All stock or even energy markets do not peak or bottom at the same time. Let’s consider the stock markets first.

All stock or even energy markets do not peak or bottom at the same time. Let’s consider the stock markets first.

The Russell 2000 is an index of smaller companies. It just hit a new high, up 11% this year. Apparently investors worried about a trade war are finding shelter among firms not so involved in international exchange. Tech has also been on a tear up from 6,300 to 7,300 this year. Notably a handful of stocks have added most of the gains there, Google, Netflix, Facebook, Apple, and Priceline.

This is not the case with the broader industrial indexes. The S & P 500 peaked along with the DJIA at the end of January, 2018. Both have trended sideways since. The S & P is in an uptrend since April but still below the January high. The weakest of the large indexes is the Dow Industrials DJIA. The DJIA has dropped the last eight days in a row but is up a weak 100 points in pre-market Friday trading. The DJIA just recorded its third lower high since January. And various momentum indicators are starting to roll over to the downside. As I have previously noted, the weekly chart is still in a strong uptrend. On the other hand the weekly chart has not re-visited its 200 bar moving average since January, 2016, two and a half years. It could drop 5,000 points just to test the 200-week moving average. A technician would conclude a correction to the two year run-up is underway.

A more fundamental analyst would not doubt point to the growing evidence of an international trade war. So far Wilbur and Donald have only angered our best trading partners, Canada and Mexico, and raised steel prices here and probably cut back on US agriculture exports. This past week China did not levy tariffs on Liquefied Natural Gas LNG. The simple reason is that China needs the LNG. This is good news for the Port of Corpus Christi.

Our prediction of lower crude prices was correct as it dropped from $73 to $65. I suspect however this is not over yet. There is ample supply and producers in the Permian Basin are still not getting $65. The 200-day moving average is $60.71. I expect that is the next price level to be tested. Donald might as well take credit for lower gasoline prices. Unleaded futures are down from $2.25 to $2.00. I suspect the next target is the cluster of moving averages at $1.75-1.80.

The bottom line is to exercise caution in any purchases at this time. Momentum has left the trading room.

Dennis Elam is a professor at Texas A&M San Antonio and may be reached at dennislelam@gmail.com.