Tag Archives: Dow

Does Today’s Bounce Mean The Sell-Off Is Over?

The Dow was up 241 points today and the Bubble Heads already think it’s “back to the races again.” I’m still cautioning “not so fast!,” however. Nothing has changed technically since last week’s major technical breakdown that caused the bellwether S&P 500 to close below a very important uptrend line that started in early-2016. The “Godfather” of chart analysis Ralph Acampora feels the same way as me and said that the “damage done to the stock market is much, much worse” than anyone is talking about.

According to the chart below, the S&P 500 is still below its uptrend line, which means that the breakdown is still intact. The uptrend line is now an overhead resistance level. All of the movement that occurs between this line and the 2,550 to 2,600 support zone (the early-2018 lows) is basically randomness or “noise,” not “signal.” The S&P 500 would need to break back above its former uptrend line in a convincing manner in order to negate the breakdown. As I’ve been saying, the S&P 500 is likely to continue testing its 2,550 to 2,600 support zone before its able to stage a decent bounce. If the index closes below this zone, it would likely signal further declines ahead.

S&P 500 Chart

Despite the bounce of the past two days, the Nasdaq Composite index is still below its uptrend line that it broke last week, which means that the breakdown is still intact:

Nasdaq Chart

As I explained yesterday, I am watching if a bearish head and shoulders pattern is forming in the S&P 500 and other major U.S. stock indices. If we are actually following this pattern, the left shoulder was the late-2017 surge and early-2018 plunge, the head was the summer surge and October plunge, the S&P 500 would have further to drop in order to test its neckline, and a final “dead cat bounce” would be ahead as the right shoulder forms. Head And Shoulders

I am not predicting or guaranteeing that the market is forming a head and shoulders topping pattern. I am simply curious to see if we are forming this pattern, so I am taking a “wait and see” approach. Importantly, technical analysis is not a guarantee of future outcomes. It is the analysis of previous price trends in order to apply probabilities to our portfolio management. What this analysis clearly suggests is an environment of mounting risks in the markets which our entire portfolio management team at Real Investment Advice and Clarity Financial have been keenly focused on.

As portfolio managers, we are aware of the damage sudden and unexpected downdrafts in markets can have on invested capital. Our team produces commentary each week which discusses the near term trends of the market and how we are navigating the increasingly dangerous waters of an overvalued, late cycle, bull market. If you tired of being told to just “ride it out,” and are concerned about growing your wealth, and protecting your financial future, click here to ask me a question to find out more.

As Seen On Forbes: Is A Top Forming In The Market?

As seen on Forbes by RealInvestmentAdvice.com’s Jesse Colombo: “Is A Long-Term Top Forming In The Market“:

Back in February, during the last market correction, I wrote a blog post called “3 Ways This Market Correction May Play Out” in which I showed three technical chart patterns that I believed the market may have tried to follow after the sharp sell-off. I also showed historic examples of these patterns. In that piece, I was not making any definite predictions, but just showing these potential scenarios as a helpful framework to better anticipate and understand the next phase of market action.

After the summer surge to record highs and October’s plunge, the market pattern that it appears we are following most closely is “Scenario #2: A Topping Pattern Forms” (more specifically, a head and shoulders pattern). If we are indeed following this pattern, the left shoulder was the late-2017 surge and early-2018 plunge, the head was the summer surge and October plunge, and a final “dead cat bounce” would be ahead as the right shoulder forms. Since early-2016, the S&P 500 has followed an uptrend line higher until last week’s close below it, which represents a notable and worrisome change of trend. The neckline support level formed at the early-2018 lows and is the key price target that I believe the S&P 500 is going to gun for during the course of this sell-off.Head And Shoulders

Read the full article on Forbes.

Please review our Chief Investment Strategist Lance Roberts’ newsletter from this weekend to learn how we are positioning in this market.

We at Clarity Financial LLC, a registered investment advisory firm, specialize in preserving and growing investor wealth in times like these. If you are concerned about your financial future, click here to ask me a question and find out more. 

The Market Is Gunning For Its Early-2018 Lows

After last week’s powerful sell-off, the U.S. stock market opened much higher this morning, with the Dow up as much as 352 points. Mainstream investors and TV commentators were excited, as they usually are, that the sell-off may have created an excellent “dip-buying” opportunity. I wasn’t buying it one bit, however:

Last week, I wrote that “the market’s trend breakdown had been confirmed” because the U.S. market closed below its important uptrend line that began formed in early-2016. In my mind, this morning’s market pop was nothing to get excited about because the U.S. stock indices were still below their important trendlines (which are now resistance levels), which means that last week’s technical breakdown was/is still intact.

Shortly after my statement, the market erased its gains in one of the worst intraday reversals in years:

bounce chart

The sell-off of the last few weeks caused the S&P 500 to break below its uptrend line that began in early-2016. The next major technical support and price target to watch is the 2,550 to 2,600 support zone that formed at the lows earlier this year. I don’t expect to see much of a bounce until this zone is tested a bit more (the market may need to test the lows of this zone around 2,550).

S&P 500 Chart

At the close of trading last week, the Dow Jones Industrial Average still had not broken below its key uptrend line yet, unlike the S&P 500, Nasdaq Composite, and Russell 2000. As of today, however, the Dow closed below this uptrend line, which is a worrisome sign. I would like to see a close below this line on the weekly chart for further confirmation.

Dow Chart

The Nasdaq Composite index continues to fall hard after closing below its uptrend line that began in early-2016 last week. The index will likely gun for its next price target, which is the 6,600 to 6,800 support zone that formed earlier this year. I don’t foresee much of a bounce until the Nasdaq has tested this zone.

Nasdaq Chart

The small cap Russell 2000 index broke below its uptrend line three weeks ago and has been testing the 1,475 support level. If the index breaks below the 1,425 to 1,475 support zone, it would give yet another bearish signal.

Russell 2000 Chart

I don’t expect much of a bounce until the respective U.S. stock indices test their early-2018 lows, which means that the markets are likely to go even lower in the short-term. Even if/when we get a bounce, it’s not much to get excited about because it is likely to only be a short-term technical bounce or relief rally rather than a sustainable phase of the bull market. I have been warning that we are in a dangerous stock market bubble (please watch my presentation to learn more), so the breakdown of the past few weeks means that the stock market bubble is in the process of popping – a very scary prospect.

Please review our Chief Investment Strategist Lance Roberts’ newsletter from this weekend to learn how we are positioning in this market.

We at Clarity Financial LLC, a registered investment advisory firm, specialize in preserving and growing investor wealth in times like these. If you are concerned about your financial future, click here to ask me a question and find out more. 

The Market’s Trend Breakdown Has Been Confirmed

On Wednesday, after the Dow plunged 608.01 points, I wrote a piece called “The #MAGA Stock Market Trendline Is Broken” in which I showed how the U.S. stock market’s sharp decline caused several major stock indices to break below their important uptrend lines that have formed in early-2016. I described this breakdown as a “very important change of trend.” On Thursday, the Dow rose 399.95 points and the S&P 500 rose 49.46, but I said that the market bounce did not negate the bearish technical developments that took place on Wednesday. Sure enough, the Dow fell 296 points or 1.2% on Friday, while the S&P 500 fell 1.7%, which confirms the technical breakdown under the important trendline that formed in early-2016 (I was waiting for a solid close below this level on the weekly chart).

This week’s sell-off caused the S&P 500 to break below its uptrend line that began in early-2016. The next major technical support and price target to watch is the 2,550 to 2,600 support zone that formed at the lows earlier this year.

S&P 500 Chart

Unlike the S&P 500, the Dow Jones Industrial Average still has not broken below its key uptrend line. If the Dow closes below this uptrend line in a convincing manner on the weekly chart (possibly next week if the sell-off continues), the next important support level and price target to watch is the 23,250 to 23,500 zone that formed in early-2018.

Dow Chart

The Nasdaq Composite index closed below its uptrend line that began in early-2016. The index would need to close back above this trendline to negate the bearish technical signal. If the sell-off continues, the next price target to watch is the 6,600 to 6,800 support zone that formed earlier this year.

Nasdaq Chart

The small cap Russell 2000 index broke below its uptrend line two weeks ago and tested the 1,475 support level this week. If the index breaks below the 1,425 to 1,475 support zone, it would give yet another bearish signal.

Russell 2000 Chart

As someone who is warning about a dangerous stock market bubble (please watch my presentation to learn more), this week’s technical breakdown really concerns me. The U.S. stock indices discussed in this piece would need to close back above their trendlines to negate this week’s breakdown. There is a very good chance that the sell-off will continue until U.S. stock indices hit their support zones at the early-2018 lows, then they will bounce for a time, and attempt to break below their support zones. If and when the indices eventually close below their support zones, that would give yet another bearish signal that would likely foreshadow a decline to their 2015 highs (not that the bear market will stop there, but it’s the next step after a break below the early-2018 lows).

We at Clarity Financial LLC, a registered investment advisory firm, specialize in preserving and growing investor wealth in times like these. If you are concerned about your financial future, click here to ask me a question and find out more.

The Mind Numbing Spin Of Peter Navarro

“The market is reacting in a way which does not comport with the strength, the unbelievable strength in President Trump’s economy. I mean, everything in this economy is hitting on all cylinders because of President Trump’s economic policies. We’ve cut taxes. That’s stimulating investment in a way which will be noninflationary. That’s going to drive up productivity and wages. That’s all good.” -Peter Navarro

Unfortunately, as much as we would like to believe that Navarro’s comment is a reality, it simply isn’t the case. The chart below shows the 5-year average of wages, real economic growth, and productivity.

Notice that yellow shaded area on the right.  As I wrote previously:

“Following the financial crisis, the Government and the Federal Reserve decided it was prudent to inject more than $33 Trillion in debt-laden injections into the economy believing such would stimulate an economic resurgence. Here is a listing of all the programs.”

If $33 Trillion dollars didn’t “unleash” the U.S. economy, or even change the trends of the prior years, there should be serious doubt that just reducing some outdated regulations, giving corporations a tax cut, and engaging in a “trade war” with China is going to be the fix. But nonetheless, here goes Navarro:

“We’ve got an unleashing, historically, of the energy sector, which is going to drive down costs to the American manufacturers–make them competitive even as it drives down costs to consumers, and allows them to spend more and get more out of their dollar.”

Wait a second.

Read carefully what Navarro said. By unleashing the energy sector the supply of oil will increase, lowering the price of oil, which is an input into manufacturing thereby lowering their costs.

This is a good thing?

Let’s dissect his statement. The decline in energy costs may be beneficial to parts of the economy, but we must remember it is offset because of the drag from the energy sector which loses revenue on each barrel of oil. As we have discussed many times previously, the energy patch is a huge CapEx contributor and also provides some of the highest wage paying jobs. As we found out previously, energy is a much bigger contributor to the health of the economy than not.

However, according to Navarro, the decline in oil alone will make manufacturing more competitive in the global marketplace. If that were true, wouldn’t the U.S. already be a leading competitive manufacturer considering oil has plunged over the last few years from over $100/bbl to the low $30’s? Furthermore, following Navarro’s logic, wages should have skyrocketed.

None of those things happened.

Navarro isn’t done yet.

“In terms of trade policy, by reducing the trade deficit, which is the intent of the president’s fair and reciprocal trade policies, that will add thousands of jobs to this economy; and bring in foreign investment. I mean, when we put the tariffs on solar and washing machines in January, that brought in a flood of new investment.”

We do indeed have a trade deficit because there are 300+ million American’s demanding cheaper foreign goods and services than there are foreigners demanding our exports.

While people rail about the amount of goods that we import, the simple reality is that we “export” our deflation and import “deflation.” We do this so we can buy flat screen televisions for $299 versus $2999 if they were made in America. The simple problem is that American workers demand higher wages, vacation, health care, benefits, leave, etc. all of which increase the costs of goods made in America. Not to mention the additional costs born by goods and services producers to comply with the myriad of regulations from EPA to OSHA. A previous interview of Greg Hayes, CEO of Carrier Industries, made this point very clearly.

So what’s good about Mexico? We have a very talented workforce in Mexico. Wages are obviously significantly lower. About 80% lower on average. But absenteeism runs about 1%. Turnover runs about 2%. Very, very dedicated workforce.

Which is much higher versus America.  And I think that’s just part of these — the jobs, again, are not jobs on an assembly line that people really find all that attractive over the long term.

This leads to the “American Conundrum.” While we believer our “labor” is worth “MORE” than anywhere else in the world, we also want to “buy” cheap products.

In order for that equation to work companies must “export” our “inflation.” This is accomplished by off-shoring labor at substantially lower rates which allows products and services to be provided more cheaply (deflation) to fill American demand. As I wrote yesterday, there is little ability for Americans to absorb the higher costs of goods and services brought about through “tariffs” or other inflationary goals of “balancing trade.”

“The chart below shows is the differential between the standard of living for a family of four adjusted for inflation over time. Beginning in 1990, the combined sources of savings, credit, and incomes were no longer sufficient to fund the widening gap between the sources of money and the cost of living. With surging health care, rent, food, and energy costs, that gap has continued to widen to an unsustainable level which will continue to impede economic rates of growth.”

Of course, while Navarro is optimistic that Trump policies will generate a net creation of a few thousand jobs, such aspirations will fall far short of what is needed to balance the economy.

But honestly, you can’t make up his last statement.

So you wonder–and if I put my old hat on as a financial market analyst, I’m looking at that – this market and the economy and thinking, the smart money will buy on the dips here because the economy is as strong as an ox.”

One chart dispels that notion.

So, be careful taking financial advice from Peter Navarro as well.

But, let me defer to my friend Doug Kass:

“To me, the views that animate Navarro’s policy prescriptions demonstrate his economic illiteracy.

There is no inverse relationship between imports and GDP as Navarro asserts.

In fact, there is a strong positive relationship between changes in trade deficits and changes in GDP.

Both Navarro and Ross are proponents of steel tariffs. As I have mentioned, such tariffs hurt producers that utilize steel products much more than they benefit a smaller population of steel producers. The byproduct of which could be rising steel costs which may ripple throughout the economy.

In reality, the US depends on China – we are in a flat, networked and interconnected global economy:

  1. The Chinese export market is important to the U.S.
  2. China produces low cost goods that benefit American consumers.
  3. China funds our budget deficit, their surplus of savings is imported to the US – squaring the circle. If China stops buying our Treasuries, where do we get funding?

Misguided Policies Continue

For the last 30 years, each Administration, along with the Federal Reserve, have continued to operate under Keynesian monetary and fiscal policies believing the model works. The reality, however, has been that most of the aggregate growth in the economy has been financed by deficit spending, credit expansion and a reduction in savings. In turn, this reduced productive investment in the economy and the output of the economy slowed. As the economy slowed and wages fell the consumer was forced to take on more leverage which also decreased savings. As a result of the increased leverage more of their income was needed to service the debt.

Secondly, most of the government spending programs redistribute income from workers to the unemployed. This, Keynesians argue, increases the welfare of many hurt by the recession. What their models ignore, however, is the reduced productivity that follows a shift of resources toward redistribution and away from productive investment.

All of these issues have weighed on the overall prosperity of the economy and it citizens. What is most telling is the inability for people like Navarro, and many others, who create monetary and fiscal policies, to realize the problem of trying to “cure a debt problem with more debt.”

This is why the policies that have been enacted previously have all failed, be it “cash for clunkers” to “Quantitative Easing”, because each intervention either dragged future consumption forward or stimulated asset markets. Dragging future consumption forward leaves a “void” in the future that has to be continually filled, and creating an artificial wealth effect decreases savings which could, and should have been, used for productive investment.

The Keynesian view that “more money in people’s pockets” will drive up consumer spending, with a boost to GDP being the end result, has been clearly wrong. It hasn’t happened in 30 years.

The Keynesian model died in 1980. It’s time for those driving both monetary and fiscal policy to wake up and smell the burning of the dollar and glance at the massive pile of debts that have accumulated.

We are at war with ourselves, not China, and the games being played out by Washington to maintain the status quo is slowing creating the next crisis that won’t be fixed with another monetary bailout.

Weekend Reading: Failing To Plan Is Planning To Fail

Failing To Plan Is Planning To Fail

by Michael Lebowitz, CFA

There is a durable bit of market wisdom that states “volatility begets volatility.” The gist of the saying is that at times the market can be very calm producing little need for investors to worry. Other times sharp market movements produce anxiety that spreads among investors and tends to exaggerate market moves in both directions for a while.

The graph below shows the daily percentage change between intraday highs and lows. Plain to the eye one can see the period of unprecedented calm that prevailed in the markets throughout 2017 as well as the sudden bout of volatility that picked up in earnest in late January.

Sailors pay close attention to weather conditions at all times. Importantly, however, they need to be highly in tune with the warnings that Mother Nature presents. This doesn’t mean they must head to harbor immediately. It does mean however they must have a plan or two top of mind if the conditions continue to worsen.

Protecting your wealth is no different. When the markets get choppy, as they have been, we need to heed the message that conditions have changed. One should not sell everything and run to cash. However, it is imperative one has a strategies and actionable triggers in place in case the volatility continues.

Last weekend, Lance Roberts shared the following graph and commentary:

“Considering all those factors, I begin to layout the “possible” paths the market could take from here. I quickly ran into the problem of there being “too many” potential paths the market could take to make a legible chart for discussion purposes. However, the bulk of the paths took some form of the three I have listed below.”

No one knows where this market is going and if they tell you otherwise, they are lying. We simply remind you the market winds are picking up, it is time to put a plan in place. Fear and anxiety are the enemy of complacent and unprepared investors. Those emotions are the direct result of not having considered and planned for the unexpected. For the investor who exercises the prudence to strategize on the “what if” and keep a close eye on market conditions, the fear of others’ is his opportunity.

Consider this recent period of choppy seas a gift. The market is allowing you time to plan.

“Failing to plan is planning to fail” –Alan Lakein


Weekend Reading: The Fed’s Dilemma

The Fed’s Dilemma

The confusion at the Fed continues.

On Wednesday, Jerome Powell justified hiking rates 0.25%, while maintaining their projections of two further hikes this year, by painting an upbeat picture of the U.S. economy.

Such may have been the case in January when the Atlanta Fed sent the current Administration into a “tizzy” with a pronouncement of 5.4% economic growth in the 4th quarter, but not at 1.9% currently. Furthermore, as I discussed just recently:

“Since 1992, as shown below, there have only been 5-other times in which retail sales were negative 3-months in a row (which just occurred). Each time, the subsequent impact on the economy, and the stock market, was not good.”

“So, despite record low jobless claims, retail sales remain exceptionally weak. There are two reasons for this which are continually overlooked, or worse simply ignored, by the mainstream media and economists.

The first is that despite the “longest run of employment growth in U.S. history,” those who are finding jobs continues to grow at a substantially slower pace than the growth rate of the population.”

“Secondly, while tax cuts may provide a temporary boost to after-tax incomes, that income boost is simply being absorbed by higher energy, gasoline, health care and borrowing costs. This is why 80% of Americans continue to live paycheck-to-paycheck and have little saved in the bank.”

The Fed’s dilemma is quite simple.

The Fed must continue to “jawbone” the media and Wall Street as economic growth has continued to remain sluggish. As shown, the Fed continues to remain one of the worst economic forecasters on the planet.

While the Fed is currently “hopeful” of a stronger 2018 and 2019, they are likely once again going to be very disappointed. But in the short-term, they have little choice.

Unwittingly, the Fed has now become co-dependent on the markets. If they acknowledge the risk of weaker economic growth, the subsequent market sell-off would dampen consumer confidence and push economic growth rates lower. With economic growth already running at close to 2% currently, there is very little leeway for the Fed to make a policy error at this juncture.

The Federal Reserve has a very difficult challenge ahead of them with very few options. While increasing interest rates may not “initially” impact asset prices or the economy, it is a far different story to suggest that they won’t. In fact, there have been absolutely ZERO times in history that the Federal Reserve has begun an interest-rate hiking campaign that has not eventually led to a negative outcome.

The Fed understands economic cycles do not last forever, and after nine years of a “pull forward expansion,” it is highly likely we are closer to the next recession than not. From the Fed’s perspective, hiking rates now, even if it causes a market decline and/or recession, is likely the “lesser of two evils.”

Weekend Reading: Our Ersatz Economy

Chart of the Day

Today’s chart of the day shows cumulative U.S. GDP growth minus federal debt issuance. Most studies and discussions of U.S. economic growth assume that it’s natural, organic, and sustainable, but the reality is that it’s largely juiced by deficit spending (particularly since the Great Recession). According to Peter Cook, CFA:

The cumulative figures are even more disturbing. From 2008-2017, GDP grew by $5.051 trillion, from $14.55 trillion to $19.74 trillion.  During that same period, the increase in TDO totaled $11.26 trillion.  In other words, for each dollar of deficit spending, the economy grew by less than 50 cents.  Or, put another way, had the federal government not borrowed and spent the $11.263 trillion, GDP today would be significantly smaller than it is.

Cumulative GDP growth less Fed. debt issuance

How much longer can we continue juicing economic growth like this? The U.S. federal debt recently hit $20 trillion and is expected to hit $30 trillion by 2028. Despite what Modern Monetary Theorists (MMTers), Keynesians, and similar schools of thought claim, common sense dictates that the endgame is not far off.

Have Treasury Yields Peaked for 2018? BMO Thinks So (Bloomberg)

Strong Demand For 30Y Paper Shows No Shortage Of Buyers Amid Surge In Issuance (ZeroHedge)

Gundlach Says 10-Year Treasury Above 3% Would Drive Down Stocks (Bloomberg)

SP500 performance around Fed tightening cycles (The Macro Tourist)

Dodd-Frank Rollback Optimism Hands Bank ETFs Record Inflows (Bloomberg)

FANG Rally Is Outpacing the Heyday of the Tech Frenzy (Bloomberg)

Apple is inching towards a $1 trillion valuation (Business Insider)

Buying Stocks Now Is Betting On Buybacks (Forbes)

Record Stock Buybacks at Worst Possible Time (Mike “Mish” Shedlock)

4 Reasons To Sell Tesla Stock (Forbes)

Everything is shrinking at GE except its massive debt (CNN Money)

A Worrying Shift for U.S. Pensions: Retirees Will Soon Outnumber Kids (Bloomberg)

The Coming Pension Crisis – Part I, Part II (Daily Reckoning)

The U.S. Retirement Crisis: The Elderly are Broke (Gold Telegraph)

The stock-market correction may be only half over, if history is any guide (MarketWatch)

JPMorgan Moves Closer to Urging a Rotation Away From Equities (Bloomberg)

Bullish On Oil Because of Trump? Don’t Be! (Mike “Mish” Shedlock)

What Event Will Sink the Stock Market? Yields? Tariffs? Trump? (Mike “Mish” Shedlock)

The Netflix Bubble (Seeking Alpha)


The U.S. Inflation Scare May Be Over (Bloomberg)

Subdued CPI Disappoints Economic Illiterates (Mike “Mish” Shedlock)

Yield-Curve Flattening Gets New Life After Inflation Fears Subside (Bloomberg)

10 years after the financial crisis, have we learned anything? (CNN Money)

Cramer on 2008 crisis: It could happen again ‘because no one went to jail the first time’ (CNBC)

A Decade After Bear’s Collapse, the Seeds of Instability Are Germinating Again (Wall Street Journal)

U.S. CEO Optimism Hits Record (Bloomberg)

Yield Curve Turns Threatening – Again (DollarCollapse.com)

Fed Admits ‘Yield Curve Collapse Matters’ (ZeroHedge)

It’s Just Starting: Moody’s Warns A Deluge Of Retail Bankruptcies Is Coming (ZeroHedge)

Economist Lacy Hunt: These Conditions Preceded The Last 7 Recessions (Forbes)

Subprime Auto Bonds Caught in Vise of Rising Costs, Bad Loans (Bloomberg)

Goldman, Atlanta Fed Slash Q1 GDP Forecasts Below 2.0% (ZeroHedge)

America’s inflation problem isn’t high wages, it’s high rent (MarketWatch)

Investors “Unconcerned” About Record Corporate Debt (Dollar Collapse.com)

Trillion-Dollar Deficits Far as the Eye Can See (Daily Reckoning)

The Everything Bubble – Waiting For The Pin (David Stockman)

Is The U.S. Economy Really Growing? (Peter Cook, CFA)

Why It’s Right To Warn About A Bubble For 10 Years (Jesse Colombo)

Are U.S. Treasury Bonds Breaking Out? (Jesse Colombo)

BTFD or STFR? (Michael Lebowitz)

Technically Speaking: Chart Of The Year? (Lance Roberts)

March Madness For Investors (Michael Lebowitz)

Is The Dot.Com Bubble Back? (Lance Roberts)

Volatility Is Back (John Coumarianos)