Early Equity Futures Point Much Lower for a Monday's Opening

$INDU's futures are down approximately "200 points" in early Sunday trading. Could this be a harbinger of last Monday? 

INDU's EMA is Bearish: Sell Equities and Move to TSYs

Note: Click inside chart to enlarge it.

Apple (AAPL): Stage 4 Declining Phase -- Avoidance

Am I Buying This Dip? Not on Your Life!

On Sunday, August 23, 2015, I said the following: “Therefore, my best guest is that we could see more early selling pressure Monday morning, which would be a continuation of Friday’s selling along with early selling pressure coming from Asia markets on Monday. However, I would not be surprised that early selling would lead to a price reversal that actually leads to the market closing higher on Monday. Then, the market could stage higher prices through Wednesday.  A sharp sell off Thursday and Friday, which would test Monday’s low.”

What happened on Monday? The DJIA plummeted 1,089 points right out of the gate, which was the largest single day drop ever.  By days end, the DJIA recovered about half of the initial loss to close over 500 points lower. According to my Sunday blog, the DJIA did not close up for the day; however, it did recoup a significant portion of that initial decline. Today, Tuesday, I was anticipated, as stated Sunday, a rally to carry the DJIA up for the day. Well, it started out very well. DJIA up 500 points, and, throughout the day, it was hovering about 250+ points higher. Then, in the last twenty minutes of trading, it tanked to close 204 points lower, which was very unimpressive.  I still believe that Monday’s low at 15,370.33 remains a critical mass. If that price level is taken out, say within the next couple of weeks, the next major support is at 14,300.

As I stated this past Friday, the DJIA’s 15/40-week Exponential Moving Average (EMA) Strategy has spoken that the trend has changed from bullish to bearish. And, until we have a reversal of that strategy, the best investments going forward are Treasury Bills and inverse index funds.

DJIA: Expectations for Monday, August 24, 2015

The “Exponential Moving Average” spoke on Friday, August 21. That is, the DJIA’s 15-week EMA closed below its 40-week EMA, which signaled a change in the intermediate trend from bullish to bearish. Since this is a weekly signal, any price action that happens during the week is considered “investment noise.”  That is, these daily price movements are an annoyance that must be put up with until the close of the market on Friday. However, Homo sapiens being an impatient lot do not want to wait until Friday. Therefore, my best guest is that we could see more early selling pressure Monday morning, which would be a continuation of Friday’s selling along with early selling pressure coming from Asia markets on Monday. However, I would not be surprised that early selling would lead to a price reversal that actually leads to the market closing higher on Monday. Then, the market could stage higher prices through Wednesday.  A sharp sell off Thursday and Friday, which would test Monday’s low. 

Update: As of 11:30 PM (EST), the DJIA's futures are down over 400 points. Definitely looks like a rough start for the market when it opens on Monday. 

Exponential Moving Average Strategy (EMA): Bear Signal Confirmed

Note: Click-on inside the chart to enlarge it.

The $INDU's 15-week EMA has declined below its 40-week EMA. The implication is that the bull trend that started in August 2009 is now finished and a new bearish trend has started as of August 21, 2015. It has been quite a ride over the past six years. How far down will this new "Bear" carry the market? In all honesty, I don't know. I simply follow the market's signal, as based on my "Exponential Moving Average Strategy." Simply look at the above chart and notice that since 2006, we have had three buy signals and three sell signal, which overall have been significant at identifying the trend (Bull/Bear) with the exception from July-September 2011. 

Currently, the market is very oversold, as based on several momentum indicators that I follow, such as Full Stochastics, PPO, Wm%R, and CCI. Therefore, the market is definitely due for a relief rally. Next week? We will find out come Monday morning when the our markets open up.

Since the sun is about to set in this part of the country for a Friday, I will say Shabbat Shalom.

The Bear Has Spoken!

The "Exponential Moving Average" signaled a change in trend from bullish to bearish today, August 21, 2015. Update to follow shortly.

Oil Glut Should Lead to Gasoline Prices Under $2/Gallon?

Currently, the national average for gasoline is approximately $2.69/gallon. West Texas Light Crude Oil is at $41/barrel. With that in mind, the price of crude oil has plummeted by 60% since its high back in 2014. And, the supply of oil continues to increase at a faster pace than demand. Oil producers from the U.S. to Saudi Arabia are all trying to gain market share no matter what the cost is. That should bode well for consumers at the pump. Basic economics indicate at a time when supply exceeds demand (See the following chart.) that producing countries would cut back production to eliminate the supply (glut) to better match up with demand. However, these producing countries need all the oil revenue they can get. Therefore, oil production (supply) will undoubtedly increase, not decrease. For instance, Saudis increased its daily oil production from 9.6 million barrels per day to 10.4 million. Iran has increased its production from 3.4 million barrels per day to 4.1 million.

Now, how did I extrapolate the current national average of $2.69/gallon to under $2? Take a look at the following chart that provides a ten-year look at crude oil prices and average gasoline prices:

In early 2009, crude oil was approximately $40/barrel and gasoline was approximately $1.60. And, guess what? Crude oil is approximately at the same price level per barrel as in early 2009. Therefore, given free market conditions of demand and supply, consumers "should" see gasoline under $2/gallon. Now, for the caveat. That would be governments' (federal and state) insatiable appetite for revenue. That, of course, would be your money! Currently, the total national average of federal and state fuel taxes are 48.88 cents per gallon. For my state of Missouri, the combined fuel tax is 35.70 cents per gallon. And, for the state that is dear to my heart, Wisconsin, the combined fuel tax is 51.70 cents per gallon. Where am I going with this? Yes, gasoline per gallon should already be at $2 per gallon and fast approaching $1.69 per gallon, given the current price of crude oil. However, all governments need additional revenue. And, what better revenue source to governments than increasing the fuel tax. If governments notice that you are not complaining while paying $2.69 per gallon, there logic will be to increase the fuel tax by an additional 25 to 40 cents when the gasoline hits, say $1.60 per gallon at the pump. The problem is that it is not their money but your money. That is, any additional savings at the pump should flow through to your disposable income, not the government coffers.

Precious Metal Bulls

The precious metal bulls have summoned the battle cry that the bear market is over! Well, just maybe those bulls might want to tone down such rhetoric.  Yes, the metals have had a good “bear-market rally,” but that is all what it has been. That statement is based on my Exponential Moving Average Strategy, which is still bearish. Upside price target is for this bear market rally is $15.50. See the following daily chart for $SLV. The $15.50 price objective level is the throw back to the downward sloping "Bearish Support Line."

Emerging Markets

From my earlier post today entitled, "Effect of the Pending Sovereign Debt Crisis on the U.S. Dollar and Private U.S. Assets," the following countries are most vulnerable to the looming debt crisis, and any investments in these countries should be avoided like the plague:

1. Brazil
2. China
3. India
4. Korea
5. Russia
6. South Africa
7. Taiwan
8. Thailand
9. Turkey.

Effect of the Pending "Sovereign Debt Crisis" on the U.S. Dollar and Private U.S. Assets

I continue to be a bull on the U.S. dollar. Why? Well, it is based on the pending “Sovereign Debt Crisis” that will cause a flight to safety in the form of dollar purchases of U.S Treasury securities and, then, into private U.S. assets. Now, a brief explanation of this looming “Sovereign Debt Crisis.” China was consuming almost 50% of all the world commodities. So, the economic contraction occurring currently in China is causing the emerging markets into recessions. These countries have taken on $9 trillion worth of new debt since 2007 in dollars. These emerging market countries assumed the upward growth trend of China would never end and then borrowed $9 trillion since the U.S. rates were kept artificially low through the Fed’s ZIRP.  Now, as the dollar continues to gain strength, which will intensify as the crisis unfolds, these countries will have to repay their dollar debts in more dollars (exchange rate risk) or default, which is the likely scenario. Sensing that likely scenario, investors will liquidate those positions and seek safety first in U.S. Treasury Securities and second in U.S. private assets. And, that is what I have been referring to as the “Sovereign Debt Crisis of 2016.” Therefore, I would definitely not be investing at this time in emerging markets, or, if I had investment positions in those markets, I would be liquidating them immediately. 

Bearish Death Cross

I have received several notifications that the “Bearish Death Cross” occurred yesterday on the Dow Jones Industrial Average.  Let me explain the current situation with the death cross.  First, the death cross that is being discussed is based on the calculation for a simple moving average (SMA), not the exponential moving average (EMA), which is the one that I use.  Second, the difference between the two types of moving averages is as follows: (1) Simple moving average is calculated by adding up a sum of numbers and divided the sum by the number of observations. Each observation has the same weight. That is, with 40 observations, each data value would have a value of 2.5%. (2) Exponential moving average is calculated by giving more weight to the most recent data values than those say 40 weeks ago. This approach makes more sense, since today’s price has factored in all current information that was not available 40 weeks ago.

Therefore, the “Bearish Death Cross” has occurred with the calculation of a simple moving average (SMA) – 15-week SMA < 40-week SMA. However, we do not have the death cross for the exponential moving average -- 15-week EMA > 40-week EMA by 64.39 points. 

My money says to wait for the exponential moving average to signal the “Bearish Death Cross.” As soon as it occurs, I will post the event.