Best of the Week
Most Popular
1.UK House Prices BrExit Crash NOT Likely Despite London Property Market Weakness - Nadeem_Walayat
2.BrExit Morning - New Dawn for Britain, Independence Day! - Nadeem_Walayat
3.LEAVE Wins EU Referendum - Sterling and FTSE Hit Hard, Pollsters, Bookies and Markets All WRONG! - Nadeem_Walayat
4.BrExit Implications for UK Stock Market, Sterling GBP, House Prices and UK Politics... - Nadeem_Walayat
5.Trading BrExit - Stocks, Bonds, Sterling, Opinion Polls, Bookmaker Odds and My Forecast - Nadeem_Walayat
6.FTSE and Sterling Brexit Trading, Deconstruction of the EU Referendum Result - Nadeem_Walayat
7.UK Interest Rate Cut to 0.25% Imminent and More QE Money Printing - Nadeem_Walayat
8.Trading BrExit - British Pound Plunges, FTSE Stock Futures Slump on LEAVE Shock Referendum Win - Nadeem_Walayat
9.The Stock Market is Reading it Wrong! - Chris_Vermeulen
10.Breakouts Galore in Gold and Silver - Jordan_Roy_Byrne
Free Silver
Last 7 days
The Next Recession is Coming - Expect Around 0% Returns for the Next 7 Years - 29th July 16
SPX is Shaking and Rolling - 29th July 16
Stock Market Insiders Are Secretly Selling, Cycle Top Next Month - 28th July 16
FOMC Interest Rates and Their Impact on the US Economy - 28th July 16
The State Of The Economy - 28th July 16
Elliott Wave Crash Course - 3 Ways the Elliott Wave Principle Enhances Your Trading - 28th July 16
Japan's "Helicopter Money" Play: Road to Hyperinflation or Cure Debt Deflation? - 27th July 16
Monetary Zika - The Insidious Nature of Credit Expansion - 27th July 16
Gold and Pork Bellies - 27th July 16
Silver Is Insurance Against The Worst Part Of This Depression - 27th July 16
Don’t Buy The SPX Hope Stock Market Rally! - 27th July 16
Bitcoin $650 Still in Play - 26th July 16
Deutche Bank Stock Price Crash - The EU Has Problems Far Beyond the Brexit - 26th July 16
The Forex Markets Are Getting Exciting! - 26th July 16
Underpriced Silver Is the “Rip Van Winkle” Metal - 25th July 16
Declines in Multiple Market Indexes - 25th July 16
Retailers Are Doomed as Most Americans Are Too Poor to Shop - 25th July 16
Here’s One Currency That Could Go to Zero - 25th July 16
Stock Market Top is Expanding - 25th July 16
Silver Manipulation – Because They Needed the Eggs - 25th July 16
Silver Market COT Stuns: What's Going On Here? - 24th July 16
Gold Demand Remains Stable During Sector Weakness - 24th July 16
Sernova, Diabetes and Haemophilia - 24th July 16
Russia: Tensions, Turmoil, and Western Hubris - 24th July 16
Soybean Commodity Price to Soar Again - 23rd July 16
SPX Stock Market Uptrend Continues - 23rd July 16
Gold And Silver – Debt Addiction Will Carry Precious Metals Higher, Guaranteed - 23rd July 16
Pokemon Go - How to Play, First Use, Balls, Stops, Catching Pokemon's... Great Excercise! - 23rd July 16
7 Signs That the Gold Market Remains Resilient - 23rd July 16
Basic Income in The Time of Crisis - 23rd July 16
Silver Bull Faces Correction - 22nd July 16
The Serious Warning No One’s Talking About - 22nd July 16
Stock Market Insight from Greed, Volatility, and Put/Call Ratio - 22nd July 16
What Will Happen To the Stock Market When Interest Rates Rise? - 22nd July 16
How to Escape the World’s Biggest Ponzi Scheme - 22nd July 16
Addicted to Debt - We Can’t Borrow from the Future Anymore - 21st July 16
Not Everything Is Bullish for Gold - 21st July 16
Don’t Get Sucked Back Into the Stock Market - The Big Picture Hasn’t Changed - 21st July 16
Silver – Caught Inside - 21st July 16
Forex: "The Markets Are Getting Exciting!" - 20th July 16
China Economic Troubles - Is Kyle Bass Finally Getting His Revenge? - 20th July 16
Why Lithium Will See Another Price Spike This Fall - 20th July 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Power of the Wave Principle

US Toxic Economy and the Questionable Stock Market Advance

Stock-Markets / US Stock Markets May 19, 2008 - 07:04 AM GMT

By: Tim_Wood

Stock-Markets Best Financial Markets Analysis ArticleThe equity markets continue to advance out of the January/March lows, commodity prices surge, oil continues to hit record highs and the consumer is now pulling back in a big way. History tells us that manipulation ultimately fails and that it typically only serves to make matters worse in the end. Well, when looking at what is physically happening around me, if the technical picture that I now see developing continues to unfold, then the backlash from the attempts to “stimulate the economy” may have now created a witches brew with a not so happy ending.


First, I want to begin with the equity markets. My intermediate-term Cycle Turn Indicator turned up at the March lows just as the dumb money indicators that I follow were recording the most bearish sentiment readings since the 1998 4-year cycle low. Yes, that's right. By this measure we saw even more bearish sentiment readings surrounding the March 2008 low than we did at the 2002 4-year cycle low. When my intermediate-term Cycle Turn Indicator turned up in conjunction with that low and these extreme readings I told my subscribers then that the extended move into the 4-year cycle low had likely found its mark. To date, I continue to believe that the 4-year cycle low was made back in January on the Industrials and the Transports and in March on the S&P 500.

However, the question now is: “How long does the advance up out of that low last?” Back in the fall of 2007 Jim Puplava announced his “Oreo theory,” which called for a decline into the first part of 2008. This analogy then called for a rally as we hit the creamy filling and then once we worked through the creamy filling there would be more weakness. The first time I heard this analogy I agreed with it because fit perfectly with the technical landscape that I was watching. So, as I said back in March, we have made it to the creamy filling. But, now in order to know when we reach the end of this filling I have to monitor my statistical data, the cyclical structure and my Cycle Turn Indicators at the various levels along with the other technical indicators that I follow.

In the chart below I have included the Dow Jones Industrial Average along with the NYSE cumulative advance/decline line. One of the issues that I am now seeing with this rally is the light volume and lagging breadth. Price bettered its February 1 st high on April 18, 2008. It was not until Friday that the NYSE cumulative advance/decline line finally bettered its February high.


For those that question the integrity of the NYSE data because of the interest sensitive securities, I have also included in the next chart below the Industrials along with the AMEX cumulative advance/decline line. Here you can see that the AMEX, stock only, advance/decline line is lagging badly. The fact that breadth is not expanding along with the price advance is reason to question the health of this advance.

But wait, it gets worse. Below I have included a chart of the Nasdaq 100 along with the cumulative Nasdaq advance/decline line. First I want to point out that the divergence, or non-confirmation seen surrounding the October 4-year cycle top was even more pronounced here than it was by the other two advance/decline lines. Secondly, as price has advance out of the March low the NDX 100 has moved up some 21% as opposed to a 13% advance by the Industrials. Yet, the breadth expansion seen by the Nasdaq is anemic at best. Again, the fact that this advance is occurring without an increase in breadth is not a healthy sign for a brand new 4-year cycle advance. Should breadth begin to build in the weeks ahead, then I would feel much more comfortable about the future of this 4-year cycle advance. But, until such time this serves as one of many reasons that I am beginning to question the sustainability of this advance.

Another item that is contributing to the toxic American economy is rising commodity prices and the stagnate business environment that rising commodity prices have caused. Let me give you a few examples. This past week I went to my local lube and car wash. The manager and I were talking while I was waiting on my vehicle to be washed. He told me that a year ago they would do anywhere between 80 and 100 oil changes in a typical day. But, with the rising fuel prices business has dropped to an average of somewhere between 50 and 60. As for car washes, he said that they were doing upwards of 400 a day. At present, business has dropped to between 60 and 100 per day.

Another friend of mine is a boat dealer and sells bay boats and pontoon boats. This time last year you could go by his store and you could hardly talk to him because he was so busy. I remember needing something and literally not being able to get to him. He told me this week that June is his peak month and it was absolutely dead at his store. He said that he counts on the summer sales to help carry him through the winter season. He is now worried about making it through the summer. There was also another local business owner present and he too is also now feeling the exact same pain.

In yet another example, I needed a trailer ball so I stopped in at a truck accessory store. It was also dead there and I quizzed the owner. He too was telling me how slow it had gotten. He said that recently he had 13 employees between all of his sales and installation people. He is now down to one sale person, a secretary, one installer and himself. He said that it is now costing him to keep the doors open. He had a beautiful black 4-door F-250. He said that it cost $170 to fill it up and he had it parked in the shop and is no longer driving it.

Here's another one. I went to the local mall with my wife this week. She knows the lady that runs one of the shops in the mall. This lady is looking for a job because sales are so bad that the company is not going to renew its lease this summer and will be closing the doors.

In yet another example, I was talking to a lady at the local gym. Yes, I talk with everyone trying to get a feel for things. Anyway, she was telling me that they are now seeing gym memberships declining.

I also know people at one of the local giant home improvement stores. Sales are down and I am being told that they are not refilling positions in an effort to cut overhead. This slow down is not just affecting the small business owner. It is hitting everyone.

The so called “stimulus package” was like handing a band aid to a Ted Bundy victim. Rising commodity prices are now squashing the economy. On top of that the stock market advance is so far anemic. It may last a while longer, but when my intermediate-term Cycle Turn Indicator turns down, it will be a time for extreme caution. I personally feel that at this time the current 4-year cycle is setting up to be the polar opposite of the last one. What I mean here is that the last 4-year cycle stretched and advance for 60 consecutive months, finally peaking in October 2007. The current 4-year cycle should ideally contract slightly and is shaping up to potentially top much much sooner than the last 4-year cycle. In fact, this 4-year cycle is at risk of topping much sooner than the historical norm and if this does in fact occur the statistical implications would be disastrous.

Now I want to speak briefly about commodities. Many have misunderstood my previous comments. I have not said that commodities have topped. What I have said is that we are entering a “cyclical window of opportunity” in which a major top could occur. I have also said that I think there is a reasonable chance that this top could occur. At present, I have absolutely no confirmation that any such top has in fact occurred. When I look at the statistical and technical data surrounding commodity prices it tells me that if commodities should fail to top as we approach this “cyclical window of opportunity,” then by default this data will be telling us that commodity prices will continue to rise until we move into the next “cyclical window of opportunity” for a top, which would then be years away. These details have been and will continue to be covered in my monthly newsletter. When I consider the impact that I'm already seeing on the American consumer I just don't see how we could possibly stand several more years of rising commodity prices. It is in part for this reason that I have to think there is a reasonable chance we could see commodities top within the nearing window.

So, on top of the unhealthy stock market advance we have a tapped-out and fed-up consumer. People are without a doubt pulling back as rising prices have choked off discretionary spending. We also have poor business conditions as a result. In the meantime, both commodity prices as well as the stock market continue to rise. If commodities miss their upcoming opportunity to peak, then the fallout from still years of escalating prices will hit the consumer very very hard and my guess is that that would indeed knock the stock market to its knees. At the same time, I think it is also possible that given what is so far a weak rally by the stock market and the tapped out consumer, both the stock and commodity markets could find themselves on the way down in a much bigger way than most people can currently imagine.

The key to these developments lie with my statistical data and the Cycle Turn Indicators, which I cover in great detail in the monthly newsletter. The bottom line is that we have a weak equity rally, rising commodity prices, poor business conditions and a tightening consumer. The price action this summer as we move into the potential turn points are beyond important and I can tell you now that we had best pray for a top in commodities. Otherwise, rising commodity prices beyond the statistical turn point will set the stage for rising commodity prices for years to come.

I have begun doing free Friday market commentary that is available at www.cyclesman.com/Articles.htm so please begin joining me there.

By Tim Wood
Cyclesman.com

© 2008 Cycles News & Views; All Rights Reserved
Tim Wood specialises in Dow Theory and Cycles Analysis - Should you be interested in analysis that provides intermediate-term turn points utilizing the Cycle Turn Indicator as well as coverage on the Dow theory, other price quantification methods and all the statistical data surrounding the 4-year cycle, then please visit www.cyclesman.com for more details. A subscription includes access to the monthly issues of Cycles News & Views covering the stock market, the dollar, bonds and gold. I also cover other areas of interest at important turn points such as gasoline, oil, silver, the XAU and recently I have even covered corn. I also provide updates 3 times a week plus additional weekend updates on the Cycle Turn Indicator on most all areas of concern. I also give specific expectations for turn points of the short, intermediate and longer-term cycles based on historical quantification.

Tim Wood Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife