Timing & trends
I implement these “seasonality” charts as they have been a great framework into all of my trading/investing technical analysis. Seasonality charts are constructed from the past thirty years of historical data.
I implement them as “contrarian indicators”. The “extreme bullishness” is perceived as bearish and the “extreme bearishness” is perceived as bullish!
In the chart below, it displays the spread between the percentage of bulls and percentage of bears rather than just looking at bulls or bears in ‘isolation’. Many deeper internals of the BIGGER PICTURE of the overall market sentiment become more relevant!
The sentiment consensus scenario seems to be ‘lulling’ everyone to become “extremely bullish” which is a FLASHING RED WARNING SIGNAL.
The chart below displays only the total put/call ratio to provide the most comprehensive view of options sentiment. A high put/call ratio indicates “negative sentiment”.
Latest Value(s):
- Last Reading: 0.33: JULY 28th, 2017
Extreme Values:
- Excessive Optimism: 0.2
- Excessive Pessimism: -0.2
The Rule:
If the 4-week average of the CBOE total put/call ratio is less than or equal to 0.90 (indicating optimism), you should be out of the market!
Current Reading: 1.08
Data Source: CBOE
Seasonal trends are extremely helpful in identifying typical supply/demand patterns or even new trend changes. These are self-reinforcement patterns that have emerged over time and can be taken advantage of over the years as they have proven to be highly reliable. I use ‘seasonality’ as a secondary concern for any analysis.
“Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria.” -John Templeton
Is The Party Over?
It is not a coincidence that within the same window of time of the writing of this market report, Howard Marks, a quant strategist at JPMorgan, is issuing an alarm regarding the markets!
I quote him as saying “the upcoming mean-reversion will leave many in ruin, and that while there is still time to get out of the market, we may be very close to the turning point”.
Colin Cieszynski, the Chief Market Strategist at CMC MARKETS in CANADA, noted that Thursday’s (July 27th, 2017), “breakout to a new all-time high by the Nasdaq 100 and subsequent sell-off was a bearish key reversal day that may represent the peak of the recent bull market. Other bearish signs emerging include a negative RSI divergence and a failure at 6,000 a big round number”.
It seems that everyone is distracted by many topics including discussions of inflation, Fed fund rates and the lack of progress of the Trump administrations’ policies and yet no one is addressing the continuing rise of our already massive debt. The money to drive these markets higher has been borrowed. While this can continue for quite some time, it is not a solid fundamental factor of stability.
There is not a strong argument to be long stocks now, other than the fact that the trend remains up, and we have yet to see total euphoria in the market.
Sector rotation is strong and it is warning that skilled traders and insiders are moving their money around to only be in the hot spots and avoiding those of weak. This is what happens during late stages of a bull market. In fact, we say this last year and the markets were on the verge of rolling over until Trump became president and that rejuvenated the markets for one last bull market surge before the end.
While analysts like the two quoted above are yelling the sky is falling, It’s not the case just yet but the end is nearing and next year could be the year to be heavily invested in cash and digital currencies.
Currently the SPX continues to trade around our upside price target. There is little room left on the upside. When confirmed, a correction of 150 points to 200 points is highly probable on the SPX! I will immediately send out an ALERT, followed by a new market analysis update. With new positions that need to be added, to my subscribers.
Based on rough mathematical projections, it will be approximately no greater than 10%, but a minimum of at least 5%. Traders and Investors will feel like the U.S. equity markets are crashing, but they aren’t. It’s just a much-needed CORRECTION!
My general rule is that a trend is in effect until it proves that it is NOT!
American consumers have reached an almost -record level of optimism over the past 8 months. It is not the most perfect timing mechanism. The only other times that optimism for rising stock prices occurred, over such a long-time, was when it reached those levels in June 1987, December 1997, June 1999, and January 2004, which were all followed my mutli-month corrections.
Conclusion:
In short, active traders should be defensive over the next few days as we could have one more bout of selling in stocks and a spike in the vix Thrusday/Friday as we forecasted in our last article. I feel the best plays right now are short metals, short oil, long dollar.
By Chris Vermeulen
Big international oil companies are currently generating more cash at around-US$50 oil price than they did when the price of oil exceeded US$100 in early 2014, Goldman Sachs reckons.
“Simplification, standardization and deflation are repositioning the oil industry for better profitability and cash generation in the current environment than in 2013-14 when the oil price was above $100 a barrel,” Goldman Sachs analysts said in a research note on Wednesday, as quoted by Bloomberg.
…also from Oilprice.com:
The following is part of Pivotal Events that was published for our subscribers July 27, 2017.
Perspective
The political numbers for Europe are startling. With 23% of the world’s GDP, it foots the bill for 58% of the world’s welfare spending. Clearly not a system designed for sound economic calculation. In 1848, Bastiat observed: “The state is the great fictitious entity by which everyone seeks to live at the expense of everyone else.” Politically motivated bullies seem compelled to keep trying to justify the distortions. Why?
And then there are continuing reports of record cold weather and snowfalls in both hemispheres in the same month. Quite likely this is unusual and the combination could be part of a trend change in climate. Weather reports of highs in both hemispheres would suggest that the old warming trend is still on.
On the nearer-term, it strongly suggests that the 2016 El Nino warming weather event is over. The Solar Minimum continues. None of this is being reported by the MSM, which suggests there could be some cold-weather surprises when the Northern Hemisphere tilts into winter.
Stock Markets
Is the market up when it should be? Yes. On the last Springboard Buy in April we had a target for speculative excesses to be reached at “around June”.
Are there signs of speculation? Technical indicators have reached excesses only seen near major stock market peaks.
How sound is the fundamental story? The Trump “reformation” will significantly improve the economy. Which while “in the market” is not yet in place. But it brought the public in. Ironically, central bankers continue to add equities to their reserves.
As the ChartWorks noted a couple of weeks ago, the slide in the dollar is materially helping on the recent advance. In turn, this has been exciting London and European stock markets.
Along with the probability of a speculative thrust into early summer, was that the NY market would also make a thrust into September.
Other support has been likely from industrial commodities being firm into August. It adds up to new highs for the senior indexes as well as confirmation of the bull market with the Transports making new highs a week ago. This was also the case in July 2007.
This is similar to the patterns in 2007. In which case, the action in the credit markets is critical. In this regard, there is no need to limit the examples. Bull markets become overdone and become vulnerable to changes in the curve and spreads. And at extremes, there is no evidence of the senior central bank preventing the reversal.
Currencies and Commodities
Our June 28th Pivot concluded that the decline in the DX could continue to the 93 to 92 level, with the Weekly RSI close to 30.
Yesterday’s low was 93.1 and the RSI was down to 28, which is the most oversold on this measure since April 2011. This suggests that the worst of the decline is in the market. Yesterday’s ChartWorks outlined the pattern that would conclude that the bottom is in.
Of interest, is that the dismal low of 72.70 in 2011 was accompanied by a rare signal from our Momentum Peak Forecaster. This had been calling for a speculative thrust in commodities to blow out in that fateful spring. Base and precious metals were the hottest items and we called for a cyclical bear market for both. In that bear markets for industrial commodities had accompanied recessions, we called for a recession. Which did not happen. The bear market did!
Last week, we noted that the Canadian dollar had reached resistance, which was also our target, at 80 and that the Weekly RSI was approaching the momentum reached in 2011. The high has been 80.6 yesterday and the RSI reached 72, which is the most overbought since November 2007.
Tuesday’s ChartWorks noted technical excesses for the Canadian.
The combination of excesses in both currencies is setting up a reversal, which could be associated with the end of this rally in industrial commodities. Our case has been that the latter would be firm into August.
The reversal could occur by late in the month or early in September. It could be profound.
Note the failure of the Nikkei and STOXX to confirm the new highs in the S&P
Link to July 28, 2017 Bob Hoye interview on TalkDigitalNetwork.com:http://www.howestreet.com/2017/07/28/gold-silver-ratio-volatility/
Listen to the Bob Hoye Podcast every Friday afternoon at TalkDigitalNetwork.com
One survey finds the lowest investor cash position since the stock market top in 2000.
Specifically, the July 2017 reading of investor cash came in at 14.5%. This was the lowest level in the survey since January 2000. In fact, the only lower readings in the survey’s history back to 1987 occurred in January-April 1998, July 1999 and November 1999-January 2000.
Precious metals investors may not be aware, but silver investment has seriously outperformed gold in this major market sector. Even though precious metals sentiment and sales are currently lower than they were over the past several years, this is only temporary pause before the market surges as the highly inflated stock market finally cracks and plunges lower.
When we start to witness a huge correction or crash in the broader stock markets, there only be a few physical assets worth owning to protect wealth. Investors moving into the precious metals at this time, will see their asset values increase significantly. However, silver will likely out perform gold as investors and speculators move into the more undervalued precious metal.
Actually, we have already witnessed this as physical silver investment versus jewelry demand has outperformed gold in the same market. Let me explain. While industrial demand is the largest consumer of silver in the market, silver jewelry demand has ranked second for quite some time. But, this all changed after the 2008 U.S. Banking Industry and Housing Market collapse.
For example, global silver jewelry demand in 2007 was 182 million oz (Moz) versus 62 Moz in silver bar and coin demand. Thus, physical silver bar and coin demand was only 34% of world silver jewelry demand:
However, during the U.S. market meltdown in 2008, physical silver bar and coin investment surged more than three times to 197 Moz, while silver jewelry demand stayed flat at 178 Moz. In just one year (2007 to 2008), physical silver investment accounted for 110% of global silver jewelry demand.
While silver investment demand fluctuated over the next seven years, it hit a record high of 291 Moz in 2015 as investors took advantage of low prices not seen since 2009. As physical silver bar and coin demand reached a new record in 2015, accounting for 128% of global jewelry demand that year.
Even though physical silver demand declined in 2016, it was still neck and neck with jewelry demand of 207 Moz each. Now, if we compare physical silver investment to jewelry demand versus gold, we can plainly see how silver has outperformed gold in this market.
Before the 2008 market meltdown, global gold physical investment of 14.4 Moz accounted for 18% of world gold jewelry demand of 79.5 Moz:
Even though physical gold bar and coin demand more than doubled in 2008 to 30.1 Moz, it still only represented 40% of global gold jewelry demand of 75.7 Moz. If we go back to the silver chart above, physical silver demand increased more than three times in 2008 (versus 2007) and accounted for 110% of global silver jewelry demand.
Yes, it’s true that in “Dollar terms”, investors bought more physical gold than silver, but as I have stated before…. it’s a matter of focusing on “how many ounces” you own, not “how much in Dollars.”
Regardless, physical gold investment reached a record 37.3 Moz in 2015 versus 77 Moz in gold jewelry demand. However, gold bar and coin demand in 2015 only accounted for 48% of gold jewelry demand compared to physical silver investment which represented 128% of silver jewelry demand during the same year.
What does this mean? It shows us that investors are buying a larger percentage of the silver supply than gold in relation to jewelry demand. Furthermore, physical silver bar and coin demand (291 Moz) in 2015 increased nearly five times the amount (62 Moz) in 2007, versus physical gold investment that only increased 2 1/2 times, from 14.4 Moz to 37.3 Moz during the same time period.
While many precious metals investors have become disillusioned by market fundamentals because they don’t believe they matter in a manipulated market, patience will reward those who remain committed. The reason I believe this has to do with my understanding of the Energy Market. Without my in-depth knowledge of the disintegrating global oil industry, I would also believe that the Fed and Central Banks can continue manipulating the markets for decades. However, time is not on their side.
This is why I try to educate precious metals investors about energy. If you understand the dire energy predicament we are facing, you would realize there are few assets to own in the future to protect wealth. I will be publishing an article shortly on the BIG 3 U.S. OIL COMPANIES latest financial results…. which continue to disappoint.
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