7-2-17 Market Commentary

 

 

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Market Breadth: With this past week’s market decline, our Bull/Bear Point and Figure Ratio at 1.19 rose slightly from 1.11 last week, continuing within bullish territory. The total count of securities in bullish or bearish patterns decreased 5% to 2874. The count of bearish stocks decreased 9%, while the count of stocks in bullish patterns decreased 2%. The Sand 2 Pirls P&F Market Breadth Summary Chart shows us a market now five weeks in bullish territory. Paid subscribers have access to the OpenOffice Calc data from which the chart is generated.

The well known market breadth indicator, the NASDAQ McClellan Summation Index (NASI) rose 23  points for the seventh advance in ten weeks. At a positive 155.20 points, it continues below all seven tops above +100, and it continues above all five bottoms below -100 in the last 3 years. 

Volume Analysis: In this week’s volume analysis, the NASDAQ Composite Index ended in neither Accumulation nor Distribution mode with average daily volume lower than the prior week. In the last two weeks the NASDAQ had one (1) Accumulation day and three (3) Distribution days. (Accumulation days are counted when the index closes up on higher volume than the prior day while Distribution days occur when the index closes down on volume higher than the prior market day.) Last week the NASDAQ ended in Accumulation mode on higher average daily volume.

Momentum: The CCI(20) daily is now at -107.67, down from 42.69 last week. At Wednesday 6/21 close, the CCI(20) daily signaled a ZLR (Zero Line Reject) Long entry and after increasing a week ago, fell sharply Tuesday 6/27 for an exit below the ZLR entry point pivot. The result of the trade simulation was a loss of 66.05 points on the NASDAQ or $2.42 per share of QQQ. The CCI(20) daily currently has 4 consecutive days below zero.
In Woodie’s CCI trading system, six consecutive bars above or below zero are required for a change of trend. The Weekly CCI(20) of the NASDAQ Composite Index began a Woodie’s up trend sixty-one weeks ago, while the Daily CCI(20) began a Woodie’s up trend thirty-two weeks ago.
The CCI(20) weekly has fallen to 76.30 from 93.60 last week. We await the return of the CCI(20) weekly to the +/-50 range for another CCI(20) weekly trade.
Industry Rotation the last two weeks: All of the top five industries are  positive and all of the bottom five are negative. Summary: Banks and Gold & Silver on top; Tech and Oil Services on the bottom. Bullish: KBW Bank has entered the top five. Bearish: Gold & Silver PHLX has entered the top five. Oil Services PHLX, and Oil continue in the bottom five.  Computer Hardware, Comp Tech, Disk Drives, and Networkers have left the top five. Disk Drives and Networkers have entered the bottom five.
Focus this week: From www.OurFiniteWorld.com by Gail Tverberg “The Next Financial Crisis Is Not Far Away“. The following are some key points and charts.

  • Energy is essential to the economy, because energy is what makes objects move, and what provides heat for cooking food and for industrial processes.
  • the economy as hollow because we keep adding new layers of the economy on top of the old layers. As new layers (including new products, laws, and consumers) are added, old ones are removed. This is why we can’t necessarily use a prior energy approach. For example, if cars can no longer be used, it would be difficult to transition back to horses. This happens partly because there are few horses today…
  • In the past, many local civilizations have grown for a while, and then collapsed.
    …growth flattens out, and wage disparity and growing debt become greater problems. Eventually, unless the group can find a way of increasing the amount of food and other needed goods produced each year (such as finding a way to get food and other materials from territories in other parts of the world, or conquering another local civilization and taking their land), the civilization is headed for collapse. We recently have tried globalization…
     

  • At some point, the efforts to keep growing the economy to match rising population become unsuccessful, and collapse sets in.
     
  • A recent partial collapse of a local civilization was the collapse of the Soviet Union in 1991. When this happened, the government of the Soviet Union disappeared, but the governments of the individual states within the Soviet Union remained.
     

  • …one of the major contributing factors to the collapse of the Soviet Union was low oil prices. The Soviet Union was an oil exporter. As oil prices fell, the government could not collect sufficient taxes.
     
  • Oil importing countries can have troubles when oil prices rise, similar to the problems that oil exporting countries have when oil prices fall.
     
  • We hear much about rising manufacturing in the Far East. This has been made possible by the availability of both inexpensive coal supplies and inexpensive labor. India is an example of a country where manufacturing has risen in recent years. Slide 9 shows how rapidly energy consumption–especially coal–has risen in India.
     

  • China’s energy consumption grew very rapidly after it joined the World Trade Organization in 2001. In 2013, however, China’s coal consumption hit a peak and began to decline. One major contributor was the fact that the cheap-to-consume coal that was available nearby had already been extracted. The severe problems that China has had with pollution from coal may also have played a role.
     

  • It might be noted that the charts I am showing (from Mazamascience) do not include renewable energy (including wind and solar, plus burned garbage and other “renewables”) used to produce electricity. (The charts do include ethanol and other biofuels within the “oil” category, however.) The omission of wind and solar does not appear to make a material difference,
     
  • Note: Energy growth includes all types of energy. This includes wind and solar, using wind and solar counted using the optimistic BP approach.

    Economists have given the false idea that amount of energy consumption is unimportant. It is true that individual countries can experience lower consumption of energy products, if they begin outsourcing major manufacturing to other countries as they did after the Kyoto Protocol was signed in 1997. But it doesn’t change the world’s need for growing energy consumption, if the world economy is to grow. The growth in world energy consumption (blue line) tends to be a little lower than the growth in GDP (red line), because of efficiency gains over time.

    …we can see that drops in energy consumption tend to precede drops in world GDP; rises in energy consumption tend to precede rises in world GDP. This order of events strongly suggests that rising energy consumption is a major cause of world GDP growth.

     

  • Most people are not aware of the extreme “power” given by energy products. For example, it is possible for a human to deliver a package, by walking and carrying the package in his hands. Another approach would be to deliver the package using a truck, operated by some form of petroleum. One estimate is that a single gallon of gasoline is equivalent to 500 hours of human labor.

    “Energy consumption per capita” is calculated as world energy consumption divided by world population. If this amount is growing, an economy is in some sense becoming more capable of producing goods and services, and thus is becoming wealthier. Workers are likely becoming more productive, because the additional energy per capita allows the use of more and larger machines (including computers) to leverage human labor. The additional productivity allows wages to rise.

    With higher incomes, workers can afford to buy an increasing amount of goods and services. Businesses can expand to serve the growing population, and the increasingly wealthy customers. Taxes can rise, so it is possible for governments to provide the services that citizens desire, such as healthcare and pensions. When energy consumption per capita turns negative–even slightly so–these abilities start to disappear. This is the problem we are starting to encounter.

     

  • Slide 16

    shows the kinds of comments we have been hearing in recent years, as prices have recently bounced up and down. It is becoming increasingly clear that no price of oil is now satisfactory for all participants in the economy. Prices are either too high for consumers, or too low for the producers. In fact, prices can be unsatisfactory for both consumers and producers at the same time.
     

  • We are now reaching a point where no interest rate works for all members of the economy. If interest rates are low, pension plans cannot meet their obligations. If interest rates are high, monthly payments for homes and cars become unaffordable for customers. Also, high interest rates tend to raise needed tax levels for governments.
     
  • Economists have confused matters for a long time by their belief that energy prices can and will rise arbitrarily high in inflation-adjusted terms–for example $300 per barrel for oil.
     
  • These symptoms seem to be already beginning to happen.

–Donald Pirl www.s2pmarketsignal.com


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