Tuesday, April 28, 2020

Market Does Fine, Without Jobs, Without Economic Activity


Markets continue to soar.  Nothing is going down, with the exception of oil.

Stocks, bonds, precious metals all are maintaining strong levels despite the fact that more than 26 million people have lost their jobs in the past month.

But this is my last call for a sell as we move to the .618 Fib level.  Experts contend that moving above that level can signify a trend change.  Once again, I will have been wrong about this market, just as I have been wrong about the market since 2009.  In the end, it doesn't matter, does it?  In reality, your assets are worthless!


This chart exhibits the level of the M1 money supply.  We can see that since 2009, the money supply has more than tripled.  Has your salary?  Not likely.  Unless you control the means of production, which seems to be shifting more and more to the hands of the government and government cronies, we are all in the same boat.  Any wealth that you believe you might have is an illusion.

The fact that the Federal Reserve has been printing unlimited amounts of money now cannot be denied.  Yet the effects of inflation have yet to be seen in obvious ways like in Venezuela.  But while we are blinded by the reality, that is the inevitable outcome.

Seems that any market analysis is pure folly.  There are no markets anymore.


Here is the cost of money, very close to $0.  Soon, like oil, holders of money will have to pay others to take their money!  Hey, that's what is already happening in Europe!

MONTH ENDS ON THURSDAY


As I discussed in last weekend's writing, we are doing a three month test of the highs, more pronounced in the QQQ instrument that is a proxy for the Nasdaq and tech stocks in general.  In premarket this morning, we are at 217 so a mere 2 points away from the monthly closing high.

The next couple of days will be interesting.  In the end though, whether you win or lose, the money you win or lose is quite worthless.

Saturday, April 25, 2020

Stocks Lose Steam, Latin America Battered


Stocks took a breather this week despite continued monetary stimulation from central banks across the globe.


Gold continued to shine, up over 2% on the week.  Bonds, represented by TLT also did well.  On the year, TLT is up 26%, outpacing Gold by 2X.

Decliners outpaced Advancing issues in my work Adv 55 - Dec 111.  Last week, it was 50/50 and the prior week, there were only 3 decliners.  While the averages are holding higher, the vast majority of stocks are reflecting more of the reality.  No one can possibly predict what is to come next.

Latin America Pains


Looking across the Americas, Latin America was hard hit, led by political turmoil in Brasil along with oil woes faced by Mexico.


Latin American investors are looking at market valuations not seen in decades.


US Sectors


Not much was working in terms of broad based sectors.  But quite a few stocks were doing very well.

As mentioned last week, Wheaton Precious Metals and Franco Nevada shares continued making new highs.




I continue to like and look for more opportunities to buy more should any sell-offs hit.  There is little doubt that even while the market prices of gold and silver continue to disappoint, these shares are getting noticed by buyers.  I have yet to hear anything though on the main stream market channels.  Once the mainstream catches on, the potential for considerably higher prices will be released.


Shining Stars


Healthcare, technology and services led the way but keep in mind that even in these sectors, most stock charts looked lackluster or hitting resistance.

Some of the shares I'd like to display

Scotts Miracle Grow
Basic Materials


Momentum strong, looking as it might take out the highs.  Maybe it's waiting for Michigan seed sales to begin again.

Pool Corp
Consumer Products


Picking up steam here.  Maybe if you can't go to the beach, you need to put in a home pool?


Johnson and Johnson
Healthcare



Healthcare stocks continue to make headlines for a multitude of reasons as corporations race to supply health care works, produce easy to use virus tests, and create vaccines.  Seems that in every event there are winners and losers if you are alert.

Cerner Corp
Technology


Quite a number of stocks in this sector that looked good.  I chose this one to illustrate as it appeared to have good momentum for hitting the highs.  Otherwise, technology overall appears to be highly valued so if you are a value investor, which probably no one is anymore, finding true value is pretty difficult


Other Areas

There was nothing that looked good in the Industrial, Finance and Utility sectors.


What's Coming Next?



Those that have followed me over the years know that I look at 3-period tests of highs and lows to help confirm buy and sell signals.  Over the past 12 years, few sell signals manifested as stocks were in an ever ascending mode.  Terms such as the "Fed Put" always emerged as stocks continued to dazzle the trend followers.

We can see in this chart of QQQ, a proxy for the Tech sector, we are very close to the three month test of the high.  Thursday marks April 30 so next week's report will confirm if stocks are to continue rallying or if a tentative sell is issued.  I find it so interesting when I can watch the market closes around tests of highs and lows.  It's a real concept.  You can see the battle often raging between buyers and sellers at the critical closing price.

One thing that I am cautious about though is that while the January closing price is the highest closing price, prices did go higher in February but then closed lower.  So it's still possible that even if April's closing price was below January's, prices can still go higher in May, testing the ultimate top.

As the QQQ monthly close is but a few points away from January's close, it will be most interesting to see what happens here.  Tech has been the strongest sector by far.

S&P 500 Monthly



The S&P 500 chart is far below January's close so a massive move can be anticipated.  Crazy as it sounds, this is the formation set-up so I'd be cautious about shorting as we anticipate an unfathomable test of the high.

Let's see what happens.

One key dynamic to watch is how much money central banks will be continuing to throw into the economies.  At some point though, the reality of what continued money creation will hit home.  What actually backs currencies?  Is it merely backed by the tax base? the government's ability to service debt?  With interest rates close to 0% and actually negative in other places in the world, Debt servicing may not be such an issue, especially if you are a country that can create more currency to pay that interest.

So many claim that there is no inflation.  Can you really believe that?  Highly educated economists actually say this, inflation is low or there is little chance of inflation.  I can only guess that these individuals earn so much money that the incremental shifts in prices are not noticed.

Last year, I was able to buy grapes for $0.99/lb.  I have not seen them under $1.99 this year.  Same with other produce that I regularly buy.  Apples were $0.49 and now if you can get them for under $1, you've got to stock up.  Plant-based milk was going for $2.29 to 2,49.  At best I'm lucky if I can find 2 for $7 and many places it is up to $4.49.

I don't know if you've looked at home prices.  I have started looking as I am anticipating that real estate will take a nose dive if the pandemic situation does not get resolved quickly.  I'll see a home that is tiny, perhaps a 2 bedroom one bath at most.  Basic basic.  I would think $125K tops?  Nope, try close to $300K.  This is insanity and fueled by all of the monetary stimulus to Federal Reserve has been injecting into the system.  Yes the asset prices go up because the money is there and it has to be invested less it total devalue into nothingness.


What Effect Money Printing?


If we look at the value of the S&P 500 and take into consideration the amount of currency, as measured by M1, we can see that stocks have been going down ever since their peak in 2000

How sad it is that in reality, we are getting trashed.

I often am thinking, what can I do with the money?  Where can you invest it?  Is there any way that one can stay afloat?


USDEBTCLOCK.ORG


Is this reality?

Silver at $2,455an ounce?
Gold at $20.351 an ounce?

Why are prices so depressed?

There are 173 times the amount of physical silver in the silver "paper" market.  88 times in the gold market.

Someday, perhaps not in my lifetime, there will be reality.  Don't really see buying stocks as part of my reality, other than the gold/silver stocks that I had mentioned.

Looking for the tests of the monthly highs this week.  a clear failure, especially in QQQ may spur me on to buy some SDS or SPXS.

Saturday, April 18, 2020


Standard and Poors 500 index continued its rally, advancing some 3% to 2874.56, up almost 85 points on the week.

The advance/decline line went to neutral in my stock universe with 84 advances against 82 decliners.  Last week there were only 3 decliners.

Markets were led by the usual suspects, FANG stocks.  Netflix and Amazon made new highs.  AMD also showed good gains.


When sorted by 10-week gains, I was surprised to see Wheaton Precious Metals leading the lot with a 20% move.  WPM has been one of my core holdings as I focus on precious metals and gold and silver stocks.


Wheaton is a gold and silver streamer.  Basically, it's a middle man that buys from the mines and sells to users.  It wasn't too long ago that the prices of both Wheaton and SLV (silver ETF) were the same.

Wheaton's price has doubled since then as SLV has declined some 10-20% from those levels.

I also like Franco Nevada FNV


Had been hoping for it to drop in price to buy more but like stocks in general, prices have continued to rise.  Notice how these precious metals stocks are making new highs along with only a few of the leading tech stocks.

While I continue to look for some pull back in the precious metals sector, it as it is highly correlated with the movement in stocks in general, it has not provided a hedge to the overall stock market as one would expect in this sector.


Market Possibilities


Still looking for some retracement perhaps testing the lows.  While stocks have continued to rally, the levels still are merely approaching a 50 week moving average and the .618 retracement.  Still is within the realm of a normal retracement.

I was looking at some different wave formations and am open to a new hypothesis.  Previously, I had been looking at the move from the highs as the First wave (A) down in a corrective phase.  Normally, a correction goes through an A-B-C correction phase before continuing along its merry way.  In reviewing a line chart, I was noticing how the last wave up may not have been a normal 5 wave Up move.  It might only been three waves and that would indicate that it might be part of a correction.  Corrective formations often go with a 3-3-3 or 3-3-5 wave count.  As we can see in the above chart, we could have had an a-b-c down for the big A followed by an a-b-c up for the Wave B and now can be on the final C wave.  This could be either an a-b-c or a five wave move down.  Elliott Wave analysis is not predictive but a historical perspective of waves.  Few agree on what the current wave structures are and often, those who have made historical analyses are often required to make revisions based on more recent moves.

So it's all a crap shoot so to speak.  Fundamentally, there is nothing to hang your hat on here.  The chatter is that stocks are looking out one year now but we all know the reality.  The economy is shut down to a large extent, some 20 million people or more have lost their jobs while millions more are in furlough status.  No one can predict what can come and for this reason, I am not currently in anything except for the gold and silver stocks along with a smattering of oil stocks that are horribly cheap.  Whether they will survive or not probably depends on who will win the presidential election in November.  The current president wants to preserve and enhance the oil sector to the point of being a net exporter.  The previous administration shut down coal and was less favorable to the oil industry to the point where law suits were considered over environmental concerns.

And that is more or less how I have been advising people all through the year.  Even at the highs, it seemed pretty likely that some event would happen to try to bring down the stock market in an effort to discredit the current president, who has flaunted the market highs as an indication of his great success.  The bottom line was, if you feel that the president can rebuild the economy quickly, then buy stocks.  It would be a vote for the president.  If you believe that he will fail and will lose the next election, then don't buy stocks.

My lack of conviction in the market is not a vote for or against the president, it is my general opinion that even from the 2009 to 2020 bull run, I have felt that the market is all smoke and mirrors, propped up by Federal Reserve stimulus, Computer-driven market activity, corporate buybacks and even foreign central bank stock buying.  With interest rates paying next to 0 and pensions and insurance companies moving to stocks to generate any kind of return, if the markets falter, the whole system will collapse, including my pensions.  Ugghhh.  I guess that's why I am an advocate of precious metals because if all else fails, and a continued collapse in stock prices might ensure that, what's left?

And the downside even there is that three times in the past, the US government has made it illegal to own gold.  At this point, I shake my head knowing the futility there is in trying to plan for the future.

Ignorance is bliss I suppose.

Tuesday, April 14, 2020

Just Buy What the Fed is Buying


The stock market continued rallying after a brief resistance that the 50% retracement level.

Some are already throwing in the towel admitting that some are just buying what the Fed is buying.  Investing is Dead

This was exactly my point last week in noting that the Fed is now committed to buying corporate bonds, including Exchange Traded Funds that are less than stellar quality.  

The market continues to soar even as the economy is shut down with no idea when it will reopen and what consumer attitudes will be.  It will be a brand new world perhaps.


The irony here in this scene is the continual narrative that we have been hearing for the past 12 years and even longer.  The rich continue to get richer, thriving despite millions of American workers being laid off or furloughed.

The classic tale of two cities.  I remember way back when, I would hear Rick Santelli on CNBC jumping for joy as economic numbers would come in weaker than expected, dropping interest rates further.  This is great for the homeowners, he would exclaim, you can refinance at a lower rate.

Markets would rally across the board, even as they are doing today.  But the economic fundamentals continue to weaken.

What can one do?  I can imagine many are kicking themselves for getting out of the market only to see it come roaring back.  Most certainly it will probably keep roaring on until every last one gets sucked back in.  And who knows, the market can go much higher.


As one theory goes, a 50% correction would be normal.  Basing from the lows of 2009, we came close to a 50% correction, but not quite.  A rebound from the 50% retracement can be expected to move to the -.23 Fib level, above 4000 on SPX.

We can see that Stochastics, the lower indicator, is coming out of a bottom and could start heading up.

Anything is possible I suppose but the markets are being levitated on the same old suspects, the FANG stocks:  Facebook, Amazon, Netflix and Google.


Amazon hit new highs today as did Netflix.


Just as in the past, it's been but a few stocks boosting up the indices.  These are the highly capitalized stocks that have the biggest influence on the market averages.



Compare those to a former market darling, DuPont.  Traditionally one of the bluest of blue chip stocks, DuPont along with other "quality" stocks.



I will stick by my guns and anticipate that a further market decline will play out.  While I don't hold the possible depression scenario that I posted a few weeks back, a normal correction should at least exhibit an A-B-C corrective wave.

At some point, we should get another leg down, retesting the low or breaking through to a lower low.

Still that won't be the end of the world.  I view the move from 2009 to our recent highs as merely a Wave 1 of a 5 wave bullish structure that can carry us higher for at least another decade.

While some states might begin opening up next month, there are going to be quarters to come showing very bad economic numbers.  The emerging optimism is fueled by incredibly massive amounts of Federal Reserve and Treasury Department stimuli.  Markets are pretty much machine run these days and previously, much of the fuel came from corporate buybacks.  Those buybacks may be drying up as those corporations taking the federal stimulus will be restricted from buying back stocks.

Seems certain that earnings will fall and PE ratios, book value and other fundamental metrics will look awful.

_______________________________________________

Bottom line, the market continues to be a casino, a ponzi scheme, a bigger fool theory scam.  I continue to favor cash and gold.  Massive money creation SHOULD result in precious metals prices improving.


Gold continues to surge and broke through to new multi year highs this week.  Gold stocks as well have been soaring, many touching new high levels as well.

Physical gold remains scarce and that which is available is fetching close to a 10% premium over spot price.  Keep in mind, physical metals as well as gold stocks are a tiny market.  If institutional buyers start moving into this area, prices can be expected to surge.


Saturday, April 11, 2020

Fed Returns to Boost Market - Will We Ever Have Reality Again?



Stocks staged a massive rally this week with the S&P 500 rallying more than 300 points or 12.2% from the previous week.  Of special notes, REITS (real estate investment trusts) rallied the sharpest, rising 24%.  Midcap stocks which have been underperforming for quite a while also turned in stellar weeks, with the Midcap (MDY) and Russell 2000 (IWM) rising 18%.





From an industry perspective, all sectors of the market rallied.





 
Basic Materials, a sector that failed to make new highs in the latest market bull thrust, performed best, rising 20.6%.


Closely following was the financial sector, rising sharply on the Federal Reserve Bank’s latest stimulus announcement
Federal Reserve Stimulus - CNN article

I had been paying close attention to a number of exchange-traded funds to gauge the health of the US economy.  It appeared to me that low interest debt had enabled businesses that might have failed in 2008-2009 to remain.  These had often been referred to as Zombie Corporations.  As interest rates continued to fall, businesses were able to issue more and more debt to stay afloat.  Eventually, some event would trigger this debt to default.  It was my thought that when these ETFs started to drop in price, it would be an indication of an impending recession.




One of my proxies for this lower quality debt was an instrument with the ticker symbol JNK.  As the symbol implies, the debt held in this ETF is just that, junk.  You can see that this ETF price fell off a cliff.  There was a real possibility that heavily debt-ridden companies would go bankrupt.  But that reality quickly came to an end as the Fed announced that they would bail out not only quality corporations, but shaky corporations as well as states, counties and likely foreign banks and governments as well.  Soon the Fed will own the entire world.


Other ETFs that the Fed may now be buying include:




If the Federal Reserve Bank can buy these ETFs, and the Fed can’t lose money, then if could be foolish to try to fight the trend.  Or so it seems.

What's Next?

In a normal world, the rally to the 50% retracement level is by no means extraordinary.  While many oohh and ahh over the remarkable rally, the Fibonacci retracement levels automatically include a 50% retracement along with the real Fibs of .328 and .618.  In some theories, prices failing at the 50% retracement level can be expected to fall to the -.23 level.  This would suggest S&P prices falling to the 1900 level.




It's hard to imagine this to happen though.  Despite 16 million people filing for unemployment and businesses across the world being shut down, liquidity has always seemed to reign supreme, despite any fundamental support.

Once again, markets have no correlation with reality.



Money Supply Spikes




As the chart of the M1 money supply illustrates, money supply has been surging to dizzying heights, now backed not only by government treasuries but also a wide range of corporate bonds.  Some can interpret this as the Federal Reserve Bank and the US Treasury taking control over US corporations.


The increase in the money supply is said to be temporary and will be pulled back when things normalize.  But as we've seen post-2009, things never normalized.  Any attempt to decrease the money supply was met with swift negative market reactions.  This is the new reality, 0% interest rates, increasing Federal Reserve stimulus actions to keep the financial structure afloat; many suggesting that it won't be long until the Federal Reserve starts buying stocks.  Again, does it make any sense to fight the Fed?  It does appear to be inevitable.  But ultimately, must it fail?

I thought it might but after 11 years of the Fed-controlled market, I do not expect to see a normalization in my lifetime.  As such, I choose to stay out of stocks, except for special situations such as some gold and silver mining stocks.

I continue see gold still as a safe haven.  In times of loss of confidence in fiat currencies, gold stands out as one asset that can provide purchasing power.


Gold futures rallied to new recent highs but still are a few hundred off of the lifetime highs.  One can expect gold to continue rallying and perhaps even silver following.

Two Schools of Thought

Inflations:  Gold and real estate are often said to be good hedges against inflation.  The sharp move in REITs this week along with gold making new highs supports this view.

Deflation:  How quickly will the economy recover?  Some suggest that things won't start getting back to normal in July, the President is pushing to get things moving as quickly as possible.  A slowing economy might present a deflation scenario.  Holding US dollars is often recommended to ride out this storm.

I suggest holding both.






Saturday, April 4, 2020

Corrections vs Bear Market What to Expect Next




Review of indexes for the week.  Russell 2000 and Midcaps took the brunt of the sell-off, losing 6 to 7 percent.  REITS got whacked the hardest, down 10% on the week.  Longer term bonds held up as did gold but all in all, it was a poor week.


Projecting possible scenarios for next week, my first setup is a possible three week test of the low.  In this scenario, the closing price will test the 2305 level and hold.



Looking at my Size indicator, there is no sign of the trend weakening, on the 20 week moving average.  I mentioned last week that the Size indicator on the 4 week average had reversed for a short-term pop, but if we look at SPY (the SPX ETF proxy), we can clearly see that price only bounced to the 4 week average and reversed.  This demonstrates the general rule that when Size reverses, it will likely revert to the mean.


This generally shows that price could not get past the first barrier, the 4 week average, and will likely head lower.


A-B-C Correction



Another scenario, more favorable for traders, would be that stocks do an A-B-C correction phase, going sideways for several months before dropping lower.  As the Fibonacci projection level indicates, prices can drop down to the 1850 level or even 1350.  In an Elliott Wave theory world, this would be the completion of a Major A wave and would be followed by a B Wave, taking prices higher before making a final C wave lower.


Corrections can be ugly and long lasting.


A Correction - Micron Tech (MU)




One example I like to look back on is Micron Technologies.  Tech stocks have seen their share of ups and downs.  From 1995 to 1999, Micron went through a garden variety correction, ranging from a high of 48 down to 8, more than 80%.  There was light at the end of the tunnel though as we see that Micron and tech stocks in general recovered and surged to new highs.



Bear Market




What came next however is what is commonly referred to as the Tech Bubble.  When that bubble burst, we can see that Micron dropped from close to 100 down to 30.  Eventually, price dropped close to 0 in this chart.  The decline lasted for more than a decade. 



Needless to say, few of us alive have witnessed such a devastating decline in the overall stock market.  Over time, the stock market has tended to recover and move to new highs.  But some of us sceptics have noted that prices have been boosted by tremendous amounts of stimulus from the Federal Reserve.  With interest rates close to 0%, corporations, financial institutions and even Central Banks have been borrowing money and buying stocks.  The stock market is a “house of cards” built upon endless increases of debt.


The last time the “house of cards” collapsed might have been in the depression era.  How did stocks look then and if we follow the same scenario, what might we be able to anticipate?


Great Depression (1929-1932)




Here is what TradingView data presents for the SPX during the depression era.  Keep in mind that the S&P Index wasn’t actually developed until around 1985 I believe so how data is extrapolated is not clear.


But assuming that this data is valid, we can see that the first dip off of the highs went from 30 to 20, a 33% correction.  That's pretty consistent with what we've experienced thus far.



Stocks rebounded to the 50% before collapsing.  Prices stabilized for several months, probably encouraging many market bulls to proclaim, THE CORRECTION IS OVER!!.


But as the long term chart shows, prices continued down for a total of three years falling from a monthly closing price of 30.10 down to 4.77.  

It’s interesting to note that a bottom could have been declared after a Three Quarter Test of the Lows.


Where are we at now?



From a Fibonacci Retracement perspective, a .328 retracement is very weak.  We tried to get above that without much success.  A 50% retracement, similar to the bounce seen during the Depression would take us to close to 2800.  Prices could even reach to the .618 retracement level.  But without breaching these levels and holding, the bounces are just that, normal corrective bounces.  We can see even back in the Depression Days, prices followed these rules.  Like Gold, they have withstood the tests of time.


Forward Planning Thoughts


What do we do?  I had been buying physical gold and silver for the past four or five years.  Now if it is obtainable at all, the premiums have skyrocketed.  Mining, refining and transportation operations have come to a halt.  New supply is not expected to be forthcoming any time soon.  Like we see in general, few had been prepared for such a situation.  Even with the precious metals, it was clearly understood that the next phase of the economy would probably be a big deflation.  This would bring the prices of metals down along with everything else.  Many of the skeptics chided that they would then buy the gold and silver when the deflation occurred.  Who knew that the physicals would be unobtainable?



Preparation is the key.  While I would not categorize myself as a “prepper”, from a financial planning standpoint, I had tried to look at all of my areas of risk and add insurance for additional adverse events.



I lived in Cleveland around 2001-02 and remember that we had a blackout.  It lasted just a day but life was totally shut down.  No coffee to be had at the 7-11, cash machines did not work, credit cards did not work and worst of all, most cashiers did not have basic math skills to be able to make change!  It was only one day but there was nothing but chaos.  I thought, what would happen if this lasted for three days or five days?  How long would it take for civil unrest and a total melt down?  Not long.



No telling what may follow so I will give the same financial planning advice now that I was giving clients then.  Make sure you have a supply of currency on hand and not $100 bills.  Have what you need and enough change on hand to be precise in your transactions.  Second, I always encouraged having some silver ounces or small gold denominations.  People often ask me, what good is that?  Who is going to transact in gold or silver?  I don’t know but look at Venezuela?  We will only know when it turns out that having some gold and silver has value.  Dah, don’t dismiss the effects of sound financial planning because you can’t rationalize what might happen.  Of course, we can see now that if you didn’t do any of this pre-planning, getting gold or silver now might be difficult and that in itself might make it valuable.



Also have enough cash on hand to last you at least a month.  Keep it at home in a safe if necessary along with the gold and silver.  In such a situation, you may not be able to access your bank or your safe deposit box. 


SDS for a Down Move


Playing a move down.  I put out a “go to cash” call during the past week as prices rebounded. Time to Sell  Looking at the retracement levels, it seemed prudent to go to cash.  While I see the potential for prices to go higher, based on the Fibonacci retracement levels, it just didn’t seem worth the risk to stay in the market.



I bought SDS as a way to play the move.  This is a 2X inverse product that moves up 2% for every 1% that the SPX moves down.  As a leveraged product, in times of low volatility, it may lose value.  There are also products that can move 3X so how you play it is up to you.  If you are a rookie, don’t play with instruments you don’t understand.



As you can see, SDS has not fared too well as stocks had been rising from 2009.  At the high, it was at 2131 and dropped as low as 22.  It closed at 32.50 for the week. 



Be safe, stay healthy.  Good Luck.

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