This market analysis thing is tricky. The longer time passes the more clues we have.
This market analysis thing is tricky. The longer time passes the more clues we have. It now appears that crude oil prices are peaking and ending in a counter trend move from the February 2016 low near $26. Let’s take a look.
The price peak at $110+ occurred in the summer of 2013. The first wave down ended in January 2014. The clue that things were amiss is that Wave Two never rose to the previous high over $110, stopping just over $105. Then a third wave collapsed prices to the $40 level in early 2015. A fourth wave peaked just over $60 by summer 2015. This produced a myriad of articles on why $60 would be good for the industry, introduce needed risk calculations, and yes firms could make money at that level. It was not to be.
A final fifth wave lower carried prices to $25-26 by February 2016. Then amid endless reports of crude over supply, prices doubled to over $50. It appears that move is now ending. This means a downturn in price lies ahead. Also notice that price never re-gained the $60 level.
This analysis is corroborated by examining the price action in energy and service stocks. Anadarko, Chevron, and Apache both dropped over 2.5 percent Thursday. Exxon Mobil and Conoco dropped 1.5 percent.
Energy service heavy weights Schlumberger and Halliburton both dropped about 1.8%.
EOG has been on a tear, until last December. Price has now dropped form $108 to $95.64, down 1.9 percent Thursday. FRAK, an ETF of shale producers dropped 2.09 percent.
Natural gas prices are half their peak value of $6.50 now trading at $3.23. Expect this sector to be negatively impacted as well.
If your life savings are in energy shares this might be a good time to at least place sell stop orders.
I have taken a good bit of criticism for suggesting the stock market topped in 2014. The Transports did top then, dropping 30 percent, and then making a new high. Well, that early warning indicator is flashing a danger signal again. Transports topped March 1, along with the small cap Russell 2000. Moving averages on both have crossed to the downside.
Occasionally an event occurs that seems to galvanize social mood. But in fact the event follows social mood. Such an event was the UAL forcible removal of a passenger a week ago Sunday. He suffered a concussion and two missing teeth. He is now about to sue UAL.
The CEO of UAL handled this badly terming it a re-accomodation, as a video showed three Chicago Airport Police literally dragging the passenger from the airplane. In fact negative mood has been simmering against the airlines for sometime. The lengthy waits, body scans, over-booking, cancelled flights, and sardine like seating have made air travel slightly worse than the Greyhound. All of that became obvious with a public outcry this past week.
In January of 2011, a Tunisian street vendor set himself on fire in protest of government harassment. That ignited long simmering resentment against repressive governments resulting in regime change across North Africa. The removal of this passenger may function in the same way.
His lawyer correctly identified the negative mood already present in this pronouncement.
For a long time, airlines—United, in particular—have bullied us,” said attorney Thomas Demetrio, who is representing the passenger, David Dao, a 69-year-old physician. “You don’t treat the people who help make you the corporate entity you are like Dr. Dao was treated.”
Meanwhile the average automobile is already discounted $4,000. Auto loan lengths have expanded. Leaders are being impeached or tossed out of office from Brazil to South Korea. Bombs are falling in Afghanistan and Syria.
The rise of such negative mood is coinciding with apparent tops in equity and energy markets. Be prepared to take action.
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