why rising stocks don't benefit everyone
Why rising stocks don’t benefit everyone

 No bears here! Market on the verge of making history


The U.S. stock market is up ever so slightly this month. And if the benchmark S&P 500 is able to eke out a gain for December, it will make history. This would be the first time ever that the blue-chip index had a gain for all 12 months of a calendar year.

Ryan Detrick, senior market strategist with LPL Research, noted in a report this week that the market has had 12-month winning streaks before. But they have never been for an entire calendar year.

Detrick said that 1958, 1995, and 2006 were “close but no cigar” years. The S&P 500 had a positive total return (which includes gains in dividends in addition to stock price increases) in 11 months.

He added that even though some investors may be nervous that this bull run is starting to get a little long in the tooth, history suggests that stocks should keep climbing.

Detrick pointed out that the S&P 500 had an average return of 10.8% in 1959, 1996 and 2007 — the year after the market enjoyed gains in 11 of the previous 12 months.

A double-digit percentage gain next year would be impressive given that the S&P 500 is up nearly 20% so far this year.

Stocks surged Friday on growing hopes about the Republican tax plan.

The Dow was up more than 160 points, moving closer to the 25,000 level, and has now gained more than 25% in 2017. The Nasdaq was up more than 1%. It has surged nearly 30% this year and is approaching the 7,000 mark.

But will the market remain this calm in 2018 or will it finally start to show some choppiness again?

It’s been eerily serene this year. The market’s favorite gauge of volatility, the CBOE’s VIX(VIX) index, is down nearly 30% and below 10 — not far from its all-time low.

CNNMoney’s Fear & Greed Index, which looks at the VIX and six other measures of market sentiment, is showing signs of Greed and is approaching Extreme Greed levels.

So even if stocks continue to climb higher, many experts warn that volatility will make a comeback.

“Despite my bullish expectations, I don’t expect it to be a smooth ride and think we may be in store for some turbulence along the way,” said Chris Zaccarelli, chief investment officer of Independent Advisor Alliance, in a report.

Zaccarelli suggested that the market may be due for a pullback after this relentless grind higher. He noted that the S&P 500 has had a least 5% dip from recent highs at least once every two years since 1980. The last such drop was February 2016.

What could spark a return of volatility? Zaccarelli said the transition at the Federal Reserve, with Jerome Powell set to take over from Janet Yellen, is a possible wild card.

So could lingering concerns about North Korea, tension in the Middle East, trade disputes in the wake of NAFTA negotiations and the mid-term elections.

But the biggest worry might be the return of inflation. There is little evidence of it in the market right now as pricing pressures remain mild. That could change though if oil prices, currently hovering just under $60 a barrel, climb further.

A further spike in crude could lift gas prices as well, making it more expensive for consumers to fill up their gas tanks.

That could mitigate any savings Americans might get from the tax cuts that President Trump and Republicans hope to approve before the end of the year.

“The key for inflation is watching where oil prices go,” said Dave Harden, president and chief investment officer of Summit Global Investments. “If they get above $75 and into the $80-$90 range, it will suck out any benefit to consumers from lower taxes.”

Published at Fri, 15 Dec 2017 15:38:05 +0000

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Blockchain, IoT, and a $3.6 trillion Infrastructure Crisis

Trading Photo

Blockchain, IoT, and a $3.6 trillion Infrastructure Crisis

By: Michael Kern | Fri, Dec 8, 2017

There is a crisis unfolding in the United States. Infrastructure has become dated, decayed, and vulnerable to attack. A problem which the American Society of Civil Engineers estimates says will cost the country up to $3.6 trillion to address. So where does technology fit in to the United States’ next great undertaking?

The Internet of Things (IoT) is set to completely change every aspect of infrastructure as we know it. From transportation to energy production, there is an application for IoT technology. The world is more connected than it has ever been, and harnessing the technology at the core of this connection will present unique opportunities to usher in a new era of efficiency and security.

The Internet of Transportation

The U.S. highway system was arguably one of the most beneficial projects for the country’s economy that has ever been constructed. Built in what is known as “The Greatest Decade,” 1956-1966, America’s interstate highway system gave way to new opportunities for trade and the distribution of goods. But not only is it falling behind its competitors, it’s falling apart.

As the United States looks to rebuild its infrastructure, its highway system is a top priority, and in this massive operation, the U.S. has a chance to once again emerge as a leader in new infrastructure development.

The Internet of Things will have an essential role in the new highway system. With the development and rollout of self-driving cars, interconnected micro-sensors will provide connectivity between smart vehicles, creating a virtual highway on top of the physical highway. The development of this web of connection will be vital to navigation and safety of tomorrow’s self-driving fleet of cargo trucks and personal cars.

Additionally, the internet of transportation will provide a new opportunity to harness and distribute energy. Using piezoelectric crystals layered on the country’s new highways, energy could be generated from cars’ vibrations and with the addition of the expansive distribution of micro-sensors, energy can be connected to existing power grids, monitored, and secured, creating an entirely new source of power for U.S. cities.

While outfitting the country’s vast highway system with piezoelectric crystals and censors will certainly prove to be a massive project, U.S. cities are also looking to benefit from IoT tech. A number of cities have already begun integrating the IoT with basic infrastructure. These smart transportation initiatives include more intelligent traffic lights, data collection, and new routes for public transit outfitted with tech designed to reduce costs, increase safety, and alleviate congestion.

Transportation is only one aspect of the United States’ infrastructure challenges, but perhaps the most pressing is the country’s energy infrastructure, which has come under fire due to high profile pipeline leaks and its shocking susceptibility to malicious cyber-attack.

The Internet of Energy

It’s no secret that fossil fuels will reign as the go-to source of energy around the world for years to come, but distribution and management is currently a huge issue which stands to benefit from a tech overhaul.

The United States loses billions every year due to inadequate, old, or mismanaged energy infrastructure. Just a few weeks ago, there was a leak from the controversial Keystone pipeline, spilling up to 200,000 gallons of crude oil in South Dakota. Not only is this a costly problem for taxpayers, it is extremely detrimental to the environment. The Internet of Things looks not only to address some of these issues, but create even greater efficiency than previously thought possible.

Using smart sensor networks and artificial intelligence, oil and gas pipelines, nuclear plants, or even hydro-electric dams can be monitored and shut down the second there is an issue, giving way to a new era of safety.

In addition to the safety concerns which can be addressed by the IoT, the tech can completely transform the entire supply chain. In a system where getting from point A to point B is riddled with middle-men, unnecessary delays, and lost supplies, smarter monitoring of the chain will give way to cheaper energy and a more streamlined delivery of the end-product.

Renewables stand to benefit, as well. With a greater focus on smaller, smarter, and more independent grids, powered by renewable energy, the Internet of Things may very well be the answer the industry has been looking for. Producers and consumers will be connected in a new way, with the flow of energy carefully monitored and distributed in the most efficient manner possible.

With all of these interconnected censors spread throughout tomorrow’s energy infrastructure, there is also a tremendous amount of data being collected. Using this data, it is fair to suggest that the industry as a whole will be able to be analyzed and improved over time. But building and maintaining this huge collection of data and connecting the country’s most critical infrastructure on such a level also gives way to a new challenge – protecting it against malicious cyber-threats.

The Internet of Blockchain

There have already been several high-profile attacks on critical infrastructure around the world, with the most notable being Ukraine’s wide spread power outages in 2015 and 2016, which highlights a pressing need for new solutions to secure our grids. While it’s not entirely clear exactly how vulnerable America’s infrastructure is to malicious attack, the Federal Energy Regulatory Commission (FERC) has expressed its concerns.

John Wellinghoff, former chair of the FERC, noted: “We never anticipated that our critical infrastructure control systems would be facing advanced levels of malware.”

Enter blockchain tech. The decentralized nature of the technology creates a system which requires no approval from a single authority, and a ledger in which the blocks and transactions within the blocks created are viewable by anyone, while the content of the transactions remain private.

Sending and storing the vast amounts of information created by the IoT becomes seamless and secure. Because the information sent is unable to be changed or redirected, potential threats to the infrastructure are decreased drastically.

Though security risks are greatly reduced with new technology, it is not entirely free from potential attacks. Social engineering is already a huge piece of the hacking puzzle. Pretexting, phishing, and even tailgating have all been used to gain entry to some of the most secure places on the planet. While technology has the potential to create a safer world, it Is still up to the people in vulnerable positions to remain vigilant.

By Michael Kern via Crypto Insider

Editor at, Writer at

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Published at Fri, 08 Dec 2017 15:45:15 +0000

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Schedule for Week of Dec 10, 2017

Schedule for Week of Dec 10, 2017

by Bill McBride on 12/09/2017 08:09:00 AM

The key economic reports this week are November retail sales and the Consumer Price Index (CPI).

For manufacturing, November industrial production, and the December New York Fed manufacturing survey will be released this week.

The FOMC meets this week and is expected to announce a 25bps increase in the Fed Funds rate.

—– Monday, Dec 11th —–

Job Openings and Labor Turnover Survey10:00 AM ET: Job Openings and Labor Turnover Survey for October from the BLS.

This graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

Jobs openings increased slightly in September to 6.093 million from 6.090 in August.

The number of job openings (yellow) were up 7.5% year-over-year, and Quits were up 3.5% year-over-year.

—– Tuesday, Dec 12th —–

6:00 AM ET: NFIB Small Business Optimism Index for November.

8:30 AM: The Producer Price Index for November from the BLS. The consensus is a 0.3% increase in PPI, and a 0.2% increase in core PPI.

—– Wednesday, Dec 13th —–

7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:30 AM: The Consumer Price Index for November from the BLS. The consensus is for a 0.4% increase in CPI, and a 0.2% increase in core CPI.

2:00 PM: FOMC Meeting Announcement. The FOMC is expected to increase the Fed Funds rate 25 bps at this meeting.

2:00 PM: FOMC Forecasts This will include the Federal Open Market Committee (FOMC) participants’ projections of the appropriate target federal funds rate along with the quarterly economic projections.

2:30 PM: Fed Chair Janet Yellen holds a press briefing following the FOMC announcement.

—– Thursday, Dec 14th —–

8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for 239 thousand initial claims, up from 236 thousand the previous week.

Retail Sales8:30 AM ET: Retail sales for November be released.  The consensus is for a 0.3% increase in retail sales.

This graph shows retail sales since 1992 through October 2017.

10:00 AM: Manufacturing and Trade: Inventories and Sales (business inventories) report for October.  The consensus is for a 0.1% decrease in inventories.

—– Friday, Dec 15th —–

8:30 AM: The New York Fed Empire State manufacturing survey for December. The consensus is for a reading of 18.0, down from 19.4.

Industrial Production9:15 AM: The Fed will release Industrial Production and Capacity Utilization for November.

This graph shows industrial production since 1967.

The consensus is for a 0.3% increase in Industrial Production, and for Capacity Utilization to increase to 77.2%.

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Premarket: 6 things to know before the bell


Premarket: 6 things to know before the bell


premarket friday
Click image for more in-depth data.

1. Brexit breakthrough: Britain and the European Union reached a Brexit milestone on Friday, breaking a deadlock that allows talks to move onto a crucial second phase.

Negotiations will now turn to trade and the terms of a transition that would allow businesses in the U.K. to adapt to life outside the bloc.

The pound posted a mild reaction to the deal, gaining 0.2% against the dollar.

Investor enthusiasm may be limited because trade talks promise to be difficult.

“Let’s remember that the most difficult challenge still ahead,” said European Council President Donald Tusk. “Breaking up is hard. But breaking up and building a new relationship is much harder.”

2. Jobs report: The U.S. Bureau of Labor Statistics will release November’s jobs report at 8:30 a.m. ET.

The economy has added roughly 1.7 million jobs so far in 2017. In October, 261,000 jobs were created — making it the best month for job growth since President Trump took office.

But wages continue to disappoint. Last month, they grew by just 2.4% compared to the same period last year, even lower than September’s growth rate.

3. Shutdown averted, for now: The dollar edged higher against other major currencies after lawmakers voted for a short-term spending bill that will keep the federal government running for another two weeks.

The major obstacle is what comes after December 22, when the government runs out of money once again.

All eyes will be on the White House, as Trump and top congressional leaders try to resolve policy differences so Congress can pass a long-term spending bill before Christmas.

4. Global overview: Stocks markets are closing out the week with a bang.

U.S. stock futures were higher. Major European and Asian markets were in positive territory.

U.S. crude oil futures gained 0.7% to trade just above $57 per barrel.

The one big loser of the day was bitcoin, which continued its wild ride. It plunged more than $2,500 after hitting new record on Thursday.

The Dow Jones industrial average and the S&P 500 both gained 0.3% on Thursday, while the Nasdaq added 0.5%.

5. Companies and economics: Shares in Japan Display shot up 9% in Tokyo on a report that Apple(AAPL) might start using LCD screens in future smartphones.

A preliminary reading of the University of Michigan’s Consumer Sentiment Index for December will be released at 10 a.m.

Chinese exports and imports data came out stronger than expected, pointing to healthy global trade.

“We expect exports to continue to perform well in the coming months on the back of strong global demand,” said Julian Evans-Pritchard, China Economist at Capital Economics.

6. Coming this week:

Friday — Jobs report

Published at Fri, 08 Dec 2017 10:08:08 +0000

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Is Tax “Reform” Good for the US Dollar?


Is Tax “Reform” Good for the US Dollar?

By: Mike Shedlock | Wed, Dec 6, 2017

Let’s investigate what happened after the last 3 major tax reforms. Another “reform” is on deck.

I picked up this idea from Holger Zschaepitz, @Schuldensuehner, who made the following Tweet, posting a chart from Bloomberg.

In the following chart, I add a key piece of legislation that someone inadvertently overlooked.

Tax Reform vs US Dollar 1986-Present

US Dollar Synopsis

  • Following the 1986 legislation, the dollar fell about 22% over the next six years.
  • Following the 2001 legislation and continuing with the 2003 legislation, the dollar fell about 37% over the next seven years.

What’s Next?

The Senate version of the bill is likely to add over $1 trillion to the deficit, while not even cutting taxes beyond 2027.

A bill that adds so much to the deficit is not US dollar supportive, to say the least.

However, one cannot view these things in isolation. How the dollar reacts also depends on events in the Eurozone, China, and Japan, as well as Fed interest rate policy.

Global Currency Debasement

Global currency debasement is underway.

Things may be even crazier elsewhere, so a decline in the dollar is not guaranteed.

A Driver for Gold

Sooner or later, competitive currency debasement will matter.

Gold is likely to be the primary beneficiary.

I wish I could tell you when this matters in a major way.

Gold vs. Faith in Central Banks

Amazing Non-Reform Act of 2017

I have a suggestion for the name of the pending legislation: The Amazing Non-Reform Tax Act of 2017.

By Mike Shedlock

Mike Shedlock

Mike Shedlock / Mish
Mish Talk

Mike Shedlock

Michael “Mish” Shedlock is a registered investment advisor
representative for SitkaPacific Capital Management. Visit to
learn more about wealth management for investors seeking strong performance
with low volatility.

Copyright © 2005-2017 Mike Shedlock

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Published at Wed, 06 Dec 2017 15:37:45 +0000

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Big Oil Set for 2018 Bull Market


Big Oil Set for 2018 Bull Market

By Alan Farley | December 1, 2017 — 8:50 AM EST

Dow components Exxon Mobil Corporation (XOM) and Chevron Corporation (CVX) have underperformed throughout 2017 but could lift into market leadership in 2018, underpinned by a resilient crude oil market and strong U.S. economy, supercharged by tax cuts and deregulation. However, buying these stocks too early could be hazardous to your bottom line because end-of-year tax selling may inhibit buying power until the calendar flips in January.

The WTI crude oil contract has lifted to a two-year high and could soon test resistance in the lower $60s. Meanwhile, OPEC and Russia have just agreed to extend oil output curbs through the end of 2018, allowing U.S. energy companies to benefit from higher commodity prices as well as ramped-up production levels because our government has not agreed to similar cuts. Taken together, energy stocks at all capitalization levels could finally enter bull market advances. (See also: A Guide to Investing in Oil Markets.)

Exxon Mobil shares broke out above the 2008 high at $95.64 in December 2013 and hit an all-time high at $104.76 in July 2014. A steep downturn accelerated in the second quarter of 2015, finally coming to rest at a five-year low in the mid-$60s in August. The subsequent recovery posted two broad rally impulses, lifting the stock into the closely-aligned 786 Fibonacci sell-off retracement and failed breakout levels in July 2016.

A shallow but persistent correction off that resistance level finally ended in the mid-$70s in August, giving way to a bounce that mounted the 200-day exponential moving average (EMA) in October. The stock has been crisscrossing the moving average for the past two months, trying to build support, while price action since February 2017 has carved a potential inverse head and shoulders pattern. This potent combination predicts that a breakout above the neckline at $84 will generate a test at long-term resistance in the mid-$90s.

On-balance volume (OBV) bottomed out in August 2015 and lifted into a 52-week high in July 2016. A sideways chop into the second half of 2017 signaled a delicate balance between bulls and bears, ahead of a strong buying impulse that reached a two-year high in October. This renewed buying interest could mark a tradable low ahead of superior 2018 performance. Even so, it is likely that positions taken in the mid-$80s following an inverse head and shoulders breakout will require a relatively long-term holding period to build sizable profits. (For more, see: Exxon, Chevron and Oil Are Breaking Out.)

Chevron stock has carved a stronger price pattern than its Dow rival, but significant technical challenges remain. It broke out above the 2008 high at $104.63 in 2011 and entered a rising wedge pattern that persisted into the July 2014 all-time high at $135.10. The subsequent downturn broke wedge support in October and failed the multi-year breakout in June 2015, triggering a decline that continued into August, when it bottomed out at a five-year low near $70.

A healthy uptick through 2016 unfolded through three rally waves that stalled near $120 in December. Loyal shareholders suffered through a persistent decline in the first half of 2017, with strong support at $102 finally taking hold in July. The stock rallied back to the 2016 high in October and dropped into a narrow trading range that may now complete the handle in a cup and handle pattern.

A breakout should bring the 2014 high into play, with that level marking the final barrier ahead of a bull market advance that could add many points in the coming years. Meanwhile, OBV has just lifted above the December 2016 recovery high and reached a three-year high, predicting that price will play catch-up in coming months. Even so, the stock has gained less than two points to far in 2017, increasing the odds that tax selling pressure will inhibit buying power into early 2018. (See also: The Top 3 Chevron Shareholders.)

The Bottom Line

Big oil price action has improved greatly in the second half of 2017, lifting major players into price levels that could support healthy 2018 upside. Chevron looks like a better bet than Exxon Mobil in this bullish scenario, set to test this decade’s bull market high after it mounts resistance at $119. (For additional reading, check out: Why Energy Stocks Are Suddenly Hot.)

Published at Fri, 01 Dec 2017 13:50:00 +0000

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China Initiating a Global Bear Market?

by TheDigitalArtist from Pixabay

China Initiating a Global Bear Market?

By: Doug Noland | Sat, Dec 2, 2017

Chair Yellen is widely lauded for her accomplishments at the Federal Reserve. For the most part, her four-year term at the helm of the Fed boils down to four (likely soon to be five) little rate hikes over 24 months. Most lavishing praise upon Janet Yellen believe she calibrated “tightenings” adeptly and successfully. Yet financial conditions have obviously remained much too loose for far too long. This predicament was conspicuous in the markets this week. A test of a North Korean ICBM that could reach the entire U.S. modestly pressured equities for about five minutes – then back to the races.

Bubble Dynamics are in full force. The Dow gained 674 points this week. The Banks were up 5.8%, the Broker/Dealers gained 4.5% and the Transports jumped 5.9%. The Semiconductors were hit 5.6%.  Bitcoin traded as high (US spot) as $11,434 and as low as $9,009 in wild Wednesday trading. Curiously, the VIX traded up 15% to 11.43.

It used to be that markets would fret the Fed falling “behind the curve,” fearing central bankers would be compelled to employ more aggressive tightening measures. Not these days. Any fear of central bank-imposed tightening is long gone. There is little fear of anything.

I recall writing similar comments back with the Bush tax cuts: “I’m as much for lower taxes as anyone. Yet I question the end results when tax cuts exacerbate late-stage Bubble excess.” And I seriously question the merits of aggressively slashing corporate tax rates when the federal government is $20 TN in debt. One of these days the bond market is going to wake up and impose some much need fiscal discipline. In a different era, the Treasury market would be forcing some realism upon Washington politicians (and central bankers).

Moreover, there’s a paramount issue that goes completely undiscussed: It’s presumed that lower taxes will spur economic growth and resulting booming tax receipts – that tax cuts will prove largely self-financing. Yet this fanciful notion ignores a critically important unknown: What role will the financial markets play? As we saw in the last downturn, faltering Bubble markets weigh heavily on both economic growth and government finances. I would go so far as to suggest that never has our nation’s fiscal prospects been as dependent on ongoing equities, bond market and real estate inflation.

Nine years of extreme monetary and fiscal stimulus fueled quite a boom. Interest rates were pegged way too low for too long. The seemingly obvious risk now is that market yields surprise to the upside. Despite the boom and artificially suppressed debt service costs, the federal government has nonetheless posted ongoing large budget deficits. I never bought into the late-nineties notion that budget surpluses were sustainable – that our nation would soon pay down all its debt. It was all a seductive Bubble Illusion.

Today’s delusion is so much more spectacular. I’m all for efforts to revitalize the U.S. manufacturing and export sectors. But to continue to aggressively employ system-wide fiscal and monetary stimulus at this late cycle stage comes with great risk. I’m surprised the bond market remains so sanguine. There’s a (not low probability) scenario that has consumer and producer inflation surprising on the upside, interest rates and market yields surprising on the upside, the stock market buckling to the downside, and fiscal deficits exploding to the unmanageable. The Powel Fed would confront serious challenges (in contrast to the cakewalk enjoyed by Yellen).

November 27 – CNBC (Jeff Cox): “Concern over stock market values is growing at the Fed, with one official worrying that waiting too long to tighten policy could have more serious effects later. In an essay released Monday, Dallas Fed President Robert Kaplan warned about ‘excesses’ in the economy, pointing specifically to stocks and the government debt. The S&P 500 market cap is at 135% of GDP, the highest since 1999-2000, just as the dot-com bubble was about to pop, the central banker said. ‘I am aware that, as excesses build, we are more vulnerable to reversals which have the potential to cause a rapid tightening in financial conditions, which in turn, can lead to a slowing in economic activity,’ Kaplan wrote. ‘Measures of stock market volatility are historically low. We have now gone 12 months without a 3% correction in the U.S. market.,’ he added. ‘This is extraordinarily unusual.'”

November 29 – Reuters (Ann Saphir): “The Federal Reserve should keep raising interest rates over the next couple of years, including about four times between now and the end of 2018, San Francisco Federal Reserve President John Williams said… ‘From today, four rate hikes through the end of next year is still kind of my base view,’ Williams told reporters… Williams rotates into a voting spot on the Fed’s policysetting panel next year. ‘We need to get from here to roughly 2.5% fed funds rate over the next couple of years.'”

One regional Fed president addressing stock market excesses and another talking four additional rate hikes before the end of next year. Whether monitoring the securities markets or economic data, the case for actual interest rate normalization gets stronger by the week. It’s worth noting that October New Home Sales blew away estimates to reach a 10-year high. Housing inventory remains tight and builders are getting gear up. A stronger-than-expected November reading from the Conference Board pushed Consumer Confidence to a new 17-year high. Q3 GDP was revised up to 3.3% annualized. The manufacturing sector remains strong and auto sales resilient (above 17 million SAAR).

Ten-year Treasury yields traded as high as 2.43% Thursday afternoon. Five-year yields rose to 2.17% Thursday, the high going back to March 2011. Longer Treasury yields have for the most part ignored the almost 50 bps rise in two-year yields over the past several months. It was interesting to watch 10-year Treasury yields drop a quick 10 bps Friday morning on reports of Michael Flynn’s plea agreement (and the Dow’s quick 380 decline). While stocks have grown content to disregard risk, Treasury bonds seem to embrace the Bubble Thesis – and trade as if trouble is right around the corner.

And speaking of trouble… U.S. markets fixated on tax cuts have been all too happy to ignore developments in China. Officials are taking an increasingly aggressive posture in reining in lending. In particular, Beijing is targeting the enormous “wealth management product” complex and the booming Internet lending industry. Liquidity has tightened, especially the corporate bond market (“Worst China Bond Rout Since 2013”). Are Chinese officials finally getting serious about their Credit Bubble? (See “China Watch” below)

The Shanghai Composite was down another 1.1% this week, with a 3.9% drop since the highs on November 14. China’s CSI index was down 2.6% this week. Chinese growth and tech stocks have been under notable pressure the past two weeks. Yet equities weakness was not limited to China. South Korean stocks fell 2.7%, and India’s equities lost 2.5%. Both Brazilian and Russian equities were hit for 2.6%. The emerging markets, in general, notably underperformed this week. European equities were also under pressure again this week. Could it be that Credit tightening in China is initiating a global bear market, only Bubbling U.S. equities haven’t figured it out yet?

November 24 – Reuters (Gaurav S Dogra): “For years China’s top officials have touted their ambitious policy priority to wean the world’s second-largest economy off high levels of debt, but there is not much to show for it. On the contrary, a Reuters analysis shows the debt pile at Chinese firms has been climbing in that time, with levels at the end of September growing at the fastest pace in four years. The build-up has continued even as policymakers roll out a series of measures to end the explosive growth of debt, including persuading state firms and local governments to prune borrowing and tighter rules and monitoring of banks’ short-term borrowing… Reuters analysis of 2,146 China listed firms showed their total debt at the end of September jumped 23% from a year ago, the highest pace of growth since 2013. The analysis covered three-fifths of the country’s listed firms…”

For the Week:

The S&P500 rose 1.5% (up 18.0% y-t-d), and the Dow jumped 2.9% (up 22.6%). The Utilities gained 0.9% (up 15.4%). The Banks surged 5.8% (up 14.0%), and the Broker/Dealers jumped 4.5% (up 26.5%). The Transports surged 5.9% (up 12.6%). The S&P 400 Midcaps advanced 1.9% (up 14.1%), and the small cap Russell 2000 gained 1.2% (up 13.3%). The Nasdaq100 declined 1.1% (up 30.3%). The Semiconductors sank 6.2% (up 38.9%). The Biotechs added 0.9% (up 38.4%). With bullion down $8, the HUI gold index fell 1.2% (up 1.9%).

Three-month Treasury bill rates ended the week at 124 bps. Two-year government yields increased three bps to 1.77% (up 58bps y-t-d). Five-year T-note yields gained five bsp to 2.11% (up 19bps). Ten-year Treasury yields rose two bps to 2.36% (down 8bps). Long bond yields were unchanged at 2.76% (down 30bps).

Greek 10-year yields rose seven bps to 5.37% (down 165bps y-t-d). Ten-year Portuguese yields declined six bps to 1.88% (down 186bps). Italian 10-year yields dropped 10 bps to 1.72% (down 10bps). Spain’s 10-year yields fell seven bps to 1.42% (up 4bps). German bund yields were down six bps to 0.31% (up 10bps). French yields dropped nine bps to 0.61% (down 7bps). The French to German 10-year bond spread narrowed three to 30 bps. U.K. 10-year gilt yields dipped two bps to 1.23% (down 2bps). U.K.’s FTSE equities dropped 1.5% (up 2.2%).

Japan’s Nikkei 225 equities index gained 1.5% (up 19.4% y-t-d). Japanese 10-year “JGB” yields added a basis point to 0.035% (down 1bp). France’s CAC40 fell 1.4% (up 9.3%). The German DAX equities index dropped 1.5% (up 12.0%). Spain’s IBEX 35 equities index added 0.3% (up 7.8%). Italy’s FTSE MIB index fell 1.4% (up 14.9%). EM markets were mostly lower. Brazil’s Bovespa index sank 2.6% (up 20.0%), and Mexico’s Bolsa fell 1.4% (up 3.6%). India’s Sensex equities index dropped 2.5% (up 23.3%). China’s Shanghai Exchange lost 1.1% (up 6.9%). Turkey’s Borsa Istanbul National 100 index declined 1.1% (up 33.8%). Russia’s MICEX equities index sank 2.6% (down 5.7%).

Junk bond mutual funds saw inflows of $310 million (from Lipper).

Freddie Mac 30-year fixed mortgage rates slipped two bps to 3.90% (down 18bps y-o-y). Fifteen-year rates fell two bps to 3.30% (down 4bps). Five-year hybrid ARM rates jumped 10 bps to 3.32% (up 4bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-yr fixed rates down a basis point to 4.13% (up 4bps).

Federal Reserve Credit last week declined $4.1bn to $4.406 TN. Over the past year, Fed Credit fell $5.0bn. Fed Credit inflated $1.587 TN, or 56%, over the past 264 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt jumped $15.0bn last week to $3.387 TN. “Custody holdings” were up $261bn y-o-y, or 8.3%.

M2 (narrow) “money” supply slipped $3.9bn last week to $13.774 TN. “Narrow money” expanded $595bn, or 4.5%, over the past year. For the week, Currency increased $2.6bn. Total Checkable Deposits rose $15.2bn, while Savings Deposits dropped $19.6bn. Small Time Deposits were little changed. Retail Money Funds dipped $1.8bn.

Total money market fund assets jumped $38.1bn to $2.799 TN. Money Funds rose $80bn y-o-y, or 2.9%.

Total Commercial Paper rose $14.2bn to $1.043 TN. CP gained $119bn y-o-y, or 12.9%.

Currency Watch:

The U.S. dollar index was little changed at 92.885 (down 9.3% y-t-d). For the week on the upside, the South African rand increased 3.1%, the British pound 1.1%, the Swiss franc 0.3%, the New Zealand dollar 0.2% and the Canadian dollar 0.2%. For the week on the downside, the Norwegian krone declined 1.9%, the Swedish krona 0.8%, the Brazilian real 0.8%, the Japanese yen 0.6%, the Mexican peso 0.4%, the euro 0.3%, and the South Korean won 0.1%. The Chinese renminbi declined 0.22% versus the dollar this week (up 5.0% y-t-d).

Commodities Watch:

The Goldman Sachs Commodities Index slipped 0.4% (up 7.8% y-t-d). Spot Gold declined 0.6% to $1,281 (up 11.1%). Silver sank 4.1% to $16.388 (up 2.6%). Crude declined 59 cents to $58.36 (up 8.4%). Gasoline dropped 2.6% (up 4%), while Natural Gas surged 8.8% (down 18%). Copper dropped 3.1% (up 23%). Wheat rallied 0.9% (up 8%). Corn gained 1.1% (up 2%).

Trump Administration Watch:

November 28 – Reuters (Josh Smith): “North Korea said on Wednesday it had successfully tested a new type of intercontinental ballistic missile (ICBM), called Hwasong-15, that could reach all of the U.S. mainland… “If (today’s) numbers are correct, then if flown on a standard trajectory rather than this lofted trajectory, this missile would have a range of more than 13,000 km (8,100 miles),” the U.S.-based Union of Concerned Scientists said… That would suggest that all of the continental United States including Washington D.C. and New York could be theoretically within range of a North Korean missile.”

December 1 – Wall Street Journal (Richard Rubin, Siobhan Hughes and Kristina Peterson): “The Senate was poised to pass sweeping revisions to the U.S. tax code early Saturday after Republicans navigated a thicket of internal divisions over deficits and other issues to place their imprint on the economy. The bill, which included about $1.4 trillion in tax cuts, would lower the corporate tax rate from 35% to 20%, reshape international business tax rules and temporarily lower individual rates. It also touched other Republican goals, including opening the Arctic National Wildlife Refuge to oil drilling and repealing the mandate that individuals purchase health insurance, punching a sizable hole in the 2010 Affordable Care Act.”

December 1 – New York Times (Michael D. Shear and Adam Goldman): “President Trump’s former national security adviser, Michael T. Flynn, pleaded guilty on Friday to lying to the F.B.I. about conversations with the Russian ambassador last December, becoming the first senior White House official to cut a cooperation deal in the special counsel’s wide-ranging inquiry into election interference.”

November 28 – Financial Times (Shawn Donnan): “The Trump administration launched a fresh trade attack against China on Tuesday, with Washington initiating an anti-dumping investigation against a major trading partner for the first time in more than a quarter century. The move to ‘self-initiate’ an anti-dumping investigation into imports of aluminium sheeting from China marks the first time since 1985 that the US Commerce Department has launched its own investigation without a formal request from industry. The last case was brought by the Reagan administration against Japanese semiconductor imports… A parallel investigation launched on Tuesday into illegal subsidies given to the Chinese sheet industry marks the first time since a 1991 Canadian lumber case that the Commerce Department has self-initiated a probe into subsidies. ‘President [Donald] Trump made it clear from day one that unfair trade practices will not be tolerated under this administration,’ said Wilbur Ross, the US Secretary of Commerce. ‘Today’s action shows that we intend to make good on that promise to the American people.'”

November 29 – Reuters: “Opposition has grown among Americans to a Republican tax plan before the U.S. Congress, with 49% of people who were aware of the measure saying they opposed it, up from 41% in October, according to a Reuters/Ipsos poll…”

China Watch:

November 27 – Wall Street Journal (Anjani Trivedi): “Beijing is coming to grips with its Wild West-like financial system — not a moment too soon, many would argue. The jittery market reaction shows just how delicate that operation is going to be. The timing isn’t coincidental. Xi Jinping has solidified his hold on the Chinese government following the recent party congress, giving him leeway to tackle the country’s deep-seated economic problems. Its most serious effort yet to tame the financial system’s risks are the result. The focus of the recent rule changes is China’s 60 trillion yuan (around $9 trillion) asset-management industry. Regulators have homed in on China’s vast sea of so-called wealth- and asset-management products, the highly leveraged products that banks have sold to their customers in recent years, which in turn have fueled frothy domestic bond, stock and commodity markets.”

November 26 – Bloomberg: “It’s been the worst month for China’s local corporate notes in two years. And it might just be the start, as the nation’s top bond fund manager says yield premiums could rise further in 2018. President Xi Jinping is stepping up efforts to trim the world’s largest corporate debt burden, after emerging even more powerful from the Communist Party’s twice-a-decade congress in October. Financial institutions are hoarding cash amid expectations the government will announce more measures to curb leverage, and that is pushing up borrowing costs in the money market.”

November 30 – Wall Street Journal (Shen Hong): “A widening gap between official and market interest rates in China is making it harder for Beijing to use a key policy tool to manage the world’s second-largest economy. Short-term interest rates in China’s money market have persistently been above those set by the central bank in the past year, as investors and banks spooked by the government’s crackdown on the country’s high levels of leverage have charged more to lend both to each other and external borrowers… The interest rate the People’s Bank of China sets on its benchmark seven-day repurchase agreements, its de facto policy rate, has stayed unchanged at 2.45% since March. Meanwhile the corresponding repurchase agreements, or repo, rate that banks charge each other for their own seven-day loans, has risen to 2.93%…”

November 24 – Reuters (Shu Zhang and Josephine Mason): “The National Internet Finance Association of China issued a risk warning letter late on Friday telling ‘unqualified institutions’ to immediately stop offering loans as Beijing steps up a crackdown on the micro-loan sector to fend off financial risks. The 1 trillion yuan ($151.5bn) short-term, unsecured lending sector, known as ‘cash loan’ in China, has been accused of charging exorbitant interest rates and violent debt collection practices.”

Federal Reserve Watch:

November 29 – Bloomberg (Christopher Condon): “The U.S. economy grew at a modest to moderate pace through mid-November as price pressures strengthened and the labor market tightened… The central bank’s Beige Book economic report, based on anecdotal information collected by the 12 regional Fed banks through Nov. 17, said business contacts also reported a brightening view as they look ahead. The findings could help bolster the case for an interest-rate increase when policy makers next meet in two weeks.”

November 29 – CNBC (Jeff Cox): “Federal Reserve Chair Janet Yellen said the central bank is concerned with growth getting out of hand and thus is committed to continuing to raise rates in a gradual manner. ‘We don’t want to cause a boom-bust condition in the economy,’ Yellen told Congress in her semiannual testimony Wednesday.”

U.S. Bubble Watch:

November 27 – Bloomberg (Sho Chandra): “U.S. purchases of new homes unexpectedly advanced in broad fashion last month, reaching the strongest pace in a decade and offering an encouraging signal for residential construction… Single-family home sales rose 6.2% m/m to 685k annualized pace (est. 627k), the highest since Oct. 2007. Supply of homes at current sales rate fell to 4.9 months, the smallest since July 2016.”

November 28 – Bloomberg (Patrick Clark): “U.S. consumer confidence unexpectedly improved in November to a fresh 17-year high, a sign Americans are growing more confident about the economy and labor market… Confidence index rose to 129.5 (est. 124), the best since November 2000, from a revised 126.2 in October… Consumer expectations gauge advanced to 113.3, the strongest reading since September 2000, from 109.”

November 27 – Reuters (Richa Naidu): “Black Friday and Thanksgiving online sales in the United States surged to record highs as shoppers bagged deep discounts and bought more on their mobile devices, heralding a promising start to the key holiday season… U.S. retailers raked in a record $7.9 billion in online sales on Black Friday and Thanksgiving, up 17.9% from a year ago, according to Adobe Analytics…”

November 29 – Bloomberg (Sho Chandra): “The U.S. economy’s growth rate last quarter was revised upward to the fastest in three years on stronger investment from businesses and government agencies than previously estimated… Gross domestic product grew at a 3.3% annualized rate (est. 3.2%), revised from 3%; fastest since 3Q 2014… Business-equipment spending rose at a 10.4% pace, a three-year high, revised from 8.6%; reflects transportation gear.”

November 29 – Bloomberg (Camila Russo, Olga Kharif, and Lily Katz): “Bitcoin plunged as much as 20% hours after a rally past $11,000 generated a surge in traffic at online exchanges that led to intermittent outages. The plunge capped a wild day for the largest cryptocurrency that included a breakneck advance to a high of $11,434 before the reversal took it as low as $9,009.”

November 24 – Bloomberg (Lu Wang): “As Wall Street equity forecasters discharge their annual duty of predicting another up year for the S&P 500 Index, it’s worth taking a moment to notice what would be accomplished should that projection come true. At 2,800, the average estimate of nine strategists tracked by Bloomberg points not only to another year of all-time highs, but also an extension of a bull market that would make it the longest ever recorded. Born in the depths of the financial crisis, the advance that started in March 2009 is nine months away from surpassing the 1990-2000 run from the dot-com era.”

November 29 – Bloomberg (Patrick Clark): “The shortage of listings that has defined the U.S. home sales market in recent years will begin to ease in the second half of 2018, according to a new report, but not before setting a record for consecutive months of decline. Increased inventory will help slow price appreciation, especially at higher price points, according to… That will come as welcome news after the S&P CoreLogic Case-Shiller 20-city index this week showed that prices rose 6.2% in September from a year earlier, the largest increase in more than three years. Inventory has decreased on a year-over-year basis in each of the past 29 months… The longest streak on record is 30 months.”

November 27 – Bloomberg (Joanna Ossinger): “New York City could lose some of its highest-income residents if the tax bill making its way through the U.S. Congress becomes law, according to estimates from Goldman Sachs… Initial analysis suggests that the legislation ‘could eventually lower the number of top-income earners in New York City’ by 2% to 4%, Goldman economists led by Jan Hatzius wrote… The trigger would be a provision that restricts the ability of taxpayers to deduct the levies they pay to state and local authorities, which would disproportionately hit locations with relatively high rates. Home prices across the U.S. might also decline by 1% to 3%.”

November 27 – Bloomberg (Brian K Sullivan): “This year’s U.S. Atlantic hurricane season is officially the most expensive ever, racking up $202.6 billion in damages since the formal start on June 1. The costs tallied by disaster modelers Chuck Watson and Mark Johnson surpass anything they’ve seen in previous years. That shouldn’t come as a complete surprise: In late August, Hurricane Harvey slammed into the Gulf Coast, wreaking havoc upon the heart of America’s energy sector. Then Irma struck Florida, devastating the Caribbean islands on the way. Hurricane Maria followed shortly after, wiping out power to all of Puerto Rico.”

Central Banker Watch:

November 30 – Bloomberg (Alessandro Speciale and Catherine Bosley): “Central banks concerned about the effects of raising rates too fast shouldn’t underestimate the risks of delaying action, the general manager of the Bank for International Settlements said. ‘Postponing normalization too much also has risks,’ [said] Jaime Caruana… ‘Why? Because there is more risk-taking and it’s difficult to know where the risk-taking will go.'”

November 29 – Bloomberg (Jiyeun Lee and Hooyeon Kim): “The Bank of Korea raised its benchmark interest rate for the first time since 2011, marking a likely turning point for Asian central banks. The region faces rising pressure to increase borrowing costs after the Federal Reserve began tightening at the end of 2015 and today’s move in Seoul is the first hike of a benchmark rate by a major central bank in Asia since 2014. Governor Lee Ju-yeol said during a news conference that the decision to raise the seven-day repurchase rate to 1.5% was meant to prevent financial imbalances.”

Global Bubble Watch:

November 29 – Bloomberg (Sofia Horta E Costa): “A prolonged bull market across stocks, bonds and credit has left a measure of average valuation at the highest since 1900, a condition that at some point is going to translate into pain for investors, according to Goldman Sachs… ‘It has seldom been the case that equities, bonds and credit have been similarly expensive at the same time, only in the Roaring ’20s and the Golden ’50s,’ Goldman Sachs International strategists including Christian Mueller-Glissman wrote… ‘All good things must come to an end’ and ‘there will be a bear market, eventually’ they said.”

November 29 – Bloomberg (Sofia Horta E Costa): “Investors may only have seven months left to savor a bull run that has added $27 trillion to global equity markets this year, say Credit Suisse Group AG strategists. While they predict economic growth and steady profits will help add another 6% to the MSCI All-Country World Index by mid-2018, stocks are unlikely to push any higher after that. Risks that could make the second half ‘more difficult’ include a flare-up in junk debt markets, China’s tightening policy and accelerating wages in the U.S, according to a Nov. 28 note.”

November 27 – Bloomberg (Kana Nishizawa, Lianting Tu, and Narae Kim): “The selloff in China’s debt market is a precursor for what global bond traders can expect as reflation gets underway, according to Sean Darby, chief global strategist of Jefferies Group LLC’s Hong Kong unit. While declines in Chinese debt have been exacerbated by a crackdown on shadow banking and attempts to curb corporate borrowing, Darby says global yields are set to follow suit as markets start to price in tighter monetary policy by central banks and as China exports inflation. China ‘was the first one really to reflate from 2016,’ Darby told Bloomberg… ‘Expansion of essentially quantitative easing by the People’s Bank of China is in one sense also being reversed as the yield starts to shift upwards.”

November 30 – Bloomberg (Brian Chappatta): “For all the hullabaloo around the flattening U.S. yield curve in November, the 10-year yield is still on track for its least turbulent month in almost four decades. The note’s yield, which serves as a benchmark for everything from U.S. mortgages to borrowing costs for municipalities, fell in November to as low as 2.3% and topped out at 2.41%. That’s the narrowest range since 1979. Even with volatility largely suppressed, the rate has swung about 32 bps on average every month over the past five years.”

November 28 – Bloomberg (Andrew Janes): “There’s ‘somewhat of a numbness’ to risk among investors right now that’s reminiscent of pre-crisis periods in the past, according to Olivier d’Assier, head of applied research for Asia Pacific at Axioma Inc. …d’Assier… points to the lack of reaction to the recent jump in the Chicago Board Options Exchange’s SPX Volatility Index. The gauge, known as the VIX index, surged from 10.18% at the end of October to as high as 14.51% on Nov. 15, a three-month intraday high. ‘A couple of years ago, when there was a 6, 9, 10% increase in the VIX Index, everybody panicked,’ he said. But ‘nobody cared, everybody jumped in’ when the measure shot up this month, d’Assier said.”

Fixed Income Bubble Watch:

November 27 – Financial Times (Joe Rennison and Robert Smith): “Investors are driving a revival of structured credit products that were a hallmark of the boom years before the financial crisis, as slumbering global bond yields spur a greater tolerance of risk in the search for returns. The sale of collateralised loan obligations — bonds that group together leveraged loans made to companies — has already past $100bn of new issuance for 2017, well ahead of the $60bn sold over the same period in 2016 and approaching the post-crisis record of $124bn set in 2014. Traders and analysts say foreign investors out of Asia and Europe, alongside domestic insurance companies, generally favour senior CLO tranches… Global pension funds and hedge funds are said to be driving demand for riskier tranches that promise a higher return than current fixed returns available from owning US high-yield bonds.”

Europe Watch:

November 28 – Financial Times (Shawn Donnan): “The ramifications of the European Central Bank’s massive bond purchases in recent years register acutely for insurance companies and pension funds alongside other traditional buyers of top tier debt. Over the past three years, the ECB’s bond purchases have sucked more than €2tn of debt out of Europe’s publicly traded markets, and an estimated €760bn, or nearly a third, of these bonds are triple A rated… Joe McConnell, a portfolio manager in the global liquidity group at JPMorgan Asset Management, argues that there has been no issue ‘getting fully invested’ but that returns have been clearly affected. ‘The main impact of QE has been driving yields lower,’ he said, adding that the yields on ‘pretty much everything’ in the money market universe are negative. Alongside a reduction in the outstanding universe of highly-rated assets, the sheer volume of purchases has placed huge downward pressure on bond yields. In turn, that leaves investors having to accept higher levels of credit and interest rate risk in order to generate reasonable returns.”

November 29 – Bloomberg (Alessandro Speciale): “German inflation accelerated more than anticipated in November, in a sign that robust growth in Europe’s largest economy may be translating into higher prices. Consumer prices rose an annual 1.8%… That’s faster than October’s 1.5% and beats the 1.7% median forecast…”

Japan Watch:

November 26 – Financial Times (Gavyn Davies): “The five year term of Bank of Japan Governor Kuroda will end in April 2018. As one of Prime Minister Abe’s key lieutenants, it had been widely assumed that he will be reappointed to a second term, and that his aggressive programme of monetary expansion will be maintained at least until inflation has over-shot the Bank’s 2% target. This had become one of the fixed points in consensus expectations for global asset prices in 2018. Last week, however, these strong assumptions came into question for the first time. The yen rose as investors paid attention to Governor Kuroda’s recent speech in Zurich, which specifically noted some of the risks associated with the policy commitment to fix the 10 year government bond yield at zero… This was followed by some hawkish press ‘guidance’, allegedly from within the central bank. Then, new BoJ Board member Hitoshi Suzuki followed the Governor with a much clearer signal that this so-called Yield Curve Control (YCC) could be watered down next year. If so, it would be the first sign of that the central bank may be contemplating the normalisation of interest rates, albeit with Japanese characteristics.”

November 27 – Reuters (Leika Kihara and Tetsushi Kajimoto): “Bank of Japan Governor Haruhiko Kuroda said… that a ‘reversal rate,’ or the level where interest rate cuts by a central bank could hurt the economy, helps the BOJ understand the appropriate shape of the yield curve. ‘It’s a theory that helps us understand the appropriate shape of the yield curve,’ Kuroda told parliament… Kuroda referred to an academic study on the reversal rate in a speech earlier this month, adding to recent growing signals from the BOJ that it could edge away from crisis-mode stimulus earlier than expected.”

November 27 – Financial Times (Robin Harding): “Japanese companies are scouring the country for workers and offering more attractive permanent contracts as they struggle to overcome the worst labour shortages in 40 years. Companies across a range of sectors — from construction to aged care — have warned in recent days that a lack of staff is starting to hit their business. The hiring difficulties highlight Japan’s declining population and the strength of its economy after five years of economic stimulus… ‘Delays to construction projects are becoming chronic,’ said Motohiro Nagashima, president of Toli Corporation, one of Japan’s biggest makers of floor coverings.”

Emerging Market Watch:

November 29 – Financial Times (Kate Allen): “Emerging market countries, banks and companies are selling long-dated debt in record volumes as investors’ search for yield pushes them to expand their appetite for risk. With markets set to remain open for business for another couple of weeks before winding down to year-end, syndicated sales of paper with maturities of 10 years and more has hit a record high in emerging economies, topping $500bn for the first time according to… Dealogic… Around a third of the total finance raised came from sovereigns and related entities, while 37% came from EM corporates and a quarter from financial institutions… Ultra-low interest rates in developed economies have channelled a wave of money towards higher-yielding assets, pushing up prices in EMs.”

November 28 – Wall Street Journal (Patrick Clark): “The debt woes of one of India’s leading wireless carriers Reliance Communications Ltd. have deepened this week thanks to an unlikely new source of pressure — a leading state-owned Chinese bank. It emerged late Monday that China Development Bank, a policy bank which often helps fund Chinese companies’ investments overseas, had late last week filed a petition for Reliance… to be declared insolvent. The move is highly unusual. Only once before in recent times has a foreign lender requested an Indian company to be declared insolvent. However, China Development Bank is one of RCom’s biggest lenders, having invested some $2 billion in the company’s debt since 2010.”

Leveraged Speculation Watch:

November 30 – Financial Times (Robin Wigglesworth): “A divergence in performance among quantitative hedge funds has caught the eye of investors. In a year where many such funds that surf market trends have disappointed, some of their more daring cousins have clocked up juicy returns trading everything from electricity to cheese prices. Computer-powered trend-following hedge funds… have enjoyed robust inflows in recent years… But their performance has been mediocre recently, gaining about 2% on average this year, according to a Societe Generale index. However, a batch of hedge funds that trade less liquid, more exotic markets have clocked up attractive double-digit returns. These vehicles eschew mainstream markets and attempt to ride trends in areas such as Brazilian and Czech interest rate derivatives, natural gas, uranium funds and even cheese and milk contracts.”

Doug Noland

Doug Noland
Credit Bubble Bulletin

Doug Noland

I just wrapped up 25 years (persevering) as a “professional bear.” My lucky
break came in late-1989, when I was hired by Gordon Ringoen to be the trader
for his short-biased hedge fund in San Francisco. Working as a short-side
trader, analyst and portfolio manager during the great nineties bull market
– for one of the most brilliant individuals I’ve met – was an exciting, demanding
and, in the end, a grueling and absolutely invaluable learning experience.
Later in the nineties, I had stints at Fleckenstein Capital and East Shore
Partners. In January 1999, I began my 16 year run with PrudentBear, working
as strategist and portfolio manager with David Tice in Dallas until the bear
funds were sold in December 2008.

In the early-nineties, I became an impassioned reader of The Richebacher Letter.
The great Dr. Richebacher opened my eyes to Austrian economics and solidified
my lifetime passion for economics and macro analysis. I had the good fortune
to assist Dr. Richebacher with his publication from 1996 through 2001.

Prior to my work in investments, I worked as a treasury analyst at Toyota’s
U.S. headquarters. It was working at Toyota during the Japanese Bubble period
and the 1987 stock market crash where I first recognized my love for macro
analysis. Fresh out of college I worked as a Price Waterhouse CPA. I graduated
summa cum laude from the University of Oregon (Accounting and Finance majors,
1984) and later received an MBA from Indiana University (1989).

By late in the nineties, I was convinced that momentous developments were
unfolding in finance, the markets and policymaking that were going unrecognized
by conventional analysis and the media. I was inspired to start my blog,
which became the Credit Bubble Bulletin, by the desire to shed light on these
developments. I believe there is great value in contemporaneous analysis,
and I’ll point to Benjamin Anderson’s brilliant writings in the “Chase Economic
Bulletin” during the Roaring Twenties and Great Depression era. Ben Bernanke
has referred to understanding the forces leading up to the Great Depression
as the “Holy Grail of Economics.” I believe “The Grail” will instead be
discovered through knowledge and understanding of the current extraordinary
global Bubble period.

Disclaimer: Doug Noland is not a financial advisor nor is he providing investment
services. This blog does not provide investment advice and Doug Noland’s comments
are an expression of opinion only and should not be construed in any manner
whatsoever as recommendations to buy or sell a stock, option, future, bond,
commodity or any other financial instrument at any time. The Credit Bubble
Bulletins are copyrighted. Doug’s writings can be reproduced and retransmitted
so long as a link to his blog is provided.

Copyright © 2015-2017 Doug Noland

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Published at Sat, 02 Dec 2017 07:07:29 +0000

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What Goes Up…


What Goes Up…


It’s FOMC day and after Bill Dudley apparently muttered something about Bitcoin crypto currencies across the board exploded higher. BTC right now is pushing > 11,200 and there’s no doubt that it’ll be at 20,000 by the end of the day and 1,000,000 by Friday. Alright I may be using a bit of sarcasm here but I assure you that it’s not out of butt hurt (as I’m still holding a few coins) but due to tragically being equipped at birth with common sense and even worse, a relatively functioning memory of financial and human history. I know, it sucks to be me but someone’s got to carry that burden.

And yes I do in fact do birthday parties but not in clown suits, so don’t get your hopes up GoldGerb. Now, I’m don’t even know if anyone is going to be reading this post today as everyone is probably too busy buying BTC at 11,000, right?

Alright, enough with the crypto bashing. Y’all know I’m on board with crypto but I’m definitely not on board with buying into exponential charts. Because there’s not enough vaseline on this great earth to soothe the latex claden finger of God that is heading toward the crypto market. It’ll be ugly and painful, but for a few stainless steel rats with foresight and a bit of patience it will be most glorious.


Now since it’s FOMC day let’s do a quick momo update, shall we? Equities are clearly jealous of crypto currencies and don’t want to play second fiddle when it comes to short squeezes. Breadth on the SPX remains in elevated territory but by no means does it signal a reversal on the horizon. Plus the most recent one was simply ignored.


The CPCE has been locked in a small range since the summer, suggesting that the bears pretty much have thrown in the towel at this point. And who could blame them? No worries, eventually there will be a price to be paid but judging by similar conditions throughout the first half of 2015 it seems the current squeeze higher may continue unabated for a while.


The VIX is telling a similar story. My IV expansion chart is showing us in a range comparable to that of 2013 through mid 2014. Meaning no extreme levels, just a slow churn higher without giving the bears anything they could sink their claws into. What we want to see here is a clear breach < -40 followed by a few closes > the 0 mark. Don’t get your hopes up though as it may be a while…

If you’re warmed then join me in the lair for the good stuff…


It’s not too late – learn how to consistently bank coin without news, drama, and all the misinformation. If you are interested in becoming a subscriber then don’t waste time and sign up here. The Zero indicator service also offers access to all Gold posts, so you actually get double the bang for your buck.

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Published at Wed, 29 Nov 2017 15:00:14 +0000

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Thursday: Unemployment Claims, Personal Income and Outlays, Chicago PMI


Thursday: Unemployment Claims, Personal Income and Outlays, Chicago PMI

by Bill McBride on 11/29/2017 08:55:00 PM

• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for 240 thousand initial claims, up from 239 thousand the previous week.

• Also at 8:30 AM, Personal Income and Outlays for October. The consensus is for a 0.3% increase in personal income, and for a 0.3% increase in personal spending. And for the Core PCE price index to increase 0.2%.

• At 9:45 AM, Chicago Purchasing Managers Index for November. The consensus is for a reading of 64.0, down from 66.2 in October.

Published at Thu, 30 Nov 2017 01:55:00 +0000

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Dow soars 256 points on tax plan, Jerome Powell hearing

Dow soars 256 points on tax plan, Jerome Powell hearing


The incredible stock market rally keeps getting better. Wall Street’s latest cause for celebration: Progress on tax cuts and a fine debut performance for Fed chief nominee Jerome Powell.

The Dow soared another 256 points to fresh record highs on Tuesday, notching its best day since September 11. The S&P 500 and Nasdaq also landed at all-time highs yet again.

Powell, President Trump’s pick to replace Janet Yellen at the Federal Reserve, put the market in a good mood early in the day.

Speaking at his Senate confirmation hearing, Powell signaled support for raising interest rates at only a gradual pace. The former investment banker expressed a desire for “appropriate ways” to ease rules on banks, while keeping most post-crisis reforms intact.

“Jerome Powell kicked things off by saying he’s not going to rock the boat at all,” said Ryan Detrick, senior market strategist at LPL Financial.

Powell’s talk of higher rates and lighter regulation helped spark another rally for bank stocks. Citigroup(C), Bank of America(BAC) and Wells Fargo(WFC) all rose sharply.

“Powell brings certainty. Banks haven’t known what’s going to come at them next for some time. Lawsuits, fines, more regulation,” said Steve Chiavarone, portfolio manager at Federated Investors.

Some investors may have also been relieved Powell didn’t wade into the tax debate in Congress. The Fed nominee declined to share his views on the tax bill’s impact on the economy.

U.S. stocks hit session highs after the GOP tax bill cleared a key hurdle by narrowly advancing through the Senate Budget Committee.

Wall Street is betting the Republican tax overhaul will boost the stock market by allowing businesses to save on what they owe Uncle Sam. The Senate plan calls for slashing the corporate tax rate in 2019 to 20% from the current level of 35%.

Enthusiasm for the tax news was evidenced by strong gains for small-cap stocks, which are thought to be bigger winners in tax reform because they tend to pay higher taxes. The Russell 2000, an index of mostly small companies, soared 1.5%.

Investors were dealt a brief scare early in the afternoon when North Korea launched an intercontinental missile. The S&P 500 briefly flatlined on the news before rebounding when it became clear the missile did not pose a threat to the U.S. or allies.

Including Tuesday’s big gains, the Dow is now up 21% since Trump’s election last year. The Nasdaq has soared 28%.

Not only that, but the stock market has experienced record calm. The S&P 500 is in the midst of its longest rally without a 3% slump ever, according to Bespoke Investment Group.

All of that has raised concern among some that stocks have become too expensive and are overdue for a pause.

“Valuations do look stretched,” said Kate Warne, investment strategist at Edward Jones.

She said that elevated stock prices likely indicate future returns may be more muted.

“While it’s good news that stocks keep going up, don’t expect the double-digit returns to continue,” Warne said.

–CNNMoney’s Paul R. La Monica and Donna Borak contributed to this report.

Published at Tue, 28 Nov 2017 21:20:02 +0000

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UBS exits recruiting pact, following Morgan Stanley

The logo of Swiss bank UBS is seen on a building in Zurich, Switzerland December 19, 2012. REUTERS/Michael Buholzer/File Photo

UBS exits recruiting pact, following Morgan Stanley

NEW YORK (Reuters) – UBS Group AG’s Wealth Management Americas said on Monday it was quitting a 13-year-old recruiting agreement that ended the practice of suing brokers who quit for jobs at competing firms, following a similar move by rival Morgan Stanley last month.

In an email to the firm’s nearly 10,000 brokers, UBS Wealth Management Americas President Tom Naratil said his priority was for current advisers to increase productivity, “not recruiting advisers from our competitors.”

The agreement, called the Broker Protocol, was struck in 2004 between Smith Barney, Merrill Lynch and UBS, then called UBS Financial Services. It allowed brokers to take certain client information with them to new jobs, which they used to call clients and invite them to move their accounts.

In recent years, the wealth management industry has splintered, and boutique, independent investment firms now compete with the industry’s largest firms for the same brokers and clients.

More than 1,600 firms have signed the agreement, meaning firms both large and small have equal protection to recruit top brokers and their wealthy clients without fear that the former firm will try to legally stop that.

Last year, UBS announced it was pulling back on recruiting, triggering similar reactions at other firms.

UBS will no longer be subject to the protocol starting on Friday, Naratil said.

Reporting By Elizabeth Dilts; Editing by Andrew Hay

Published at Mon, 27 Nov 2017 18:35:31 +0000

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Tuesday: Case-Shiller House Prices, Richmond Fed Mfg, Jerome Powell Fed Nomination Hearing


Tuesday: Case-Shiller House Prices, Richmond Fed Mfg, Jerome Powell Fed Nomination Hearing

by Bill McBride on 11/27/2017 07:45:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Flat as Markets Get Back to Business

Mortgage rates were almost perfectly unchanged today as markets returned to full force following the extended Thanksgiving break [30YR FIXED – 4.0%]. Bond markets (which dictate mortgage rate momentum) had been consolidating in a narrower and narrower range in the weeks leading up to Thanksgiving. While it’s safe to assume that we’ll see a bigger move in the coming weeks, today didn’t deliver.

The volatility is widely expected to result from the tax reform process. The Senate will begin debate this week, but don’t expect anything conclusive until mid-to-late December. Markets are ready to react to success (which would be bad for rates) or failure (which would be good), and will move in the direction of those results to whatever extent one seems more likely than the other.

• At 9:00 AM ET, FHFA House Price Index for September 2017. This was originally a GSE only repeat sales, however there is also an expanded index.

• Also at 9:00 AM, S&P/Case-Shiller House Price Index for September. The consensus is for a 6.2% year-over-year increase in the Comp 20 index for September.

• At 9:45 AM, Testimony, Fed Governor Jerome Powell, Nomination Hearing, Committee on Banking, Housing, and Urban Affairs, U.S. Senate

• At 10:00 AM, Richmond Fed Survey of Manufacturing Activity for November. This is the last of the regional surveys for November.

Published at Tue, 28 Nov 2017 00:45:00 +0000

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The Precious Metals Bears’ Fear of Fridays

The Precious Metals Bears’ Fear of Fridays

By: Dimitri Speck | Thu, Nov 23, 2017

In the last issue of Seasonal Insights I have shown that the gold price behaves quite peculiarly in the course of the trading week. On average, prices rise almost exclusively on Friday. It is as though investors in this market were mired in deep sleep for most of the week.

Upon this I received a plethora of inquiries from readers regarding the corresponding moves in silver.

Thus I examine the behavior of the silver market on individual days of the week in this issue of Seasonal Insights.

The Pattern in Silver by Days of the Week

First let us explore the performance of silver by days of the week.

The black bar in the illustration below shows the annualized performance of silver in USD since 2000, the blue bars show its annualized performance on individual days of the week over the same time period.

I have measured the daily returns from one daily closing price to the next during COMEX trading hours; e.g. the Tuesday performance shows the average percentage change from the close on Monday to the close on Tuesday.

Silver, performance by days of the week, 2000 to 2017

In the silver market, Friday is an outstandingly strong day as well – it positively glitters.

Source: Seasonax

As you can see, Friday stands out quite positively in silver as well. It achieved an average annualized gain of 7.32%, which was even stronger than the corresponding 6.83% gain in gold!

In contrast to the gold market, the average moves in the remaining days of the week were greater as well, especially on Tuesdays, which generated an average decline of 4.69%.

In short, anomalies related to individual days of the week are quite pronounced in the silver market as well.

These patterns were measured over a span of 4,585 trading days, which suggests that they are not random occurrences.

The Days of the Week Under the Magnifying Glass

How exactly did these patterns evolve over time? The next chart shows the indexed returns on silver since the turn of the millennium in gray, and the cumulative returns achieved on specific days of the week in other colors.

Silver, cumulative performance by days of the week, 2000 – 2017

Overall, a steady uptrend was in evidence on Fridays.

Source: Seasonax

As the chart illustrates, the blue line that depicts the cumulative performance on Fridays has risen quite steadily over almost the entire 17 year span.

The remaining days of the week by contrast generated nothing but losses in quite a few years.

The main conclusion is that a potentially exploitable intra-week pattern exists in the silver market.

It is worth noting that the relative uniformity of the patterns in precious metals on individual days of the week is in stark contrast with their annual seasonality. As can be easily ascertained with Seasonax, the annual seasonal trend in gold differs significantly from that in silver.

Take Advantage of Statistical Anomalies in Gold and Silver!

As this study clearly shows: anomalous patterns in the performance of precious metals on individual days of the week are very pronounced. To see the corresponding anomalies in the gold market and the HUI Index, take a look at the last issue of Seasonal Insights. Traders, investors and dealers alike can take advantage of these patterns and quickly find statistical anomalies in other markets with the Seasonax app available on Bloomberg and Thomson-Reuters. While nothing is ever guaranteed in the markets, you can definitely let probabilities work in your favor.

By Dimitri Speck

Dimitri Speck

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Published at Thu, 23 Nov 2017 10:48:12 +0000

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Market Turning Points – 11/23/2017


Market Turning Points – 11/23/2017

By: Andre Gratian | Thu, Nov 23, 2017

Precision timing for all time frames through a multi-dimensional approach to technical analysis:  Cycles – Breadth – P&F and Fibonacci price projections and occasional Elliott Wave analysis

“By the Law of Periodical Repetition, everything which has happened once must happen again, and again, and again — and not capriciously, but at regular periods, and each thing in its own period, not another’s, and each obeying its own law … The same Nature which delights in periodical repetition in the sky is the Nature which orders the affairs of the earth.  Let us not underrate the value of that hint.” — Mark Twain

Current position of the market

SPX: Long-term trend – The bull market is continuing with no sign of a major top in sight.

 Intermediate trend –  Soon coming to an end.

Analysis of the short-term trend is done on a daily basis with the help of hourly charts.  It is an important adjunct to the analysis of daily and weekly charts which discusses the course of longer market trends

More Correction Ahead?

Market Overview

Cycles and structure are fundamental to price progression in the stock market.  With the 6/7-year cycle making its low in January 2016, the SPX is still in a long-term uptrend.  In addition, the 9-yr cycle bottomed in the fall of 2011 and its half-span, the 4.5-yr cycle, also bottomed in January 2016.  Knowing this, we can understand why the index has remained so strong.  However, some intermediate cycles will soon cause the trend to turn down in what will probably be the best correction since the 1810 low.

Structure is an important adjunct to cycles, and the two are highly synchronized.  Therefore, if a noteworthy, cycle-induced reversal is about to take place, it should not be surprising that a fairly important wave structure is about to be completed.  Although we cannot say precisely to the day when the reversal will take place, we can say with a certain amount of confidence that an intermediate reversal should take place relatively soon, probably in two to three weeks.  Being aware of this, we should be able to pin-point a more exact date with technical indicators, and by the sudden shift in market mood.

Ideally, the correction from 2597 should continue a little longer, and it should be followed by a final rally which may or may not exceed the previous high — although getting to 2600 or slightly above would be ideal.  Note that I used the word “ideal” twice in this paragraph!  Market tops can be tricky

Chart Analysis  (These charts and subsequent ones courtesy of QCharts)

SPX daily chart:

You can see that, over the last couple of weeks, it has not been all buying!  Some profit-taking has taken place, but not enough selling to cause the trend to reverse, just yet.  Buying off the dips is still taking place, and this sends prices right back up.  This is the normal process of distribution which occurs at the top of a trend before supply overcomes demand and the trend is reversed.  It is best seen on a Point & Figure chart, and the larger the pattern, the more important the following decline will be.   Naturally, one has to distinguish between the activity at a genuine top formation and that of accumulation which precedes an extension of the trend.  This is why it is important to know where we are in the market structure, and what cycles will be bottoming just ahead of us.

In addition to our expectation that an important change of trend is about to take place, once the top-building process is complete and we have reversed, we have tools to estimate how deep the correction will be.  We can use the P&F chart pattern that has been created to take a “count” across the formation.  This will give us a good idea of the extent of the coming decline.  It is also possible to take the same measurement by using Fibonacci ratios, based on EWT methodology.  But this is slightly beyond my area of expertise, and I leave it to EWT experts to come up with the right prognosis.

As a warning that we are approaching the expected reversal point, the top momentum oscillator (CCI) has gone negative for the first time since the August low (which was caused by the bottoming of the 40-wk cycle).  As the trend reverses and the correction begins, it should increase its negativity and remain in the red zone for a period of time, until the correction is complete.

SPX hourly chart:

The correction, which started at 1297 on 11/07, appeared to come to an end last Wednesday when a weak opening broke the 2567 level which had served as support on two previous occasions,  causing SPX to decline 10 points lower.  However, a rebound immediately took place and brought prices back above the support level.  After a few hours of consolidation, Thursday saw prices rise sharply above the top of the corrective channel, strongly suggesting that the correction was over by stopping only 7 points below the previous high.  As expected, Friday dipped at the opening into the low of a minor cycle but, although the A/Ds confirmed the cycle low by rising from -600 to 1000, prices remained stagnant, and after trading in a narrow range for most of the day, they dipped below the cycle low by the close.  This causes us to question if the correction is really over!

The cycle may have failed because a higher degree cycle whose low is due in a week is already exerting downward pressure on prices.  If that’s the case, a decline may already have started to retest the recent low and perhaps even go below.  On the other hand, the end of the day weakness may simply have been cautious selling ahead of the weekend.  We’ll know more on Monday.

All three oscillators pretty much followed the contour of prices and ended neutral.  If they go negative on Monday morning, we may be looking at another down-phase of the corrective move from 1297.

An overview of some important indexes (daily charts)

Now that the indices have somewhat stabilized from their initial spell of weakness, we can plainly see the ones that were the most affected.  The two standouts are TRAN (second bottom) and NYA (third top).  The tech sector was the least affected and contributed to the strength in the SPX recovery.  That index will likely not begin a strong correction until the tech sector is ready for it.

UUP (dollar ETF)

UUP is consolidating its recent uptrend.  It will turn into something more if it drops below the blue 55-DMA.

GDX (Gold miners ETF)

The bottoming of the 6-wk cycle only served to keep GDX in the tight, slanted trading range of the past month.  While there was a seeming breakout of the downtrend line on Friday — confirmed by the top indicator (CCI) which turned positive — one cannot expect too much strength to ensue due to the larger cycles that still lie ahead.  Targeting the top of the slanted channel which has been built around the green support line would be a reasonable expectation,

USO (United States Oil Fund)

USO met with resistance where expected.  Some consolidation at this level would be normal, but if it tries to extend its gains right away, more resistance lies immediately ahead.


It is unclear if SPX has concluded its correction from the 2597 level and is now ready for the final up-phase of the rally.  A fairly important – but still minor – cycle low is only a week away and this could extend the correction.

By Andre Gratian

Andre Gratian

Andre Gratian

The above comments about the financial markets are based purely on what I
consider to be sound technical analysis principles uncompromised by fundamental
considerations. They represent my own opinion and are not meant to be construed
as trading or investment advice, but are offered as an analytical point of
view which might be of interest to those who follow stock market cycles and
technical analysis.

I encourage your questions and comments. Please contact me at:

Copyright © 2004-2017 Andre Gratian

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Published at Thu, 23 Nov 2017 13:01:47 +0000

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Wall Street heads lower, tax plan doubts weigh


Wall Street heads lower, tax plan doubts weigh

(Reuters) – Wall Street was set to open marginally lower on Tuesday as worries about Republican tax plans and the economy’s ability to deal with more rises in interest rates weighed on the mood among investors.

Shares in Home Depot held steady while those in off-price retailer TJX dipped after quarterly reports that bore the impact of a violent U.S. hurricane season.

Buffalo Wild Wings surged 26 percent after a report that the restaurant chain had received a takeover bid at about $2.3 billion from private equity Roark Capital Group.

With the quarterly earnings season winding down, the market has halted after its rally to record highs last week.

Investors were waiting for any signs of compromise on U.S. tax policy after Senate Republicans unveiled a plan last week that would cut corporate taxes a year later than a rival House of Representatives’ bill.

“You’re at the end of the earnings season, economic data is all distorted because of the hurricanes, I don’t think there is going to be any clear picture until we get a firm yes or no for the tax bill,” Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.

“We’ll see a bit of back-and-forth, the market’s got to breathe.”

At 8:32 a.m. ET, Dow e-minis were down 38 points, or 0.16 percent, with 27,263 contracts changing hands.

S&P 500 e-minis were down 5 points, or 0.19 percent, with 176,095 contracts traded.

Nasdaq 100 e-minis were down 5.25 points, or 0.08 percent, on volume of 29,520 contracts.

A Labor Department report showed producer prices increased 0.4 percent in October, after similar gains in September. Economists polled by Reuters had a expected a 0.1 percent rise.

In the 12 months through October, the producer price index jumped 2.8 percent, the largest rise since February 2012.

St. Louis Fed President James Bullard said on Tuesday the Fed should keep its benchmark interest rate at current levels until there is an upswing in inflation.

Investors are concerned that a tightening gap between short and long-term U.S. government bond yields suggests the Federal Reserve may be in danger of hiking rates too much and killing longer term inflation and growth.

Reporting by Sruthi Shankar in Bengaluru; Editing by Anil D’Silva


Published at Tue, 14 Nov 2017 14:01:48 +0000

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Is the stock market a bubble?

Is the stock market a bubble?

by Bill McBride on 11/09/2017 10:22:00 AM

Here are a few thoughts on “Is the stock market a bubble?”

First, as long term readers know, I rarely comment directly on the stock market (although I did post on the market in 2009 since that was a turning point).  I’ll be brief here.

Second, I write about the economy, and the stock market is not the economy.  This is usually my first comment to people when they ask about the market.  However – in general – the stock market does well when the economy is expanding, and poorly during economic downturns.

There are exceptions: in 1987, the economy was fine, but the stock market crashed in October 1987.  However the crash followed a very strong rally of over 30% from the beginning of 1987, and the market actually finished up for the year (although well off the peak). There were reasons for the crash – like portfolio insurance – that exacerbated the sell-off.  In addition, there weren’t any trading curbs (aka circuit breakers) in 1987, so the market could fall over 20% in one day.

Note: Some people say the 1987 proposed changes in the tax law – and a new Fed Chair – contributed to the 1987 crash.  Echoes of history?

Third, the general rule is don’t invest based on your political views.  Those who sold, or didn’t buy, because they didn’t like Obama missed an historical rally.  And those who sold, or didn’t buy, because they don’t like Trump missed solid gains this year.

Since I don’t think a recession is imminent, I’d generally expect further gains in the market over the next year. The PE ratio is high (around 25), and that is well above average. However it is typical for the PE ratio to expand during an economic expansion.

As I noted in the Are house prices in a new bubble?, a bubble requires both overvaluation based on fundamentals and speculation. It is natural to focus on an asset’s fundamental value (like the PE ratio), but the real key for detecting a bubble is speculation. Back in the late ’90s, stock speculation was obvious. Not only was margin debt high, but everyone was talking about investing in stocks – especially tech stocks. I knew the bubble was over when my mom called me and asked what “QQQ” stood for (NASDAQ ETF)? All her friends were buying it!  (My shoeshine boy story).

Another possible indicator of speculation is margin debt.

Real S&P500 and Margin DebtClick on graph for larger image.

This graph shows the real S&P 500 (inflation adjusted, right axis), and real NYSE margin debt (left axis).

The high level of margin debt might suggest too much leverage.

The bottom line is the U.S. economy is doing well (the global economy is doing well too).   There might be some speculation with margin debt, but everyone isn’t talking stocks (like in 1999).  So, in general, I don’t think this is a bubble.   Of course, as always, we could see a 10% to 20% correction starting at any time.  I’ll now go back to avoiding discussing the stock market.



Published at Thu, 09 Nov 2017 15:22:00 +0000

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Howard Schultz calls GOP tax plan ‘fool’s gold’


What's in the GOP proposed tax plan
What’s in the GOP proposed tax plan

Howard Schultz calls GOP tax plan ‘fool’s gold’


Many business leaders are cheering the corporate tax cuts proposed by President Trump and the GOP.

And then there’s Howard Schultz.

The Starbucks(SBUX) executive chairman slammed the House Republican tax proposal for being too heavily skewed toward tax cuts, instead of giving the outdated system much-needed reform.

“This is not tax reform. This is a tax cut. This is fool’s gold,” Schultz said on Thursday at the New York Times DealBook Conference in Manhattan.

Schultz, who stepped down as Starbucks CEO this year, said corporate America “does not need” the proposed corporate tax cut from 35% to 20%.

“The tax cut proposal is not going to create a more leveled playing field and a more compassionate society,” he said.

Of course, Schultz, a Democrat who backed Hillary Clinton in 2016, could merely be positioning himself for a long-rumored run for president.

Asked about a bid for the White House, Schultz said he’s “deeply concerned about the country,” but “not thinking today about running for president.”

The Starbucks exec isn’t the only one expressing skepticism about the tax plan. Barclays published a report Wednesday saying the GOP tax plan “is skewed in the direction of tax cuts over reform.” Barclays noted that “tax cuts tend to produce temporary effects, rather than permanent ones.”

The critical comments from Schultz come just hours after Gary Cohn, President Trump’s top economic adviser, talked up the tax plan’s support from big business.

“The most excited group out there are big CEOs,” Cohn told CNBC.

Pushing back against claims that the tax overhaul would only help business and the wealthy, Cohn predicted companies will return to the United States and workers will get a much-needed raise.

“We see the whole trickle-down through the economy, and that’s good for the economy,” he said.

The GOP tax plan has received strong support from the Business Roundtable, an influential group of CEOs that champions pro-business policy. On Tuesday, the organization released a national cable TV ad featuring an Illinois manufacturing company to press for tax reform.

But other powerful lobbying groups are trying to kill the GOP tax bill because it would close or limit deductions they covet. For instance, the real estate industry is warning that the housing market could be hurt by proposed limits on deductions for mortgage interest and state and local property taxes.

Yet Starbucks itself would seemingly benefit from tax cuts. The coffee giant’s effective tax rate last year was 33%, according to Howard Silverblatt at S&P Dow Jones Indices.

Asked what Starbucks would do with savings created by the proposed tax cuts, Schultz said at the DealBook conference that the company would not just add it to its profits.

“We will find other ways to create a contribution back to either the communities we serve, the many initiatives we have about veterans and obviously our people for benefits,” Schultz said.


Published at Thu, 09 Nov 2017 16:58:18 +0000

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Schedule for Week of Nov 5, 2017


Schedule for Week of Nov 5, 2017

by Bill McBride on 11/04/2017 08:11:00 AM

This will be a light week for economic data.

—– Monday, Nov 6th —–

No economic releases scheduled.

—– Tuesday, Nov 7th —–

Job Openings and Labor Turnover Survey

10:00 AM ET: Job Openings and Labor Turnover Survey for September from the BLS.

This graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

Jobs openings decreased in August to 6.082 million from 6.140 in July.

The number of job openings (yellow) were up 11% year-over-year, and Quits were up 2% year-over-year.

10:00 AM: Corelogic House Price index for September.

2:30 PM: Speech by Fed Chair Janet YellenAcceptance Remarks, At the presentation of the Paul H. Douglas Award for Ethics in Government, Washington, D.C.

3:00 PM: Consumer Credit from the Federal Reserve. The consensus is for consumer credit to increase $17.4 billion in September.

—– Wednesday, Nov 8th —–

7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

—– Thursday, Nov 9th —–

8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for 232 thousand initial claims, up from 229 thousand the previous week.

—– Friday, Nov 10th —–

10:00 AM: University of Michigan’s Consumer sentiment index (preliminary for November). The consensus is for a reading of 100.0, down from 100.7 in October.



Published at Sat, 04 Nov 2017 12:11:00 +0000

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