Best of the Week
Most Popular
1.Stock Market in DANGER of Strangling the Bears to Death - Nadeem_Walayat
2. Germany Pivoting East, Exit US Dollar, Enter Gold Standard - Jim_Willie_CB
3.Flight MH17 – Kiev Flash Mob's Last False Flag? - Andrew_McKillop
4.Stock Market Crash Nightmare! - Nadeem_Walayat
5.Gold - The Million DOLLAR Question... - Rambus_Chartology
6.Gold And Silver – BRICS And Germany Will Pave The Way - Michael_Noonan
7.The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - Nadeem_Walayat
8.The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - Felicity Arbuthnot
9.Which Way is Inflation Blowing? Watch Commodities - Gary_Dorsch
10.U.S. Economy Quarterly Review and Implications for 2014-2015 - Lacy Hunt
Last 5 days
More Weakness Ahead for Gold Miners - 25th July 14
Gold Price Strong Season Starts - 25th July 14
Geopolitics and Markets Red Flags Raised by the Fed and the BIS on Risk-taking - 25th July 14
Gold Lockdown Until Options Expiry - New Singapore Gold Contract Threatens Price Manipulation - 25th July 14
The Bond Markets, Black Swans, and the Tiny Spirit of Santo - 25th July 14
No Road Map For Avoiding The Future - 25th July 14
Israeli War Machine Concentrating Women and Children into UN Schools Before Killing Them - C4News - 25th July 14
Israeli Government Paying Jewish Fundamentalist Students to Post Facebook Gaza War Propaganda - 25th July 14
Why the Stock Market Is Heading For A Fall - This Time Is Not Different - 25th July 14
An Economic “Nuclear Strike” on Moscow, A “War of Degrees” - 25th July 14
BBC, Western Media Working for Israeli Agenda of Perpetual War to Steal Arab Land - 25th July 14
Ukraine: What To Do When Economic Growth Is Gone - 24th July 14
Stock Market Clear and Present Danger Zone - 24th July 14
The Five Elements to Creating a Something-for-Nothing Society - 24th July 14
Instability is the New Normal? - 24th July 14
Israel's Suicide Bombers Over Gaza - 24th July 14
EUR-AUD Heads Into The Danger Zone - 24th July 14
Tesco Supermarket Death Spiral Accelerates as Customers HATE the Mega Brand - 24th July 14
Ukraine MH17 Crisis - Best Remember Who Your Friends Are - 24th July 14
Three Reasons Why Gold Price and Gold Stocks Will Rise - 24th July 14
HUI Gold Bugs Fighting To Break Downtrend - 23rd July 14
What Putin Knows About Flight MH17 - 23rd July 14
Why Microsoft Will Continue to Rebound, Huge Upside Potential - 23rd July 14
Will Putin Survive? - 23rd July 14
MH17 Crash Next Phase Economic Warfare - 22nd July 14
The TRUTH about China’s Massive Gold Hoard - 22nd July 14
Forex Multi-week Consolidation in EUR/USD Ended - 22nd July 14
Bitcoin Price Medium-term Trend Being Tested - 22nd July 14
Beware Of The Flash Mob - 22nd July 14
Can Putin Survive? - 22nd July 14
Israel Assault on Gaza: A Historic Crime, Nazi Like Final Solution - 22nd July 14
Zionist Israel an International Pariah - 22nd July 14
Reflections on the Global Misery Index - 22nd July 14
GDP Economic Statistic : A Brief But Affectionate History - 22nd July 14
TransTech Digest: Super Battery Bio-Power vs. Dirty CleanTech - 21st July 14
How to Find Trading Opportunities in the Currency Markets - 21st July 14
Stock Market One More Pull Back - 21st July 14
The Conquest Of Real - Degenerate Philosophies of the Book - 21st July 14
A Clear Way to Profit from a Graying Population - 21st July 14
Last Chance Critical Financial Market Forecasts Special Total Access - 21st July 14
Stock Market Crash Nightmare! - 21st July 14
Why the Stock Market Is STILL Cheap - 21st July 14
From Gore-Bore To Gore-War - 21st July 14
Gold Price Looking Drab - 21st July 14
An In-Depth Look at Gold Chartology - 21st July 14
The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - 20th July 14
AUD NZD Taking The Forex Bull By The Horns - 20th July 14
US-backed Israeli Invasion of Gaza Unleashes Death and Destruction - 20th July 14
The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - 20th July 14
Stock Market in DANGER of Strangling the Bears to Death - 20th July 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

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

© 2005-2014 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

Free Report - Financial Markets 2014