Best of the Week
Most Popular
1.Dow Stock Market Trend Forecast 2015 by Nadeem Walayat - Nadeem_Walayat
2.Gold And Silver – Forget The News. Silver $12 – 14? Gold $1,000 – 1,100? 5 - Michael_Noonan
3.A TOP Formation In Apple Inc. - Crash Condition Signal Recorded - David Harris
4.Gold Gets Safe Haven Bids But COMEX Has Stopping Power - GoldSilverWorlds
5.The Swiss 10-Year Bond Illustrates Central Banks` Flawed Monetary Policy - EconMatters
6.Exponential Explosions in Debt, the S&P, Crude Oil, Silver and Consumer Prices - DeviantInvestor
7.“Forgive Us Our Debts” – Only Way To Prevent Economic Meltdown - GoldCore
8.Is Russia Planning a Gold-Based Currency? - Marcia Christoff-Kurapovna
9.Stock Market Trend Forecast 2015 Video - Nadeem_Walayat
10.Gold GDX ETF Technical Analysis - Austin_Galt
Last 5 days
GGD Going for Mexican Gold - 27th Feb 15
Foreign Real Estate Is the New Swiss Bank Account - 27th Feb 15
10 Reasons Washington Has War Fever - 27th Feb 15
Gold and the Euro Tragedy, Iraq 3.0, Ukraine Conflict Three Ring Circus - 27th Feb 15
Deepak Chopra - New Age Genius or Bullshit Expert? - Video - 27th Feb 15 - Videos
New Greece Drachma Revealed Amid Bank Runs - Greeks Buy Gold Sovereigns - 27th Feb 15
Will Month Long Stocks Rally Continue? - 27th Feb 15
The Only Public Hedge Fund You Should Own - 27th Feb 15
UK House Prices Trend 2015 and the May General Election - 27th Feb 15
Why America is Ungovernable - The Republicans’ Civil War - 27th Feb 15
Gold vs Gold Stocks: Bullish Anomaly Developing? - 27th Feb 15
I Heart Capitalism, Nasdaq Stocks, Then And Now - 27th Feb 15
The Fed’s History of Assassination - 27th Feb 15 i
Gold Bull Market Forecast - Money Will Rotate Into These Dead Investments - 27th Feb 15
"Audit the Fed"? We've Already Done That (Well, Kind of) - 26th Feb 15
Forget Peak Oil; Worry About Peak Demand - 26th Feb 15
Currency Wars, Again - 26th Feb 15
The Fed Waited Too Long: Here Comes Inflation - 26th Feb 15
Investing Inertia Won’t Keep Your Cash Safe - 26th Feb 15
The Net Neutrality Scam - 26th Feb 15
Will Conservatives Out of Control Immigration Crisis Boost UKIP Election 2015 Prospects? - 26th Feb 15
EU Warns Ireland and Euro Zone of Debt Dangers - 26th Feb 15
Commodity Prices Set To Plunge Below 2008 Lows - 26th Feb 15
Ukraine Hyperinflation as Currency Plunges 44% in One Week! - 26th Feb 15
The State of the Global Markets 2015 - 53 Page Report - 26th Feb 15
NASDAQ New 15 Year High - Stock Market Death By Overdose - 25th Feb 15
12 Reasons Why Barry Ritholtz and Many UK Experts Are Mistaken On Gold - 25th Feb 15
Sugar Commodity Price To Sweeten Up - 25th Feb 15
Investor Profits from China 2,000-Year Unstoppable Trends - 25th Feb 15
How to Borrow Cheaply from a Government-Owned Bank - 25th Feb 15
Debt Be Not Proud - 25th Feb 15
Liberal Democrat Election Blood Bath - Could Nick Clegg Lose Sheffield Hallam? - 25th Feb 15
Wheat Commodity Price Technical Trend Forecast - 24th Feb 15
Bitcoin Price Might Stay below $250 - 24th Feb 15
Another Important Stock Market Inflection Point Approaching - 24th Feb 15
Gold: The Good, Bad, and Truly Ugly - 24th Feb 15
Eurozone Gold Holdings Increase to 10,792 Tonnes As “Reserve of Safety” Amidst Crisis - 24th Feb 15
Bird Doo; Yellen Goes to Congress - 24th Feb 15
Is Gold Investing Risk Free? - 24th Feb 15
The Bull Case For Gold Price 2015, and the Bear - 24th Feb 15
Europe - The Intersection of Three Crises - 24th Feb 15
Gold Price Just Needs More Time - 24th Feb 15
Gold Price Downtrend Looks Set to Continue - 23rd Feb
Silver Price Depressing Downtrend Will Eventually End - 23rd Feb 15
5 Reasons Why You Should Sell Amazon Stock - 23rd Feb 15
Global System Catastrophe Is Key Threat To Human Civilisation - 23rd Feb 15
Greece Crisis Yields Ideal Market Opportunities - 23rd Feb 15
Gold and Silver Stocks or General Stock Market Indices? - 23rd Feb 15
Swimming With Sharks: Goldman Sachs, Schools and Capital Appreciation Bonds - 23rd Feb 15
Stock Market - The Fed Still Has Your Back - 23rd Feb 15
Soybean Commodity Price Technical Outlook - 23rd Feb 15
Gold Weekly COTs and More - 23rd Feb 15
Stock Market New Highs With Weak Breadth - 23rd Feb 15
Greece Surrenders to Troika - 22nd Feb 15
This Greek Tragedy is a Global Farce - 22nd Feb 15
Copper Commodity Price Technical Outlook - 22nd Feb 15
U.S. Dollar and Investing in Gold Stocks - 22nd Feb 15
Is Putin's Russia Ready For Total Economic War With the West? - 22nd Feb 15
Stock Market New All Time Highs - 22nd Feb 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The State of the Global Markets 2015

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

© 2005-2015 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