Yes it is crazy to be watching the markets swing in a manic depressive posture based on the price of a barrel of crude oil. Last evening as I was leaving a meeting with colleagues in Wisconsin, I paid $1.49 for a gallon of gas.
Honestly, I am not sure I remember how long ago I paid that low a price for gasoline. I left the gas station feeling stressed that somehow the experts getting air-time today have successfully convinced a vast swath of investors that this is terrible news. Ah well.
In time, we will begin to see that a much larger portion of the global is helped by lower crude costs than hindered. Be that as it may, we find ourselves stuck in a short-term quagmire. We seemingly cannot decide from one day to the next whether we should fret over Zika, Syria, Brexit, Grexit, Puerto Rico, Russia, North Korea, China, the yuan or oil.
It is a vast list and easy to get lost in.
The 40,000 Foot View?
Up here the air is thin and crisp – the chatter is quieted down as the view is immense.
Housing is good – and we have a ton of dwellings that need to be built over the next decade to house Gen Y. Jobs are good. Employment is good. Unemployment is low. Record revenues are government level – not great but a sign of success I suppose. Oh, and $8.25 trillion in the bank.
Meanwhile, fear stays close to us…a few charts might help explain better:
The first two charts are the last two weekly updates of insider activity. They usually do a pretty good job collectively of showing value. We are clearly in a long-term value zone. Will one pick the exact right day? Never – thinking of doing so is a waste of time. Over-time, we have all learned we need to build when things feel ugly. And they feel ugly now….may do so for a few more weeks still.
That third chart is a put/call ratio review showing that when the masses buy a ton of puts, well that very often marks an important indication of fear. This charts shows a very elevated level of puts. Nuff said.
Add this to the various sentiment indicators all showing very high bearish readings which we have seen over the last few weeks – and you get a sense of the depth of the concerns felt in the audience.
All due to cheap crude?
A broader view. I have posted in a few charts below to give you a sense of both the short-term character and the long-term view of the price action of the S&P 500. I have added a few remarks below each for perspective (I will follow this up with a video clip as soon as we have it produced for a more in-depth review):
You will see the recent few days of bounce have come off the same lows which have now been tested a number of times – going back to 2014. I recall back in the early stages of the 1982 secular bull that we saw similar tests back then about 24 months into same. That test went on for an extended period of time as well and got awful choppy.
Same this time it seems. Patience paid off then – we expect the same now.
I have bracketed the important range – note the red lines. That range is the high and low of the panic day from back in the summer of last year when China was at its end – August 24 – it was a Monday. The market has a 1200 point range that day – rallying over 600 points from the low in minutes – only to be chided for losing 608 on the day. The point?
Notice that price action remains within the range of that single day as the battle for supremacy continues between buyers and sellers. My only short-term concern? Let’s see how we react to coming resistance? If we can stay relatively strong – with only minor setbacks and volume continues to dissipate (hinting at an eventual exhaustion of sellers) then we very well may be finally looking at a foundation in the market which can become strong enough to launch the next extended rally.
Remember, the rally will arrive long before the good news does.
This chart is a much longer window of time – years in fact, and inclusive of the end of the world lows back in ’08/’09.
You have read my references before as to the “lunch stop” effect we are feeling in the markets. We have trekked up a large mountain – with much more to go over time. We have witnessed a long pause – taking prices recently back to levels seen in 2014.
Much churn is unfolding – much fear has risen freshly back to the surface.
Stand back and look at this picture. Does it seem logical to you that the masses – in nearly every indication available – are as afraid today as they were back in March of 2009? Consider it a gift for long-term values.
I also think we have a positive indicator at the bottom of the chart showing lows in relative strength. Notice the last times we were this low. Chop still likely but the lows are being slowly etched in.
Who would have ever thought the excuse for the “stabilization effort” would be “oil staying above $30 a barrel?”
Last for now is a much shorter-term view – the last year or so on a daily chart. Not pretty – but as the long-term chart above shows with more evidence – a “flat lunch stop” along the way.
In time, we may better see it years down the road as another “base camp” on the side of a large mountain.
This short view shows you the same red lines bracketing the range of August 24 from last year. We are approaching the upper reaches of same and I suspect will feel a pushback from the bears. This range is the battle line. Blood is being shed on both ends – shorts and longs.
I would like to see higher volumes on the up days. In a perfect world we get another scary little test for a week or two of chop and volume dissipates to the downside.
Then we want to see higher volumes on the next surge after setting a higher low.
As you might have guessed – we are for the upside team – but fully suspect it would not be a terrible thing for this chop to last a bit longer and even have fear build a little more. Too much noise and way too much short-term attention only clouds the issues at hand.
Just don’t forget this in the bigger picture:
The baton is being passed. Generation Y, slowly but surely, is taking the reins from the Baby Boom. These are tectonic shifts going on under the surface. From 40,000 feet they are clear.
Down on the surface they feel like everything is going wrong and no good news exists.
It’s a lunch stop—don’t get lost in the forest for the trees.