Update 81: Stock Market-How Big Is This Iceberg?

February 21, 2020

Last week/Next Week….Well..the increase in the Virus numbers got the attention of both the stock and bond markets and the economic numbers are throwing cold water on the bulls yet the price action so far has been fairly muted. What’s going on?..well our view is that there is a run to USA denominated assets and Gold which is weird but occurring none the less. The US Dollar made a run at the magic 100 number before turning down and Gold broke 1600 and made a run at 1650 the ounce. Bond yields (30 yr Treasuries) declined to their lowest yields on record at about 1.90% breaking the 2% level. The market has dismissed the “Iceberg” as merely a Q1 issue and had continued to buy stocks as the situation is transitory. Now we hear 50% of all China’s factory workers are not working and there has been a 92% drop in cars sales in China this month. Combine that with USA PMI’s coming out weakest since 2013 (services sector) and you can see why we broke short term support around 3375 on S&P and the DJTA and Russell both headed south. We said the 3400 area could prove the exhaustion point and so far that looks to be the case ass the divergence between the advance decline line & RSI to the new highs may turn out to be a signal. For bears; it would be helpful to see a break under 3320 and 3300 needed to suggest deeper declines. If we fail to take out 3400 S&P next week and heaven forbid in March….then the Virus and a slow global growth story sans Virus could send the VIX above 20-25 and usher in a move to 3050.
We’re watching GBTC, SILJ, TLT, IBI, ABBV, XHB construction and home builders with rates low and housing starts and permits on the rise..(millennial home buyers) and the closing of the gap between tech and overbought sectors to more the value & cyclical.
Next week…this weekend we have the G20 in Saudi-land…Mon German Biz confidence(low) Tues US Consumer confidence Thurs
GDP & Durable goods and the big one Friday China’s PMI (expect 47.4 manufacturing/50 non)…trust the #’s…who knows??
Questions contact us at [email protected]

Stock Market

As we said 3400 area could be exhaustion area but 33320-3300 is short term support and unless taken out the bigger drop not possible. Also the VIX which last week had a 13 handle and was bullish…we said a 16-20 handle is cautionary (we got it Friday) and 20 25 likely accompany a more severe drop. Transports and Russell no where near the 2018 highs and the advance decline line and RSI to some suggest negative divergence. we also told you 4 of the big five (MSFT AAPL FB AMZN) failed to make new highs which was a good tell because they all got whacked this week. The ratio between oil and stocks has never been greater than since the dot com bust which is also alarming and could suggest a moderation in tech and better action from value and cyclical in the month to come. Truth is..we don’t know how big this virus is and the effects on a slow GDP world…V shape or U or L shaped..we don’t know.

Bond Market

Big story this week as yields drop on treasuries to RECORD LOWS as the whole world wants in to higher US yields and the US Dollar…sometimes stampedes are cattle going to their slaughter and sometimes it’s smart people taking cover..time will tell.
Spreads between risk bonds and safe bonds in about 350 and the yield curve is flattening again. Somebody’s very wrong here as one is saying the party’s rocking and the other is saying a slowdown is coming which normally would hurt junk & corporates.
If you’re long duration (TLT) you’re buying dinner this weekend:):)..how low can we go…well our view has been we’re in a new 10 yr Treasury range of 1.40% to 1.80%…if we get bad numbers and the markets reevaluate the lag time on demand the 1.40% could get taken out wherein if this really is done by end of March then the snap back in yields is going to turn the stampede into fools.

US Dollar
Broke above the 99.50 ceiling but did not maintain it. we said last week the 100 round number is key as if we clear that hurdle a melt up on the dollar is not off the table and maybe the catalyst will be general distrust or European Asian and world currencies
This week saw record lows in the currency of Brazil and drops in the Mexican & Chilean currencies….Euro-Yen?? Stay Tuned

Crude Oil

Can’t get out of it’s own way…the rally toward 55 did an about face to the 52’s as aagin the world is awash in oil and with many millions of consumers in China on hold the inventories build. As we said last week..if the Saudis can’t garner support for a cut then the 50 level and below is not safe…some pretty smart people are touting a strong demand and price rebound in the 2nd half of 2020 so keep your eye out for turns in the oil and energy sectors as they are way out of favor and price accordingly.

Gold-Silver Copper

OK last week said this week was crunch time for the metals and they sure did answer the bell with Gold shooting up to 1650 area and Silver back above 18…we brought to your attentions things we have on our radar like GDX GDXJ and SIL SILJ and they all had a good week….now let’s see if we back and fill or if we blow out the highs…weird to see strong dollar strong gold..maybe not so?
Copper has rebounded but until the virus effect are quantified it still is in tough territory…watch FCX for signs of a turn

Grains Ect

Same story stuck under resistance but it looks like more subsidy money coming to farmars …what elsse..it’s an election year
Planting & growing seasons ahead will unlock some answers stay tuned….

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