ELAM: The correction begins. Or is the bear finally emerging?
All three DOW averages have now exceeded. Transport came first on May 10. Transports are now trading below the 200-day moving average of 14,284.
We have mentioned the divergence between the transport summit and the industrialists which reached a last peak on August 16th. Down more than 400 points this Thursday morning, the 200-day MA at 33,360 is not far away.
Utilities are not part of Dow Theory, but topped September 2 and then quickly pulled their 200-day MA to 887.
NASD, NDX 100 and Facebook all dominated the first week of September with Utilities.
Meanwhile, the closely watched 10-year Treasury yields have fallen from an August low of 1.15 to 1.55% today. Percent wise, that’s a big leap. Jerome Powell’s transitory inflation doesn’t notice the transit part. Cable shows feature a parade of CEOs grappling with increased distributions (Pizza Hut, Fed-Ex, shale producers) and unable to find employees.
Note that we have several converging cycles, including a 233 year from 1788, and a 20 year from 2001, and a 40 year from 1981-82 when the DJIA finally hit its lowest point. My inbox is full of S&P 5,000 year-end goal predictions. I do not think so. The lows of late October and November are likely for stock indexes. This would be followed by a lower peak in the spring of 2022 than what was recorded in 2021. You heard it here first.
West Texas Intermediate is trading at $ 75 and Brent hits $ 80. We titled a recent column Not So Fast. In it, we noted that Europe lacks wind and solar power and has closed many coal-fired power stations. Vladimir must be happy that Biden has accepted the Russian pipeline to the EU while doing everything possible to shut down US producers and pipelines. Natural gas futures soared to $ 5.50. In 2019, 81% of the energy supply came from fossil fuels according to the International Energy Agency. Solar and wind power only provide electricity. But planes, trains and ships depend on fossil fuels. The IEA estimates that fossil fuels will still provide 73% of energy by 2040. And as we noted last week, Zoom and Webex have saved significantly more gasoline this year than electric cars.
Nothing looks good from a social mood. Democrats are scrambling to increase their rights by trillion dollars. Demand has never been higher for tax professionals, and that’s no wonder given the mountain of rates that will be increased if all this comes to pass. Democrats are arguing among themselves but had no problem coming together for 60 Senate votes on Obama Care.
Biden’s approval rating among independents is only 37% and is on the decline. A record stock market with declining confidence in the president ushered in the bear market of 1973-74, pushing the DJIA down by 50%.