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Market Shadows Newsletter

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Section Excerpts of the latest Market Shadows Newsletter (click on this link for the full newsletter):

Event Horizon

It was reported this week by the Finanical Times that Wall Steet Banks are delving deeper into the business of supplying oil as they increasingly compete with oil traders and merchants selling crude to refineries. For example, “JPMorgan, Morgan Stanley and Goldman Sachs have all recently struck deals to supply US refiners. Goldman Sachs is now the largest supplier of crude and the largest customer of refined products for refineries owned by Alon USA in California, Louisiana and Texas.”

Morgan Stanley and JPMorgan are lobbying regulators to remove from the Volcker rule “forward” commodity contracts for future delivery of stock. This would allow banks to trade these contracts for their proprietary accounts. The Volcker rule currently prohibits this. Morgan Stanley recently complained that restricting the banks’ ability to compete in commodities forced customers to use “trading houses, energy merchant companies, oil companies with trading desks, or other types of traders.” So, on top of warehousing copper, nickel, pot ash, etc, the banks are moving to further control the oil industry. (Wall Street banks step up oil trade role)

Market-Moving Forces

Are we in a recession? Doug Short’s analyzed four economic factors which together indicate the economy is in a recession and concluded that, no, we are not. Doug wrote,

“The ongoing debate about an impending recession in the US grew more conspicuous last week when ECRI's Lakshman Achuthan not only reiterated his company's recession call, but also went so far as to declare that we're already in a recession. Here is a link to his Bloomberg TV interview.

“The official recession calls are the responsibility of the NBER Business Cycle Dating Committee, which is understandably vague about the indicators it tracks for recession calls. This committee statement is about as close as they get to identifying their method.

“There is, however, a general assumption that there are four big indicators that the committee weighs heavily in their cycle identification process. They are: Industrial Production, Real Income, Employment, and Real Retail Sales...”

Are the Big Four Rolling Over?

“As of the latest data, no, they are not collectively rolling over...” (See Doug’s “The Big Four Economic Indicators: What They're Telling Us about a Recession” for more charts and details.)

Charting the Universe

Scylla and Charybdis

By Springheel Jack

Most of the Elliot Wave analysts that I watch are abandoning counts showing significant further declines this year, and they could be right. Nonetheless, the overall technicals look grim and the fundamentals seem weak. It's hard to see a big move up over the rest of 2012. The UK is finishing the third quarter of a recession, and the EU is most likely also in recession. The US economy looks weak and may drift towards a recession, with the ECRI  predicting that the US is already in recession.  Doug Short points out that the U.S. is not currently in a recession, but the ECRI view is worth noting. It was founded in 1996 and has correctly predicted two U.S. recessions since then with no incorrect predictions between. Stock markets historically don't do well in recessions.

On the technical side, there are four main related markets that I tend to watch as indicators of market health and they all look sickly.

The first is copper (positively correlated with equities), where I posted the large head and shoulders pattern (H&S) forming there last week. The second is the US dollar (generally inversely correlated with equities), which is showing a very bullish looking technical picture.  (For the full analysis along with charts, click here.)

Did You See A Bear?

The signals generated by Allan Trends are similarly on the verge of turning bearish, and his subjective analysis (which is not a signal) is for future declines in stocks.

"So what’s with all of the charts to start off this weekend’s comments? Taken as a whole they paint a portrait of a very unhealthy market. That doesn’t mean it has to go down on Monday, or next week, or in the next month. In fact the trend models of the major stock indices are mostly Long. But it is not the picture of health. I think it looks like a market in transition from a three year rally to a long decline.

"The mantra here is not to let such observations control trading decisions..." (More here.)

 

Visit us at the new Market Shadows website.

A VIRTUAL portfolio of MS's trade ideas can be followed here.

 

 


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Mon, 07/23/2012 - 17:59 | Link to Comment Eric L. Prentis
Eric L. Prentis's picture

The US is probably now in a recession. To think otherwise is delusional.

 

US retail sales have declined for the past three months (April, May, June). That has not happen since WWII, unless the US is either in a recession or about to enter one. 22 of the 30 most important economic indicators in June, 2012 missed expectations. The Institute for Supply Management (ISM) reported that its monthly manufacturing index fell to 49.7 in June, 2012 from a 53.5 reading in May, its first under 50 contraction since 2009. ECRI’s Lakshman Achuthan predicts we are in a recession. ECRI has a perfect track record. The NBER Business Cycle Dating Committee takes about a year to identify the start of a recession—after a recession has already begun—so NBER is no help.

 

President Obama is trying to be reelected during a recession! Barack, how do you like your Wall Street BFF’s now. I hope their money helps, NOT.

Mon, 07/23/2012 - 18:08 | Link to Comment 11b40
11b40's picture

The Wall Street money is going to help alright.....Romney.  Then, the banks truly will have their way with us all.

Mon, 07/23/2012 - 16:59 | Link to Comment Judge Arrow
Judge Arrow's picture

Banks with oil, banks with chickens, banks in Washington Dee Cee.

Now imagine they want more. It's easy if you try.  Imagine they want everything and have paid off to get it, too. Imagine there's no country, it's easy if you try. Imagine there's a petting zoo, it's called the ass wipe electorate, why don't you join us, and be a part of it, too. 

Mon, 07/23/2012 - 15:46 | Link to Comment adr
adr's picture

I don't work in finance, I work in real word business. Where you actually have to sell a real product to a real consumer to get a paycheck.

This world has already flatlined and the doctor has been called to pronounce the patient dead. I was just at a sales show, worst in the past 25 years. There were no buyers, no traffic, and barely any vendors.Buyers hands have been tied, they have been given no money to buy new product. Inventory is stagnating on shelves and half of the fall season's stuff is still sitting in warehouses.

Back to school is going to be terrible. The holiday season will be worse.

Walmart is expecting a great holiday because they are going to run ads claiming that you shouldn't shop anywhere else. Walmart is going to undercut everyone else by at least 15% in price, in a bid to be the only place people will shop this holiday. Walmart is also gunning for Amazon and is toying with shipping anything for free, anywhere. They are even thinking about allowing you to ship items from actual stores.

If you thought last year's deals were good, what till this year. $2500 TVs are going to be $1000. Nearly everything will be 50% off from Black Friday on.

Mon, 07/23/2012 - 18:03 | Link to Comment 11b40
11b40's picture

ADR...what show did you attend?  I just came off the Atlanta Gift Market.  It was OK for me personally, but I was only there for a handful of major acccounts.  Overall traffic was very bad.  The Dallas market was likewise bad 2 weeks earlier. 

I started seeing the order flow drop off in April.  My biggest market of the year is the Housewares Show in March.  It felt good, but then trying to round up the Po's afterward got more and more difficult.....and it is starting to feel a LOT like 2008.  All the buyers started hedging, and I am still trying to round up some holiday orders that have been promised (actually got one this morning that sould have been here 6-8 weeks earlier).

The Canton Fair in April was the worst ever, as it only knew growth, but not this time.

There are a lot of folks out there holding on by their fingernails. ...... retailers, vendors, and reps.  One more major downturn, one more busted 4th qtr, means the nail in the coffin for many on Main Street., a street already littered with the corpses of literally hundreds of my former accounts.

Mon, 07/23/2012 - 15:25 | Link to Comment madcows
madcows's picture

So, the Gambling houses, er, "banks" have been caught manipulating the LIBOR, and likely the Gold market.  Obvioulsy they should have more free access to the OIL market.  Doing God's work would be so much easier without the middle man to interfere.

Mon, 07/23/2012 - 17:47 | Link to Comment 11b40
11b40's picture

One thing they understand for sure is Lubricants.

Mon, 07/23/2012 - 14:49 | Link to Comment Bartanist
Bartanist's picture

Am I the only one that has problems with banks being the suppliers of all commodities? It is bad enough that they finance all commodities and runs all of the pricing numbers games through their captive "exchanges".

Now to actually have possession of the physical as well. It is the denoument.

Mon, 07/23/2012 - 18:18 | Link to Comment Bob
Bob's picture

All your oil are belong to us.  Nice to know there are good American boys handling it. 

Mon, 07/23/2012 - 15:25 | Link to Comment Nobody For President
Nobody For President's picture

Naw Bart, there are two of us bothered by banks being commodity suppliers. Who the hell ever decreed that a bank had to be a one-stop financial shop? Bring back Glass-Steagal!

Please.

Mon, 07/23/2012 - 14:26 | Link to Comment disabledvet
disabledvet's picture

How do we stay bullish on the dollar when every State and Municipal Government in getting slammed with their own "euro mess"? How about "bullish on cash getting a return"? Isn't it time for that now? Or are we still "bearish on your cash even being returned"?

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