Stock Indexes Rejected At Resistance Signal Another Correction

Stocks struggled with overhead resistance for the past week. While seasonal trends usually favor a year end rally, this year’s rally may already have finished. January will be the month to watch. If the market closes with a positive January, we almost always have a strong year for stocks. 

But if not, we could be in for a doozy of a bear market in the first half of 2023. This week we had more hawkish Fed talk on Wednesday, suggesting that rates will remain higher for a longer period of time....Continue Reading Here.

U.S. Stock Market Stalls Near a Double Peak

The U.S. stock market stalled early this week as earnings started to hit. A number of news and other items are pending with earnings just starting to roll in. There have been some big numbers posted from JP Morgan and Goldman Sachs. Yet, the markets have reacted rather muted to these blowout revenues.

We believe this is a technical “Double Top” set up in the making. The NASDAQ has been much weaker than the S&P and the Dow Industrials. We believe the US stock market is reacting to the reality of earnings and forward guidance after the recent rally in price levels over the past 9+ weeks. If we are correct and this Double-Top pushes price levels lower, then this technical resistance level may become the price ceiling headed into Q3 and Q4 2020.

Let's start with the E-MINI S&P 500 Weekly Chart....Continue Reading Here

Mike Seery's Weekly Futures Recap - Crude Oil, Gold, Silver, Coffee and More

The three major indexes closed higher on Friday July 7th after this weeks employment report showed that 222,000 jobs were added in June marking the second largest job haul of the year and underscoring that the labor market remains healthy. If the futures markets renews this year's rally into uncharted territory, upside targets are going to be hard to project.

So there is nobody better time than now to ask than our trading partner Michael Seery. We've asked him to give you a recap of the this weeks futures markets and give us some insight on where he sees the markets headed this week. Mike has been a senior analyst for over 15 years and has extensive knowledge of all of the commodity and option markets.

Crude oil futures in the August contract settled last Friday in New York at 46.35 a barrel while currently trading at 44.75 down about a $1.60 for the trading week despite the fact that this week's EIA report showed a 6.3 million barrel draw down as the short term and longer term trend remains weak. The United States continues to increase production, and that is the main problem as the Trump administration wants to become a major exporter. I'm not involved in oil, but I still have a bearish bias to the downside as prices are still trading under their 20 and 100 day moving average telling you the trend is lower as there were rumors that Russia might be against production cut sending prices lower to end the trading week. The commodity markets, in general, remain choppy and this is not the same oil market from 10 years ago with the U.S. changing the dynamics as we continue to produce more and more. It looks to me that production will increase over the next several years as OPEC is not nearly as powerful as they used to be which is a good thing for U.S. security. I still think prices will test the contract low which was hit on June 21st around $42 in the coming weeks.
Trend: Lower - Mixed
Chart Structure: Improving

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Gold futures in the August contract hit a 2 month low currently trading at 1,215 an ounce after settling last Friday in New York at 1,242 down over $25 for the trading week continuing its bearish trend breaking the May 9th low of 1,217 as it looks to me that prices as I've stated in previous blogs prices are headed towards the 1,200 level. The monthly employment number came out today stating that we added 220,000 new jobs sending the stock market higher once again as money flows continue to come out of the precious metals & into the equity market. I think this trend will continue with the possibility that we will retest the January 5th low around 1,189 as this market is getting stronger to the downside on a weekly basis. Gold prices are trading under their 20 and 100 day moving average telling you that the short term trend is lower as silver and platinum prices continue to move lower as well. The trend is your friend in the commodity markets and if you are short stay short & place the proper stop loss as I see no reason to own gold at the current time. The U.S dollar is near a 10 month low coupled with major problems with North Korea, however that is still not able to support gold as that tells you how weak this market actually has become.
Trend: Lower
Chart Structure: Poor

Silver futures in the September contract are lower by about $0.55 this Friday afternoon currently trading at 15.45 an ounce hitting a 15 month low after settling last Friday at 16.62 down about $1.20 for the trading week and trading lower 5 out of the last 6 trading sessions as the precious metals remain on the defensive. In my opinion it looks to me that prices will retest the March 2016 low around 14.78 as all the interest is in the stock market as we added another 220,000 jobs as the monthly employment report was released sending the stock market sharply higher and the precious metals sharply lower as this trend is for real to the downside. Silver prices are trading far below their 20 & 100 day moving average telling you this trend is lower and is getting stronger on a weekly basis as I see no reason to own any of the precious metals at the present time. Volatility in silver has certainly expanded over the last week as we've had two 50 cent down days with larger volume than normal which is not a good sign if you're bullish as I'm certainly not recommending any type of bullish position as catching a falling knife can be very dangerous and if you are short stay short as you are on the right side of this trade.
Trend: Lower
Chart Structure: Poor

Coffee futures in the September contract are trading right near a three week high after settling last Friday in New York at 125.35 a pound while currently trading at 128.80 up about 300 points for the trading week. Coffee is now trading above its 20 day moving average, but still below its 100 day which stands at 136.60 as the trend remains mixed. I am keeping a close eye on this market to the upside as the agricultural sectors have all come alive as it looks to me that short term bottoms are in place as the chart structure is starting to improve with the 10 day low standing at 123.30. It will improve on a daily basis as the spike bottom which happened on June 22nd at 115.50 looks to be the short term low in my opinion. Volatility in coffee has come to a crawl once again which is a good thing therefore lowering the monetary risk as all of the bad news has already been priced into coffee & many of the soft commodities so keep a close eye on this for a bullish position possibly in next week's trade as this sleeping giant will awaken once again just like what happened in the grain market.
Trend: Mixed
Chart Structure: Solid - Improving

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Mike Seery's Weekly Futures Recap - Crude Oil, Gold, Silver, Coffee and More

The three major indexes all closed higher on Friday, setting the stage for a steady or higher opening on Monday. But will our major commodities join them in a possible bull market run this week? There is nobody better to ask than our trading partner Michael Seery. We've asked him to give you a recap of the this weeks futures markets and give us some insight on where he sees the markets headed this week. Mike has been a senior analyst for over 15 years and has extensive knowledge of all of the commodity and option markets.

Crude oil futures in the August contract have traded higher for the 7th consecutive trading session are currently at 45.34 after settling last Friday in New York at 43.01 a barrel up about $2.30 for the trading week right at a 2 week high. I have not been involved in crude oil for quite some time. The energy sector had a positive week with the U.S dollar down around 150 points helping support prices, and crude is now trading above its 20 day moving average for the 1st time in awhile, but still below its 100 day and this trend remains mixed so avoid this sector. Oil prices bottomed out on June 21st around 42.05, and I'm still not bullish the energy sector. I still think lower prices are ahead as U.S rig counts continue to increase on a weekly basis as the U.S will become a net exporter which means we will rely less on Mideast oil which is a great thing for U.S security and a great thing for prices. Gasoline and heating oil which are byproducts of crude oil also have rallied this week, and they remain very bearish as gas prices at the pump for the Fourth of July weekend are the lowest in 12 years. I paid a $1.96 just the other day.
Trend: Mixed
Chart Structure: Solid

Get our Current Market Movement, Trade Triangle and Futures Updates

Gold futures in the August contract settled last Friday in New York at 1,256 an ounce while currently trading at 1,243 down about $13 for the trading week. I'm currently not involved in this market, but I do think lower prices are ahead despite the fact that the U.S dollar was down about 150 points this week, but was still unable to lend any support to gold prices. Gold is still trading below its 20 and 100 day moving average telling you that the short term trend is lower, if you are short a futures contract place the stop loss at the 10 day high which stands at 1,260. The chart structure is solid with the next level of support at 1,235, and if that is broken, I think we could retest the 1,200 level rather quickly. I do not have any precious metal recommendations. I still believe that they remain weak except for copper prices which have broken out to the upside. Gold remains relatively nonvolatile over the last several weeks, and we need some fresh fundamental news such as interest rate hikes or global geopolitical problems to start pushing prices in either direction.
Trend: Lower
Chart Structure: Solid

Silver futures in the September contract are currently trading at 16.65 an ounce unchanged this Friday afternoon after settling last Friday in New York at 16.70 unchanged for the week with extremely low volatility. Prices have nothing fundamentally speaking to push prices up or down at present. Silver is still trading below it's 20 and 100 day moving average as this trend remains to the downside despite the U.S dollar being down about 150 points which help support silver prices, but this market remains weak as there's very little demand despite historically low prices. The next major level support is 16.40 and if that is broken prices could retest the May 9th low of 16.12. The commodity markets remain weak despite small rallies across the board. The only exception is the wheat market which is being propelled by exceptional droughts in the Dakotas sending massive volatility into that market. Silver prices have remained extremely choppy in 2017 as we have been trading between 16/18 for many months so I'd avoid this market in my opinion & look at other markets that are beginning to trend with higher volatility.
Trend: Lower
Chart Structure: Solid

Coffee futures settled last Friday in New York at 123.00 a pound while currently trading at 126 up about 300 points for the trading week right at a two week high as a possible spike bottom may have occurred on June 22nd at the 115.50 level. Prices are now trading above their 20 day, but still below their 100 day moving average as this trend remains mixed in my opinion. Coffee has entered their frost season in Brazil and rumors of colder temperatures have pushed up prices in recent days. This market has been bearish over the last several months, but everything comes to an end, and I avoided this market. I wrote about in many previous blogs I was not going to take a short position as I'm still looking at a possible bullish position if prices hit a four week high as the chart structure is solid. My only soft commodity recommendation is a bearish position in the cotton market as traders await the highly anticipated USDA crop report which will be released at 11 o'clock today. It will certainly send high volatility across the board so avoid this market and look at other scenarios with a better risk/reward scenario. I still think coffee prices remain choppy over the next several weeks.
Trend: Mixed
Chart Structure: Solid

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The Most “Horrifying” Chart in the World

By Justin Spittler

Larry Fink is terrified. Fink runs BlackRock, the world’s largest asset manager. The company manages a whopping $5.1 trillion. That's more than Goldman Sachs, Bank of America, or Wells Fargo. It’s more than the annual economic output of Japan, the world’s third largest economy. This makes Fink one of the most powerful people on the planet. Obviously, you don’t climb to the top in Wall Street by being easily rattled. But right now, Fink’s nervous. He’s worried about “a lot of dark shadows that could impact the direction of the marketplace.”

Fink’s especially worried about consumer confidence.…
Consumer confidence measures how everyday people feel about the economy and their own financial situation. It’s subjective. You can’t measure it. That’s why some investors don’t take it seriously. But they should. After all, sentiment is what really drives stocks. It’s far more important than earnings, valuations, or the health of the economy. It’s why stocks can rally despite serious fundamental problems. According to a recent survey by the University of Michigan, consumer confidence has been climbing since 2011. It recently hit the highest level since 2004.

Americans have good reason to be confident.…
After all, we just elected our first “investor” president. Unlike Obama, Donald Trump wants to put American businesses first. He also wants to cut taxes, ease regulations, and rebuild American infrastructure. These policies should help U.S. companies and workers. That’s why Americans are so confident. It’s why the S&P 500 has rallied 9% since Election Day. It’s why the Dow Jones Industrial Average just topped 20,000 for the first time ever. You can clearly see Trump’s impact on stocks in the chart below. You’ll also notice that consumer confidence hasn’t been this high since just before the 2008–2009 financial crisis.

Thanks to Trump, greed is in the air again…
But this isn’t a good thing. It’s a warning sign. Today, consumer confidence is even higher than it was in 2007. And we all know how that ended. The S&P 500 plunged 57% over the next two years. The Russell 2000, which tracks 2,000 small U.S. stocks, dropped 60%.

Fink doesn't think you should be buying stocks right now.…
He explained why in a Yahoo! Finance investor event last week:

When consumer confidence was at the lowest, that was the low point of the equity market. You should be buying then. And now consumer confidence is high and the S&P 500 is very high. Maybe you should be selling now.

Fink’s not the only Wall Street legend who thinks this, either. Sir John Templeton, one of the greatest stock pickers ever, famously said:

Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.

This is why Fink thinks the chart above is “horrifying.” But that’s not the only thing keeping him up at night.

Fink says “we’re living in a bipolar world”.…

He continued:

In my conversations with CEOs in Europe and CEOs in the United States they may be very bullish about what may come but most business people are not investing today.

Some folks might find this confusing. After all, the stock market is supposed to reflect the health of the economy. But Dispatch readers know this hasn’t been the case lately. Since 2009, the U.S. economy has grown just 2% per year. That makes the current recovery one of the slowest on record. Meanwhile, stocks have been rallying for nearly eight years. That makes the current bull market one of the longest in U.S. history.

U.S. stocks are now incredibly expensive.…
Companies in the S&P 500 are trading at a cyclically adjusted price-to-earnings ratio (CAPE) of 28.9. That’s the highest level since the dot-com bubble. It means U.S. stocks are 73% more expensive than normal. And that’s just one measure. Last week, we showed you two other key metrics that prove how absurdly expensive U.S. stocks are today. In short, there’s not much upside in U.S. stocks, even if Trump can breathe life into the economy.

We recommend you take precautions today.…
You can get started by holding more cash and owning physical gold. Setting aside cash will help you avoid big losses if stocks crash. Gold will also help you weather the next financial crisis. That’s because gold is the ultimate safe haven asset. It’s survived everything from stock market crashes to full blown currency crises. It will survive the next financial crisis, too. To be clear, we aren’t saying U.S. stocks will crash this year or even the next. But these simple steps will protect you should the “unthinkable” happen.

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Chart of the Day

Silver is rallying. Today’s chart shows the performance of the iShares Silver Trust ETF (SLV), whichs tracks the price of silver. It’s the most active silver fund in the world. Every day, investors trade more than 9 million shares of SLV. This makes it a great way to track investor demand for silver. You can see in the chart below that SLV has been in a downtrend “channel” since last summer. A channel is a range that an asset trades in. The bottom line acts as support. The top line acts as resistance.

You can see SLV just “broke out” of this channel. It’s now in an uptrend. This tells us that silver should head higher in the near future. If you own silver, this is great news. If you don’t, now might be a good time to buy some. Just don’t wait too long. Silver could be headed much higher from here.

The article The Most “Horrifying” Chart in the World was originally published at caseyresearch.com.

Should You Worry That the Stock Market Just Formed a “Death Cross”?

By Justin Spittler

The world economy appears to be stalling. Yesterday we got news that South Korea’s exports dropped 14.7% since last August, their largest decline since the financial crisis. It’s far worse than the 5.9% drop economists were expecting.

South Korea’s exports are important because they’re considered a “canary in the coalmine” for the global economy. South Korea is a major exporter to the largest economies in the world including China, the US, and Japan. South Korea also releases its export numbers much earlier than other major countries. That’s why a bad reading for South Korean exports is often the first sign that the global economy is in trouble.

The ugly news slammed stocks around the world. Chinese stocks dropped 1.3%, Japanese stocks dropped 3.8% and the major indexes in Germany, the United Kingdom, France, and Spain all lost at least 2%.

These big drops came one day after the worst month for global stocks in over three years..…

Regular Casey readers know last month’s selloff hit every major stock market on the planet. China’s Shanghai index lost 12%. Japan’s Nikkei lost 7.4% and Europe’s STOXX 600 lost 8.5%.

The MSCI All-  Index, a broad measure of the global stock market, fell 6.8%. Its worst month since 2012. US stocks also fell hard. The S&P 500 lost 6.3% in August. And the Dow Jones Industrial Average fell 6.6%. It was the Dow’s worst month since May 2010, and its worst August in 17 years.

Bearish signs are popping up everywhere..…

Last month’s crash dropped the S&P 500 below an important long term trend line. A long term trend line shows the general direction the market is heading. Many professional traders use it to separate normal market gyrations from something bigger. Think of it as a “line in the sand.”

The market is constantly going up and down. But as long as we’re above the long term trend line, the dominant trend is still “up.” But when a selloff knocks the stock market below its long term trend line, it’s a sign the trend might be changing from up to down.

As you can see from the chart below, there have been a few “normal” selloffs since 2011. On Friday, however, the S&P dropped below its long-term trend line for the first time in about 4 years.

The broken trend line isn’t the only bearish sign we see right now.....

US stocks are also very expensive. Robert Shiller is an economics professor at Yale University and a widely respected market observer. Shiller is best known for creating the CAPE (Cyclically Adjusted Price Earnings) ratio. It’s a cousin of the popular price to earnings (P/E) ratio.

The P/E ratio divides the price of an index or stock by its earnings per share (EPS) for the past year. A high ratio means stocks are expensive. A low ratio means stocks are cheap.

The CAPE ratio is the price/earnings ratio with one adjustment. Instead of using just one year of earnings, it incorporates earnings from the past 10 years. This smooths out the effects of booms and recessions and gives us a useful long term view of a stock or market.

Right now, the S&P’s CAPE ratio is 24.6…about 48% more expensive than its average since 1881.

  
US stocks have only been more expensive a handful of times..…

Shiller explained why he’s worried in a recent New York Times op-ed: The average CAPE ratio between 1881 and 2015 in the United States is 17; in July, it reached 27. Levels higher than that have occurred very few times, including the years surrounding the stock market peaks of 1929, 2000 and 2007. In all three of these instances, the stock market eventually collapsed.

For the S&P’s CAPE ratio to decline to its historical average, the S&P would have to drop to around 1,300. That would be a disastrous 34% plunge from today’s prices. To be clear, this doesn’t mean a crash is imminent. Like any metric, the CAPE ratio isn’t perfect. CAPE is helpful for spotting long-term trends, but it can’t “time” the market.

But the high CAPE ratio is one more reason you should be extra cautious about investing in US stocks right now.

It also means you should take steps to prepare..…

As we write on Tuesday afternoon, stock markets around the world are in a free fall. The S&P 500 dropped another 3% today. On top of that, the current bull market in US stocks is now one of the longest in history. It’s already two years longer than the average bull market since World War II.

And as we’ve explained, according to the CAPE ratio, US stocks are overpriced. We can’t tell you for sure when the next financial crisis will hit. No one can.

But we do urge you to prepare. What’s happening right now shows how fragile the markets are. You shouldn’t ignore the mounting evidence that our financial markets just aren’t healthy. We lay out every step you should take to prepare for the next financial crisis in our book, Going Global 2015.

This important book shows you how to get your wealth out of harm’s way and profit from the next financial disaster. It’s must-read material for anyone who’s serious about “crisis-proofing” their wealth. Right now, we’ll send it to you for practically nothing…we just ask that you pay $4.95 to cover processing costs. Click here to claim your copy.

The article Should You Worry That the Stock Market Just Formed a “Death Cross”? was originally published at caseyresearch.com.

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Hate Mail, Crumbling Factories, and Sinking Stocks

By Tony Sagami 

The bulls are mad at me. I’ve been heavily beating the bear market drum in this column since the spring. The S&P 500, by the way, peaked on May 21, and this column has been generating a rising stream of hate mail from the bulls as the stock market has dropped. My hate mail falls into two general categories: (1) you are wrong, and/or (2) you are stupid.

Well, I may not be the sharpest tool in the Wall Street shed, but I haven’t been wrong about where the stock market was headed. This column, however, isn’t about me. It’s about protecting and growing your wealth—and that’s why I have been so forceful about the rising dangers the stock market is facing.

Make sure you watch this weeks new video...."500K, Profit and Proof"

One of the themes I’ve repeatedly covered in this column is the rapidly deteriorating health of the two most basic economic building blocks of the American economy: the “makers” (see August 25 column) and the “takers” (see July 14 and August 4 columns).

There are thousands of economic and business statistics you can look at to gauge the health of the US economy, but at the economic roots of any developed country is the prosperity of its factories (makers) and transportation companies (takers) delivering those goods to stores.

This week, let’s look at the latest evidence confirming the piss poor health of American factories.

Factory Fact #1: The Institute for Supply Management released its latest survey results, which showed a drop to 51.1 in August, a decline from 52.7 in July, below the 52.5 Wall Street forecast, and the weakest reading since April 2009.

NOTE: The ISM survey shows that raw-materials prices dropped for 10 months in a row. If you own commodity stocks—such as copper, oil, aluminum, or gold—you should consider how falling raw materials prices will affect the profits of those companies.

Factory Fact #2: Despite all the crowing from Washington DC about the improving economy, US manufacturing output is still worse today than it was before the 2008-2009 Financial Crisis, according to the Federal Reserve.

Factory Fact #3: Business inventories increased at the fastest back to back quarterly rate on record. Inventories increased 0.8% in Q2, following a 0.3% increase in Q1, and now sit at $586 billion. That’s a 5.4% year over year increase!

Remember, there are two reasons why businesses accumulate inventory:

• Business owners are so optimistic about the future that they intentionally accumulate inventory to accommodate an upcoming avalanche of orders.

OR

• Business is so bad that inventory is starting to involuntarily pile up from the lack of sales.

Factory Fact #4: The Manufacturers Alliance for Productivity and Innovation (MAPI), a trade association for US manufacturers, is none too optimistic about the state of American manufacturing.
The reason for the pessimism is simple: US manufacturers are struggling.

• U.S. manufactured exports decreased by 2% to $298 billion in the second quarter, as compared with 2014.

• The US deficit in manufacturing rose by $21 billion, or 15%, compared with the second quarter of 2014.

“The US $48 billion deficit increase in the first half of the year equates to a loss of 300,000 trade related American manufacturing jobs, and the deficit is on track for a loss of 500,000 or more jobs for the calendar year,” said Ernest Preeg of MAPI.

So what does all this mean?

When I connect those dots, it tells me that American manufacturers are struggling. Really struggling.
Take a look at the Dow Jones US Industrials Index, which peaked in February and started to drop well ahead of the August market meltdown.

You know what’s really nuts? The P/E ratio for this struggling sector is almost 19 times earnings and 3.3 times book value!

Is there a way to profit from this slowdown of American factories? You bet there is.

Take a look at the ProShares UltraShort Industrials ETF (SIJ). This ETF is designed to deliver two times the inverse (-2x) of the daily performance of the Dow Jones US Industrials Index. To be fair, I should disclose that my Rational Bear subscribers have owned this ETF since June 16, 2015, and are sitting on close to a 15% gain.

Critics could say that I am “talking up my book,” but I instead see it as “eating my own cooking.” My advice in this column isn’t theoretical—we put real money behind my convictions. That doesn’t mean you should rush out and buy this ETF tomorrow morning. As always, timing is everything, so I suggest you wait for my buy signal.

But make no mistake, American “makers” are doing very poorly, and that’s a reliable warning sign of bigger economic problems.

Tony Sagami

30 year market expert Tony Sagami leads the Yield Shark and Rational Bear advisories at Mauldin Economics. To learn more about Yield Shark and how it helps you maximize dividend income, click here.

To learn more about Rational Bear and how you can use it to benefit from falling stocks and sectors, click here.

The article Connecting the Dots: Hate Mail, Crumbling Factories, and Sinking Stocks was originally published at mauldineconomics.com.

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Connecting the Dots: Not Yet Time to Celebrate a Market Turnaround

By Tony Sagami

The Wall Street crowd liked what they heard last week and pushed the Dow Jones to a new high. In particular, the trio of the Republican landslide victory, an overall positive Q3 earning season, and a good jobs report that showed unemployment dropping to 5.8% was behind the rally.

And what a rally it was. Since the start of earnings season on October 8, the S&P 500 has increased by 3% and has bounced by an eye popping 9.1% from the October 15 low. Many of my peers have already popped the champagne and drunkenly declared a coast-is-clear resumption of the great bull market.

Not so fast. There was a trio of negative news pieces last week that tells me there is more to be worried about than there is to celebrate.

“V” Is for Vulnerable… Not Victory

You shouldn’t trust “V”-shaped bottoms.

Instead of being encouraged by the 9% moonshot since the October 15 low, I am even more skeptical. The S&P 500 shot up by 220 points in just three weeks, which tells me that the rubber band of stock market psychology is overstretched.



The stock market’s massive mood swing from fear to greed can change just as quickly to the other direction. Sharp trend reversals followed by sharp rebounds is not a kind of bottom building behavior.

The rally has been accomplished with low trading volume—a classic definition of an unsustainable bounce because it shows that the rally was more from a lack of sellers rather than an abundance of buyers.

And don’t forget about the drastic underperformance of small stocks. The Russell 2000 is up less than 1% for the year compared to 11% for the Nasdaq and 10% for the S&P 500.

Earnings: Look Ahead, Not Behind

Overall, corporate America had an impressive third quarter. 88% of the companies in the S&P 500 have reported their third-quarter earnings; of those, 66% exceeded Wall Street expectations.

Impressive, right? Not so fast!

When it comes to earnings, you need to be looking through the front-view windshield and not the rear-view mirror.



Even the perpetually bullish analytical community is getting worried. The average estimates for Q4 earnings as well as Q1 2015 are being downwardly adjusted. Since October 1:

• Q4 earnings growth have been lowered from 11.1% to 7.6%;and
• Q1 2015 earnings growth has been chopped from 11.5% to 8.8%.

Don’t give Wall Street too much credit for being rational. Those downward revisions are largely based on the cautious outlook given the corporate America itself. The ratio of negative outlooks to positive outlooks is 3.9 to 1!

Both Wall Street and corporate America are concerned, and so should you be.

Don’t Ignore Central Bankers’ Warnings

Many of the world’s central bankers gathered in Paris last week to figure out how to keep the world’s leaky financial boat from sinking, as well as spending more of their taxpayers’ money on fine wine, cuisine, and luxury hotels.

All those central bankers are eager to keep their economies afloat, but judging from the comments, they’re worried that they are running out of monetary bullets.

“Normalization could lead to some heightened financial volatility,” warned Janet Yellen.



“This shift in policy will undoubtedly be accompanied by some degree of market turbulence,” said William Dudley, president of the Federal Reserve Bank of New York.

“The transition could be bumpy … potential for financial market disruption,” cautioned Bank of England Governor Mark Carney.

“Paramount risk of very low interest rates is to entertain the illusion that governments can continue to borrow rather than make difficult and yet necessary choices and indefinitely put off the implementation of structural reforms,” admitted Bank of France Governor Christian Noyer.

“The bottom line is there is a very good question about whether more stimulus is the answer,” said Reserve Bank of India Governor Raghuram Rajan.

Perhaps the most honest and telling statement from Malaysian central banker Zeti Akhtar Aziz: “In this highly connected world, you would be kindest to your neighbors when your keep your own house in order.”

That’s a whole lot of central banker warnings—and it’s always a mistake to ignore the people who control the world’s printing presses.

30-year market expert Tony Sagami leads the Yield Shark and Rational Bear advisories at Mauldin Economics. To learn more about Yield Shark and how it helps you maximize dividend income, click here.

To learn more about Rational Bear and how you can use it to benefit from falling stocks and sectors, click here.

The article Connecting the Dots: Not Yet Time to Celebrate a Market Turnaround was originally published at mauldin economics

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How To Position Yourself for a 10 Year Pattern Breakout

As mentioned last Friday just before things took a dive on the weekend, a look at the major market indices did not look promising. If we take an even longer term look and examine the monthly charts we can see that The S&P 500 as well as the Dow Jones have been approaching multi decade rising channel resistance lines. Further, they also appear to be forming bearish rising wedge patterns.

Monthly Long Term Chart Analysis & Thoughts....

As many of my longer term subscribers can attest to, I always preach that technical analysis is one part art and one part science: you can never be completely certain on what the outcome of a pattern is going to be. However, we can use historical analysis to make better investments. The great American Novelist Mark Twain probably said it best in that “history does not repeat itself, but it rhymes”. Regarding a rising wedge pattern, we know that roughly two thirds of the time they will break to the downside. This also means that one third of the time they break to the upside.

In accomplishing our goal of capital growth we must do a number of things. We must make returns on our investments, we must protect our investments, and we must limit our losses. While all three aspects work in tandem with each other, there are times when focus must be allocated to one specific approach.

Regarding the current technical setup, I’m not so focused on the 67% chance that these wedges will break to the downside, but more so the impact of each outcome on the average Joe’s portfolio and mom and pop businesses. The S&P 500 and the Dow are approaching long term resistance lines that have been in place for decades. If we do break to the downside, which I suspect we will, there could be a very significant sell off with consequences that no one can predict at this point though I mention some things in the chart above. Alternatively, there is significant overhead resistance in the various indices, and I don’t believe an upside break would be too monumental.

That being said, I always like to keep an open outlook and wait for the right opportunity. I’m trying to think of scenarios that would prelude further upside action and I really am not coming up with much. As evidenced by the completion of the recent 5 wave uptrend on the S&P that coincided nicely with the various quantitative easing policies, Ben Bernanke and the fed have had less and less impact. I truly can’t see many fiscal developments that would prompt any significant bullish action.

The only scenario I really think that could pump up equities is a series of positive earnings announcements. A lot of expectations, earnings numbers, guidance, etc… have been revised downwards over the last couple of quarters, so there is the opportunity for some positive surprises that could lead to some bullish price action. In absence of such a scenario, I really can’t think of much else that would prompt a run up.

Look at these charts of positive and negative earnings surprises… and the dates and remember what happened following this negative data....

Positive Earnings Surprise

Negative Earnings Surprise

That being said, I am recommending two courses of action. For those steadfast bulls, lock in some profits and/or buy some protection. Missing out on some of the upside is a lot better than losing some of the gains you have fought so hard for over the past couple of years. For the more aggressive traders and investors, start following my updates a little more regularly as I foresee many shorting opportunities coming up in the future. As many of you know, sell offs are often quick and abrupt, and timing is extremely important when playing the downside.

Further, trading could get very volatile in the near future. Historically, and even more so looking forward as August and September have been very costly for the average investor. Our focus will be in taking the highest probability trades that offer the best risk to reward scenarios. There will be times when we miss trades, and times when they’re not timed perfectly. But, as those who have been with me for a while can attest to, patience pays off in the long run....

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Chris Vermeulen

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Evidence Supports the Bears’ Case for the S&P 500

I am not one to discuss fundamentals or macro views, but this situation in Europe is beginning to morph into a media frenzy. Price action in the marketplace is changing rapidly in short periods of time based on the latest press releases coming from the Eurozone summit.

I cannot help but comment on the seemingly arbitrary actions coming from this high profile meeting. Nothing has happened that market participants were not already privy too. The European Union is going to strengthen their EFSF fund by levering it up roughly 4 : 1. I have yet to hear how exactly they plan on doing this, but this action was no surprise to anyone that has read an article about the sovereign debt crisis in the past month.

There was also discussion about backstopping European banks’ capital position. Since European banks are holding billions (Euros) of risky sovereign debt instruments, it would make sense that their capitalization is a primary concern of Eurozone leaders based on current fiscal conditions. I would argue that the banks should be well capitalized regardless of economic or fiscal conditions in order for a nation to have a strong, vibrant economy that has the potential to grow organically.

The final piece of this week’s political nonsense involves write-downs on Greek debt in the neighborhood of 50% – 60% in order to stabilize Greece’s debt to GDP ratio. Apparently Eurozone leaders want to structure the write down so as to avoid payouts by credit default swaps which act as insurance against default. How does a bond take a 50% – 60% valuation mark down without a creating an event that would trigger the payout of CDS swaps?

If a write down of that magnitude does not trigger the CDS swaps, then I would argue they are useless as a tool to hedge against the default risk carried by sovereign debt instruments. If the CDS swaps do not payout as projected by European politicians, the risk assumed by those purchasing government debt obligations around the world would be altered immediately.

The impact this might have on the future pricing of risk for government debt instruments could be extremely detrimental to their ability to raise funds in the private market. Additionally, the write downs would hurt European banks’ capital positions immediately. If the CDS swaps were to pay out, bank capital ratios would suffer as those who took on counter party risk would be forced to cover their obligations thereby straining capital positions even further potentially.

Price action today suggested that the equity markets approved of the package that European leaders were working on. However, the biggest push higher came when news was released that China was interested in purchasing high quality debt instruments as a means to help prop up poorly capitalized banks and sovereign nations in the Eurozone through an IMF facility.

The market did an immediate about face which saw the Dollar selloff while the S&P 500 rallied higher into the close reversing a great deal of Tuesday’s losses. Inquiring minds wish to know where we go from here? I would be lying if I said I knew for sure which direction Mr. Market favored, however that did not stop me from looking for possible clues.

It has been a while since I checked out the short-term momentum charts that are focused on the number of stocks in U.S. domestic equity markets that are trading above their 20 & 50 period moving averages. The charts below illustrate the current market momentum:

Equities Trading Above the 20 Period Moving Average

It is rather obvious that when we look at the number of stocks trading above their 20 period moving average that momentum is running quite high presently. This chart would indicate that in the short-term time frames equities are currently overbought.

Equities Trading Above the 50 Period Moving Average

A similar conclusion can be drawn when we look at the number of stocks trading above their 50 period moving averages. It is rather obvious at this point in time that in the short to intermediate term time frames, stocks are currently at overbought levels. This is not to say that stocks will not continue to work higher, but a pullback is becoming more and more likely.

Additional evidence that would support the possibility that a pullback is likely would be the  recent bottom being carved out in the price action of the U.S. Dollar Index. The U.S. Dollar has been under selling pressure since the beginning of October, but has recently started to show signs that it could be stabilizing and setting up to rally higher.

The daily chart of the U.S. Dollar Index is shown below:

The U.S. Dollar Index is sitting right at major support and is oversold based on historical price action. If the Dollar begins to push higher in coming days and weeks it is going to push equity prices considerably lower. Other risk assets such as gold, silver, and oil would also be negatively impacted by higher Dollar prices.

Members of my service know that I focus on several sectors to help give me a better idea about the broader equity markets. I regularly look at the financial sector (XLF), the Dow Jones Transportation Index (IYT), emerging markets (EEM), and the Russell 2000 Index (IWM) for clues about future price action in the S&P 500.

During my regular evening scan I noticed that all 4 sector/index ETF’s are trading at or near major overhead resistance. With the exception of the Dow Jones Transportation Index (IYT), the other 3 underlying assets have yet to breakout over their August 31^st highs. The significance of August 31^st is that is the date when the S&P 500 Index put in a major reversal right at the 1,230 price level before turning lower. It took nearly two months to regain the 1,230 level and its significance continues to hold sway.

The daily chart of IWM is shown below illustrating its failure to breakout over the August 31^st highs:

The chart above illustrates clearly that IWM has failed to breakout above the August 31^st highs. I am going to be watching IWM, XLF, & EEM closely in coming days to see if they are able to breakout similarly to the S&P 500. If they start to rollover, it will not be long before the S&P 500 likely follows suit.

Currently the underlying signals are arguing for lower prices in the short to intermediate term. While it is entirely possible that the S&P 500 rallies higher from here, it is without question that current market conditions are overbought in the short to intermediate terms.

Key sectors and indices are not showing follow through to the upside to help solidify the S&P 500′s recent break above the key 1,230 price level. Additionally, the U.S. Dollar Index is currently trading right at key support in addition to being oversold. At this time I am not playing the S&P 500 in either direction, but I will be watching the underlying price action in the U.S. Dollar Index closely. I will be watching for additional clues in the days ahead.

Market and headline risk is high presently.

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Phil Flynn: Rate Ruckus

Is the winner the country that has the most ink? Gold prices soar to a new record high as once again a global central bank decides to print their way to prosperity. The Bank of Japan gave gold another reason to make a new high by announcing what Dow Jones Newswires says is, “an ambitious” Y35 trillion monetary easing program to spur economic growth while cutting interest rates to virtually zero and launching a Y5 trillion program to buy private and public sector assets. Ambitious?! Boy, I’d say.

I guess there is more than one way to intervene in your currency. The Japan government is adding more stimuli while reducing the confidence in paper money. Looks like a golden opportunity to buy more gold. Perhaps it's time to buy black gold as well. Oil traders love to exploit devalued currencies and devalued confidence in the same way. Yesterday the oil market ignored the rebounding dollar and supplies that are 13% above the five year average and instead returned to focus on the shutdown of the Houston Shipping Channel that was shut down when a barge hit an electrical tower.

That disruption helped send oil to an eight week high. Dow Jones reported that U.S. Coast Guard says that the 3 1/2 mile stretch of the Houston shipping channel will likely be closed until late Tuesday so that low hanging power lines and a listing tower can be cleared away. The closure will affect crude deliveries to four refineries in the Houston ship channel. Dow says that the tower, which carries one of three transmission lines into Exxon Mobil Corp.'s (XOM) Baytown refinery, was struck.....Read the entire article.




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Phil Flynn: Easy Oil

Who has the second largest amount of proven conventional oil reserves or easy to get to oil? Well if you asked me yesterday the answer officially was Iran but today that all may change. Iraq has announced that they will increase the amount of their proven oil reserves from mere 115 million barrels of oil to a whopping 143.1 billion barrels of oil putting them in second place in the world of cheap, easy to get to oil. Dow Jones reports that the figure, the first update since 2001, would mean Iraq has the world's second largest reserves according to statistics on the OPEC website.

Iraq would take second place from Iran, which has 137.01 billion barrels of proven reserves, but would still be far behind Saudi Arabia, which has 264.59 billion barrels of proven oil reserves, according to OPEC figures. These aren't random figures, rather they were the results of deep surveys carried out by the ministry's oil reservoir company and international companies which signed contracts with Iraq," al-Shahristani said. "Most of these figures were the result of surveys conducted by these international companies, especially at oil fields such as West Qurna and Zubair." Dow Jones say that Iraq has signed 12 deals with international oil companies to ramp up.....Read the entire article.


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Crude Oil Hits Five Week Lows, Inventory Fears Weigh

Crude futures dropped below $74 Wednesday, hitting five week lows as equities fell and data from an industry trade group showed large builds in already high U.S. oil inventories. Light, sweet crude for September delivery recently traded $1.61, or 2.1%, lower at $74.16 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange traded $1.29 lower at $75.64 a barrel.

Late Tuesday, the American Petroleum Institute, an industry trade group, said oil inventories rose by 5.8 million barrels last week, while stocks gasoline and distillates, which include heating oil and diesel fuel, rose by around 2 million barrels each. The unexpected rise in inventories combined with falling equities Wednesday morning to push crude to the lowest level since July 7. The Dow Jones Industrial Average was recently down 48 points to 10357.

Growing stockpiles suggest that demand for oil and oil products is having trouble keeping up with supply, a worrying prospect for a market already flush with crude. Stockpiles at the Cushing, Okla., delivery point for Nymex benchmark crude are inching closer to record levels set in May. And inventories of gasoline remain above five-year averages amid the important U.S. summer driving season.

The Department of Energy is set to report its own statistics on inventories at 10:30 a.m. EDT Wednesday. These more influential data are expected to show a 1.3-million-barrel decline in crude stocks, according to a Dow Jones Newswires survey of analysts. Gasoline stocks are seen falling by 500,000 barrels, while distillate inventories are expected to grow by 1.2 million barrels.....Read the entire article.

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How to Find Market Tops for Gold & the Dow

Last week the general market continued to grind its way higher for yet another week. Overall I feel the market is very much over bought. We all know the market can stay in extreme overbought levels for extended periods of time making it very difficult to pick tops.

This is the reason I do not try to pick tops, but rather wait for a top to form before putting my money to work. While a bottom can be made in 1 day, tops tend to take days and some times months to complete.

A few things really stood out to me when looking back on last week’s price action.

1. Gold (GLD Fund) was only up 0.29% for the week while the gold mining stocks (GDX Fund) was down over 3.5%. This strong divergence really has me concerned about the price of gold in the near term. Gold stocks generally lead gold and if they are down 10x more than gold last week, we better watch out....

2. The US Dollar broke out and started to rally posting a gain of 1% for the week. It is definitely weird to see gold move higher when the US dollar is rising…

Gold GLD Daily Chart

Gold has been trading sideways/down since December. I see this large 5 month pullback as a bull flag and expect to see much higher prices for gold long term. But I don’t count my eggs before they hatch, so I continue to focus on the daily and intraday chart patterns for low risk trading opportunities.

Friday we saw gold close very strong for the day. It looks very much like a reversal candle but with the price trading under the mini head & shoulders neck line and with the US Dollar in rally mode again, I don’t think the stars are aligned enough for me to put money to work just yet.

Gold is currently trading in a major congestion zone. Until there is a breakout of this zone, I think setups will not be very accurate.



Dow Jones Industrial Average vs. NYSE New Highs Divergence – JANUARY

This chart shows the January 2010 peak in the stock market. As you can see prices became choppy with strong up and down movements before we saw the sharp drop.

Also note the NYSE new highs line. As the market became choppy new highs began to drop quickly. This indicated the market internals were weakening and led to an 8% drop over the next couple weeks.



Dow Jones Industrial Average vs. NYSE New Highs Divergence – MARCH

This chart in my opinion looks much the same as January. You can see the Reversal candle from the February lows and the strong rally to the current price, as of Friday.

Notice how the market is getting choppy. Also last Thursday the Dow gave us a reversal candle. But this time the reversal candle is to the down side.

Also note the NYSE New Highs line. It has dropped sharply indicating the market internals are weakening once again.

This is what trading is all about… finding things that are out of whack and waiting for a low risk setup in order to make a profit.



Weekend Trading Conclusion:

In short, the stock market is over bought and about to roll over. I do understand that this grind higher could last another week or so, which is why I am focusing on short/quick intraday movements like Friday’s SP500 Intraday Low Risk Setup, and not buying etf funds to hold for a few weeks. Most of you know I do not chase prices higher simply because down side risk increased when buying into an over extended rally.

I feel gold, silver and oil will move together and at this time, I don’t like their charts for trading. With any luck we could get some setups this week, but not counting anything just yet.

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Phil Flynn: Worms in Space

Yesterday the petroleum markets were all about trying to digest the weekly inventory reports. Refineries are running at the lowest level since the 1980’s if you exclude time when refineries were shut down for hurricanes and this shows that demand is lousy. Yet at the same time there are fears that we are finally getting down to a point where refiners have cut back enough to meet slowing demand. Despite this fascinating study of supply versus demand, we will get more into what really made the market pop and drop and that was a story from the AP that was released again by the AFP on the Dow Jones commodity wire.

A breaking oil market seemed to rally quickly after a headline crossed that said, “WHITE HOUSE: Reported rocket launch by Iran would be a provocative act.” Oh my gosh! Rocket launch! What was that, Get Me Out! Well that seemed to be the reaction or a higher buy got triggered but the story had come out earlier. The report did say that the White House reported a rocket launch by Iran would Be a "provocative act.", but the White House was still checking out reports of the launch. The Kavoshgar 3 (Explorer) rocket was launched Wednesday, Iranian state-owned Al-Alam television reported.....Read the entire article.

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New Video: As the Dow Goes, So Goes the Country

The Dow has managed to claw back 50% of the losses that occurred in 2007 and 2008. The question now is, what’s ahead?

In our new video we share with you some of the ideas that we are looking at for this index. We believe we are at a very important crossroads and would not be surprised to see this market lose ground in the next 3 to 6 months. In the video we also show you exactly what we are looking at that will confirm a major top for this index.

Just click here to watch the new video and as always our videos are free to watch and there is no need to register.

Good trading,

Ray C. Parrish
President/CEO
Crude Oil Trader

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Two Major Forces Collide in the Index Markets

On Wednesday, 11/11/09, the Dow Jones Industrial Index rallied to a 50% retracement level based on MarketClub’s Fibonacci measuring tool. The action today indicates that this level is very important and that it could be an important top for this market.

In our latest video we cover both the Dow and the S&P 500 and tell you what we think is going to happen to both of these markets in the near and intermediate term.

Just Click Here to watch our latest video and as always our videos are free to watch and there’s no need to register. Please take a moment to let us know what you think of the video by leaving a comment.

Ray C. Parrish
President/CEO, The Crude Oil Trader

Total CEO Says Oil Prices Could Hit $145 by 2014

Total's Chief Executive Christophe de Margerie foresees the price per barrel of crude oil surpassing $145 in the near future, reports Dow Jones Newswires. In an interview with Le Parisien published Friday, the head of the French oil major said, "We risk to face a new oil crisis at a time when demand will surpass supply in 2014/15."

"It is urgent that we invest," Margerie added. Margerie revealed that Total has bank accounts in "tax havens," and should a decision be made at an international level, the company would be prepared to withdraw the money, Dow Jones reported.

From the staff at Rigzone

Oil Falls From a Three Week High on Faltering Economic Recovery

Crude oil fell from a three week high after U.S. stock futures eased on weaker than expected company earnings, renewing concern the recovery from the global recession may falter. Oil has increasingly moved in tandem with the Dow Jones Industrial Average. The two are showing a correlation of 0.7 in the past month, up from 0.06 in the month to Dec. 31, according to data compiled by Bloomberg. U.S. gasoline and distillate fuel inventories climbed for a sixth week, signaling demand in the world’s largest energy user has been slow to rebound.....Complete Story

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OPEC Output Cut Likely if Oil Falls Below $55

OPEC will likely cut production if crude oil prices fall below $55 a barrel by September, a member of Kuwait's Supreme Petroleum Council (SPC) said Wednesday. "OPEC will get concerned if the price goes to $55 or below because that's where a lot of revenue will be lost from lower prices, regardless of demand," Imad al-Atiqi told news agency Zawya Dow Jones in a phone interview. "Most of these countries, including Saudi Arabia, need the price to be above $55-60 to maintain budget expenditures," he added. The SPC oversees Kuwait's oil interests......Complete Story