Commodity prices tumble as deflationary scenario once again rises
Commodity prices such as oil copper and gold are in a steep downtrend. What do you think this means? To me, it means that the Federal Reserve is failing in its attempt to stop deflation. See SURPRISE INFLATION above. The fed has put interest rates down to almost zero, flooded the market with money and has addressed the economy with hubris. As Galileo said, when confronted with the Vatican’s edict that the earth was stationary, he said “and still it moves.” Deny as they may, the deflationary scenario continues to stare the Fed and the markets in the face. The Dow Jones transports and utilities are already in a downtrend. That’s a Dow Theory sell signal. Europe and obviously China have their markets in a downtrend. This week, the Dow broke below it sideways market trend that it has been in since the beginning of the year. I have now changed the current Intermediate Trend of the Dow DOWN below! The Russell 2000 is also a downtrend. Stocks making twenty-five day loans is increasing rapidly. With commodity prices falling and the dollar’s increasing strength and disappointing earnings, the Bulls are going to have a tough time holding on to their mythical hubris. Yogi Berra is famous for saying, “it ain’t over till it’s over!” Well it’s not over. It is still a Bull Market. However, we are beginning to get glimmers of technical weakness. Watch out below!
Check out this report from Diane Swonk at Mesirow Financial http://www.mesirowfinancial.com/economics/swonk/themes/themes_0715.pdf
Just because Greece capitulated, it’s not safe to go back in the water!
The Prime Minister Tsipras of Greece finally had to capitulate to Germany because, at this time, there is no alternative to the euro. However, scars are deep after this battle and divisions within the euro zone are probably now deeper than they were prior to the crisis. The Germans stood their ground and played hardball. Germans bullying its neighbors will have continuing repercussions that I believe are negative for Europe and the euro zone.
In the meantime, is anybody noticed that the bond prices of the ten year and the thirty year treasuries are forming a head and shoulders top. Bond prices are going down, and yields are going up in spite of the Feds policy to keep yields low. Feds can try and control markets; however, the markets are bigger than anybody including the Fed. Investors are concerned about both the stock market and bond market.
World markets are starting to weaken (CHINA, EUROPE, JAPAN). The Dow Transports and Utilities have broken into new low ground. This is a Dow Theory sell signal! As I’ve been saying for months, “Watch out below!” Is the closing of the New York Stock Exchange a technical issue or is it terrorism? Either way investors will lose confidence. In real estate, its location, location location! In the stock market its liquidity, liquidity, liquidity!
I continue to be worried about the consumer based US economy on the long run. Upward mobility has halted. Let me give you insight by relating a little personal story of mine. My father came to this country in 1929 seeking upward mobility. Today, there are fourth-generation Birkelbach families, who were living in Ventura California, that cannot afford to buy a house. A small house in Ventura California costs about $750,000. All fourth-generation families are college-educated, intelligent and hard-working, which should entitle them to at least a piece of the pie. Not so, not anymore! All the wealth and growth of income is going to the top 1%. I continue to insist, this is unsustainable! All boats will sink, including the top 1%’s boats. One of the problems that China is having, and the reason it’s markets are reacting in such a devastating manner is because high productivity technology is replacing the need for labor. China’s economy was growing at 8% a year, because their middle-class was expanding. As in the United States, their middle-class is under extreme pressure as wages are being reduced, and well-paying jobs are getting harder to find. We are killing the chicken that lays the golden egg. This is not the time or place for me to give you my personal views of a solution, it is my place however, to tell you that in my opinion the stock market is extremely dangerous at this level and I am looking for drops in the US markets of at least 50%. Trend wise, the Dow and S&P and NASDAQ are still in Bull Market trends. So I’m a little early. Better to be early than late. Need more convincing? Look at my Lone Bear Letters, above. ALSO LOOK AT ‘THE DEATH OF THE STOCK BROKER’,’ BOND /CURRENCY CHRIS,’ SURPRISE DEFLATION,’ AND ‘INCOME INEQUALITY’!
KEEP AN EYE ON THE CHART BELOW FOR BREAK OUT POINTS BELOW RESISTANCE OR ABOVE SUPPORT AREAS. Particularly watch for a breakout below THEN 17,147/17,000, NASDAQ 4605/4545, S&P 500 1991/1973. That would change the Intermediate trend to DOWN
|Forecasted Trend||DJIA||NASDAQ||S&P 500|
|Long Term||Sideways OR BearMarket?||Sideways OR BearMarket?||Sideways OR Bear Market?|
|Breakout Points||DJIA||NASDAQ||S&P 500|
|Short Term Up (Resistance)||18,351||5,231||2,134|
|Short Term Down (Support)||17,568/17,147/17,000||4958/4605/4,545||2057/1,991/1973|
|Int. Term Up (Resistance)||18,974 See Fibonacci Projections above||5,157||2,486 See Fibonacci Projections above|
|Int. Term Down (Support)||15,855 /15,356 /14,688||4,166 3,986/3294||1,820 /1,560|
|Long Term Up (Resistance)||18,312||5,175||2,131|
|Long Term Down Fibonacci Support||50%12,000 62% 10,750||50%2,958 62% 2,555||50%1,390 62% 1,177|
|10 yr Treasury 2.27%||Gold 1,098||Oil 47.97|