Best of the Week
Most Popular
1.Is the Stocks Bull Market Over? Dow Trend Forecast into End January 2015 - Nadeem_Walayat
2.Gold and Silver Stocks Apocalypse Now, Bear Market Review - Rambus_Chartology
3.NHS Baldrick Plan to Spread Ebola Across UK - Sheffield, Newcastle, Liverpool, London Hospitals - Nadeem_Walayat
4.Ebola Terror Threat Suicide Bio-Weapons Threatens Multiple 9/11's, Global Plague - Nadeem_Walayat
5.Second-Richest Man Says Mortgages Now a "No Brainer" - Dr. Steve Sjuggerud
6.Gold And Silver Still No End In Sight - Michael_Noonan
7.NHS Baldrick Plan to Spread Ebola Across UK - Sheffield, Newcastle, Liverpool, London Hospitals - Nadeem_Walayat
8.The Gold Bug is Set to Bite Back - EWI
9.How Alibaba Could Capitalize on the EBay-PayPal Split - Frank_Holmes
10.The Consequences of the Economic Peace - John_Mauldin
Last 5 days
Gold And Silver Price - Respect The Trend But Prepare For A Reversal - 25th Oct 14
Ebola Has Nothing To Do With The Stock Market - 25th Oct 14
The Gallery of Crowd Behavior: Goodbye Stock Market All Time Highs - 25th Oct 14
Japanese Style Deflation Coming? Where? Fed Falling Behind the Curve? Which Way? - 25th Oct 14
Gold Price Rebounds but Gold Miners Struggle - 25th Oct 14
Stock Market Buy the Dip or Sell the Rally - 25th Oct 14
Get Ready for “Stupid Cheap” Stock Prices - 25th Oct 14
The Trend Every Nation on Earth Is Pouring Money Into - 25th Oct 14 - Keith Fitz-Gerald
Bitcoin Price Decline Stopped, Possibly Temporarily - 25th Oct 14
Bullish Silver Stealth Buying - 24th Oct 14
Blood in the Streets to Create the Gold Stocks Investor Opportunity of the Decade - 24th Oct 14
Swiss ‘Yes’ and ‘No’ Gold Initiative Campaigns Compete at Launches in Bern - 24th Oct 14
War And The Law Of Unintended Consequences - 24th Oct 14
Tesco Meltdown Debt Default Risk Could Trigger a Financial Crisis in Early 2015 - 24th Oct 14
Saudi Move to Cut Oil Prices Is Now Russia's Biggest Economic Threat - 24th Oct 14
US Stock Market Top Is Now In Sight - 24th Oct 14
New Profit Points in the Shifting Balance of Power, Welcome to Saudi America - 24th Oct 14
QE Failure & Folly Of Paper Mache, Treasury Bond Integrated Lifeline Patches - 24th Oct 14
U.S. Economy Faltering Momentum, Debt and Asset Bubbles - 23rd Oct 14
Annuities - Afraid Your Money Will Vanish before You Do? - 23rd Oct 14
What Debt Deleveraging? - 23rd Oct 14
How to Profit from Massive Spin-Offs with Just One Play - 23rd Oct 14
Evaluating Ebola as a Biological Weapon - 23rd Oct 14
Euro, USD, Gold and Stocks According to Chartology - 23rd Oct 14
Why You Should Always Be Invested in the Stock Market (Even Now) - 23rd Oct 14
Five U.S. Housing Market Warning Signs Point to Real Estate Market Downturn - 23rd Oct 14
The Better Short: Gold or Silver? - 23rd Oct 14
Focus on Graphite Companies with Green Energy and Technology Strategies - 22nd Oct 14
Crude Oil Price Hitting Bottom - 22nd Oct 14
Evidence of Another Even More Sweeping U.S. Housing Market Bust Already Starting to Appear - 22nd Oct 14
Gold Or Crushing Paper Debt Stocks Crash? - 22nd Oct 14
India Gold Demand Surges 450% and Bank of Russia Demand At 15 Year High - 22nd Oct 14
Bitcoin Stock Exchange Could Be "More Valuable than Alibaba" - 22nd Oct 14
Currency War - How to Profit from a Stronger U.S. Dollar - 22nd Oct 14
Banks Hold Treasuries and Make Loans- 22nd Oct 14
Gold and Silver Timing is Everything - 22nd Oct 14
Don't Get Ruined by These 10 Popular Investment Myths (Part VII) - 22nd Oct 14
Follow the Baby Boom to Biotech Stock Profits - 22nd Oct 14
Copper, Nickel and Zinc Won't Be Cheap for Long - 22nd Oct 14
How Will We Know That the Gold & Silver Price Bottom Is In? - 21st Oct 14
Is Gold as Dead as Florida Hurricanes? - 21st Oct 14
First Swiss Gold Poll Shows Pro-Gold Side In Lead At 45% - 21st Oct 14
The Similarities Between Germany and China - 21st Oct 14
The REAL Reason Why the Stock Market Turned Down - 21st Oct 14
Petrobras is a 'Scheme, Not a Stock' - 21st Oct 14
Stocks Bear Market Indicator Is Off the Mark - 20th Oct 14
Stock Market Ideal Turning Point is at Hand - 20th Oct 14
Investors Quit Complaining, The Environment is Perfect Right Now - 20th Oct 14
Ebola Armageddon Could Trigger a Rebirth in Gold and Silver Prices - 20th Oct 14
Gold vs Euro Risk Due To Possible Return of Italian Lira - Drachmas, Escudos, Pesetas and Punts? - 20th Oct 14
Stocks Rebounded Following Recent Sell-Off, But Will It Last? - 20th Oct 14
U.S. Responsible for West Africa Ebola Outbreak Says Liberian Scientist - 20th Oct 14
Stock Market Intermediate B Wave has Started - 20th Oct 14
Gold Stocks Analysis – FNV, CG, NCM, SBM - 19th Oct 14
Stock Market Primary IV Wave Counter Trend Rally - 19th Oct 14
Gold And Silver - Financial World: House Of Cards Built On Sand - 18th Oct 14
Anatomy of a Stock Market Sell-Off - 18th Oct 14
Why OPEC Has Declared an Oil War on Russia - 18th Oct 14
Gold and Silver Extreme Shorting Peaks - 18th Oct 14
Bitcoin Price Fall to $350? - 18th Oct 14
Tesco Supermarket Crisis Worse To Come as Customers Vanish! - 18th Oct 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stocks Epic Bear Market

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