Gregory Scott Rullo
MCI Asset Management Portfolio Manager
Seguir
Margin debt makes record high in May 2015!
1 de jun de 2015 0visualizações 1pessoa gostou 0comentáriosCompartilhar no LinkedInCompartilhar no FacebookCompartilhar no Google PlusCompartilhar no Twitter
By Larry Pesavento
Margin debt is increased to a level 50% higher than the peak of 2007!
This is extremely dangerous territory based on historical data. This is
the one thing that I'm sure is not different this time. It will be a lot
worse. Stock market has a tendency to punish those that are greedy. We
are now entering the timeframe known as the June swoon. June is the
second worst month for the market followed only by October. In fact in
the past 10 years, the Dow Jones industrial is been down eight of those
10 years. June has a negative rate of return on a historical basis of
1.6%. Market adage sell in May and go away did not work well this year
as of yet. We're basically at the same price we were on May 1.
Statistically, the best days for the market on the last three days of
the month and the first two days of the month. When this phenomenon does
not occur and has bearish implications.
Again were going to start the week looking at the advanced decline line
as our first chart in the letter. Even on days when the market is
rallied investor decline line continues to point downward. This means
that only a few stocks are making the averages go higher. You can see
this phenomenon by looking at the chart of the New York Stock Exchange
index on an hourly basis and notice how you have lower highs and lower
lows all week. This was not the case with the NASDAQ which made a new
high this week and the S&P 500 made a 78.6% retracement from the
previous high.
The Shanghai stock market suffered a 6% drop on May 29! As you can see
from the ETF for the Chinese market FXI it is been parabolic and do for
a substantial correction. On the other hand, the emerging market ETF EEM
is been indecisive trend to the downside in his just completed a very
symmetrical head and shoulders pattern which is exceedingly bearish due
to the fact that the overall trend is down.
The markets closed lower for the week but only marginally. This is the
first week down following new highs at least in the NASDAQ. NASDAQ
stocks are on steroids compared to the other stocks. Similar to what
happened in 2000 and also in 2007. Ask yourself this question? How are
stocks going to go higher when there's more declining stocks than there
are advancing stocks on up days? I wonder what will happen there is some
selling coming into the market during down days? My guess is the markets
not going to be able to handle it is though be less buyers on the way
down because they were certainly not wanting to buy all the way up as
they were selling. All of the patterns are self-explanatory I believe.
The key time to watch from a cycle perspective is March 13. Should these
lows be taken out we are in a major bear market. This was an important
cycle low in the market has responded very poorly for the past two
months even as the NASDAQ was making new highs, the New York Stock
Exchange index and the S&P 500. All of these highs were marginalized at
best almost exactly like what happened in October 2007.
The foreign currency markets are doing your job of moving money around
trying to find the best place to hold currency with an adequate interest
rate. Euro versus the US dollar bounced off the exact 618 retracement of
the last major down move at 108 50. It is since rallied up to the 110
level as of Friday completing a small ABCD pattern over the past five
days. If this market is really bearish it is going to turn down hard
beginning of the week and take out that low made last week. The British
pound versus US dollar has completed a 786% retracement with an ABCD
pattern. It to should be in a rally mode but going below the lows of
last week would increase the bearishness longer-term. The long-term euro
versus US dollar chart was furnished to us by our good friend Andy from
Berlin. Price targets around the 99 level are easily doable in the euro
versus US dollar. The Japanese yen versus the US dollar is any 1.618
expansion on the long-term charts at the 125 level. Any move above 126
will make this market move substantially higher. Keep in mind that the
old high for this cross rate was at 360 back in December 1989.
Gold and silver continue to try to hold at major Fibonacci support that
was illustrated last week. Gold hit exactly $1180 per ounce and silver
get $16.50 per ounce stopping at major trendline support. It is
important that we hold above these levels because it could bring
deflation which will be the subject of the last part of this week's
letter.
Treasury bonds and treasury notes completed perfect Gartley sell signals
on Friday, May 29. Interest rate should start to go higher once again
regardless of what the Federal Reserve is going to do. No one is
actually sure what they're going to do because this is an experimental
process known as quantitative easing. Frankly, I think history will have
a much harsher word about this process than easing.
Crude oil heating oil and gasoline had major rallies on Friday, May 29
between four and 6% in one day. Crude oil is now rallied 38% from its
bottom at $42 per barrel and should be looking at strong resistance
between 62 and $64 per barrel.
Final thoughts
Charts this week are as bearish as they were last week but even more so
because of the fact that we did have a down week. Stocks rallied sharply
on Thursday on rumors that the Greek problem with the euro was going to
be fixed only to be a surprise and in fact it was just a rumor. Greece
has major debt problems as do most countries in the world but their debt
is exponential. They have so many entitlement programs giving money away
to their citizens that it is hard to take that money away even though it
might be necessary. I hate to think what would happen if they would take
away Social Security the US citizenship.
The overall bearishness that I see in the market is based solely on
chart patterns. Fundamentals of supply and demand are figured into the
charts themselves. Gross domestic product, industrial production, and
employment reports move these charts around sometimes violently but the
overall picture is still in the charts themselves. If prices are going
higher there more buyers! If prices are going lower there more sellers!
Remember the stories that Enron was telling us when it was trading at
$95 a share. Everything was okay at 85, 75, 55, 15, and even five
dollars a share, but it eventually went to zero.
Should our markets begin to see massive deflation, even more than we've
had so far i.e. crude oil, it is going to be a strong indication that we
are in big trouble due to the debt that we've accumulated over all these
years. We should see big drops in crude oil, gold and silver and metals
along with soft commodity prices like cotton cocoa coffee and sugar.
This is the greatest fear of the Federal Reserve! Quantitative easing
was supposed to relieve this but in fact we saw oil go from $116 per
barrel to $42 a barrel. Money supply has increased by 400% in the last
four years due to quantitative easing. Corporate debt has also increased
because interest rates were so low in corporations bought their stock
back at cheap prices. This money will be coming home for payment soon.
Something is going to trigger massive selling spree in stocks and bonds
in my opinion! Keep in mind that it is my opinion and I am wrong
frequently. However, if I should be right try to protect yourself the
best way that you can by eliminating or reducing risk exposure in stocks
and bonds. There have been three times in the past 15 years where I have
been very bearish. 2000, 2007, and now. The now is the problem because
I've been bearish since July 2014. Actually, New York Stock Exchange
index is nearly exactly world was in July 2014! Why was this index not
able to go higher with all the things the Fed was trying to do to make
it go higher? Should the market go below the low of March 13 there will
be no other way to look at this market except to the downside!
