Industrial
2016 U.S EQUITY SELLOFF AND GLOBAL CRISIS TO HIT 2008 LOWSTechnical Analysis:
Along with the technical indicators that I have outlined in the graph, the following fundamental analysis supports the reason for the incoming financial 2016 crisis. Outlined in the chart are my target dates for the bottom of the market, ranging from Q1 2017 to Q4 2018. Additionally, the right shoulder that formed in the 2001 and 2008 cycles has now been formed, indicated by the magenta arcs. The 1Week, 100D vs 50D moving average has officially crossed at the 2016 top, in which the last tops were 2001 and 2008.
Fundamental Analysis:
We are currently seeing bear market rallies in both S&P and TSX to instill investor confidence, Yesterday was likely the top for both oil and stocks. Here are my 7 reasons
1. Unemployment figures offered to the fed are very manipulated. They involve part time unemployment which was 90% of the added jobs in february, and a part time job does not offer the same economic contribution as a full time, although counted the same.
2. A clear way to gauge consumer confidence is to see how sales are doing in a consumer's biggest expenses: cars and homes. Despite sales, Auto loan delinquencies at all time high and home sales just saw biggest decrease in 6 years
3. A few U.S states are already facing recessionary contraction
4. Debt levels for both central banks and individuals are at extremely dangerous levels . Income is decreasing and leverage is at all time highs, always an indicator at top of market, also M&A activity is at highs from 2008.
5. There is currently a major 30% divergence between the value of junk bonds and US stocks (see $HYG junk bond ETF vs. SPX)
6. I believe the yield curve is fooling everyone; its extremely hard to have an inverted yield when the financing rate is 0.25, and was 0% for 6 years, we would have almost negative yields on 30 year t-bonds. Artificial 0% rates has manipulated the yield curve and QE went directly into equities
7. Japan has still unsuccessfully recovered from 0% fed policy and QE stimulus from the 90s, which shows how dangerous it can be.
Keep in mind that the crisis we are currently facing is global, and extremely deflationary due to credit and liquidity risks. Most people are underestimating its potential damage.
Crude Technical OutlookCrude started the new year with volatility, as prices initially rebounded into price resistance near $38/bbl on geopolitical tensions between Iran and Saudi Arabia. However, the rally was short-lived and there looks to be no follow through in today's session.
There are a few key factors to take into account: slow global growth, a decline in global demand growth and a supported dollar.
As posted here and here , near-term resistance is near $38/bbl which has been tested and failed twice in the last two days. Technical breadth still remains negative, and the lower have of the demand zone is the next area of support between $33-34/bbl.
If the bottom of the range breaks, $27 is open for the taking. As mentioned in August :
"On a market technician's viewpoint, if fundamentals do not shape up quick with support from consumption economies, like the U.S. and China, crude could break 2009's low of $33.20 per barrel.
I also expect the dollar to continue to rise, increasing deflationary pressure throughout 2016.
Price support is currently $42.02, just $2.22 per barrel less from where it is trading today. 2008's high of $147.27 per barrel creates a "V" shaped support and resistance price channel, which will likely hold prices.
If prices break through this key support level, selling could amplify if there is no catalyst to bring prices back north. A "demand" zone - an area where confirmed buying took place - between $38.34 and $34.04 will be the last line of defense for crude prices.
A close below this level, and a target of $27.14 per barrel is initiated."
Take it back further to last February :
"A bottom in crude will be formed when a series of indicators and data show confluence."
"Growth has been lacking, and it is concerning that China – the largest consumer of oil – is showing real signs of trouble. GDP recently hit two decade lows, and the most recent import/export data is troubling. China saw a 3.3 percent decline in exports and a whopping 19.9 percent decline in imports YoY, the worst since 2009. It was was 16 percent lower than the general consensus.
There is also disinflation. Whether it is in the US, Eurozone, or China, prices for commodities will remain low. Crude is no exception.
A bottom in crude will not likely begin until fundamentals mingle with price action. Inventory builds of 5, 6, 10 million barrels per week will not help the case for higher prices, and oil companies could be forced to further slash rigs, jobs and CAPEX.
And considering the deteriorating economic data, more so in the US, 2008’s low could be retested."
If bulls could retake momentum, upside potential could reside at $42.75 and, potentially, $48.55. The situation remains dynamic as an unexpected production cut from a large producer could spark huge short-covering (unlikely to change long-term sentiment). Although, OPEC and Russia look to remain active, while production in the US is still near historical highs .
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DATA VIEW: US INDUSTRIAL PRODUCTION UPDATE - STALLING TRENDSSituation at industrial production in the US hints of a stalled recovery around 2008 highs, which is a risk, considering the fact that current base year for the indices was recently updated to 2012 (so there is no base effect in the index now)
Total industrial production has recovered past its 2008 highs, but stalled somewhat at current levels since about a year ago.
Manufacturing, on other hand, did not yet recover completely, however also stalled at current levels together with total index.
Thus overall the situation in the indices hints of a slowdown in growth, which is not a crisis situation, but is already a risk factor to watch.
DATA VIEW (NOT A FORECAST): US INDUSTRIAL PRODUCTION GROWTH FINEIndustrial Production Index has been trending within its relevant ascending range since 2011 and has restored all the losses of the 2008-2009 financial crisis back in mid-summer 2013.
Thus overall the Industrial production in the US is developing at a good pace, in line with the lateral uptrend in S&P 500.
Dow/Gold ratio at importance resistance, expecting downsideThe Dow Jones Industrial to Gold ratio has reached a key resitance area near the 15 level for the completion of what we believe was corrective wave 4. We are expecting a continuation of the bearish move with the final downwave V. First target near the 2011 low of 5.69.
