A Storm Is Coming
A Storm Is Coming by Dennis Slothower – Outsider Club
The Dow moved mostly sideways or down all week until Friday, as some traders came back to work from the 4th of July holiday. The focus on Friday was the new jobs report, which beat expectations and showed enough of an increase in people looking for work and moderate wage growth to convince traders to rally.
Investors mostly ignored the tariffs on China, and the reciprocal tariffs on the U.S., as they went into effect overnight.
Frankly, the market is short-term overbought again, with the Dow 30 now finding the 200-day moving average serving as resistance.
The NYSE just posted a “death cross” pattern on Thursday, where the 50MA crosses down below the 200MA. So even with the nice advance, the NYSE is barely above long-term support. Not good.
With accelerating energy costs last month caused by oil prices still being high, discretionary income of consumers is being significantly pinched.
This means corporate inventories are likely to build. I think this is why, with the exception of a handful of big tech companies, many companies are struggling to trend positively this year.
Companies buying back their own shares are the only thing keeping the stock market afloat at the moment.
It is very deceptive. When they are not buying back their own shares, companies are turning to mergers and acquisitions for growth, trying to grab market share and cut costs, and generally economizing ahead of difficult economic environments.
I want you to notice how mergers and acquisitions of corporations spike in 2000 right before a recession, and again in 2007 right before the Great Recession, and again in 2015, when oil prices plunged due to oil sanctions on Russia and Iran.
Then notice the massive spike in 2018, well beyond any of the other past cycles, as corporations prepare for something significant coming.
With soaring U.S. deficits, a strengthening U.S. dollar, rising U.S. interest rates (and Libor rates), and central bank quantitative tightening which will run into 2020, liquidity is drying up.
This is making the global markets extremely fragile, especially for high oil prices, which is why the President wants oil prices down. They are killing global growth.
84% of the S&P 500 gains this year have come from four companies. Amazon (AMZN) represents 36% of the gains for the S&P 500 this year. Microsoft (MSFT) accounts for 18%. Apple (AAPL) represents 15% of the gains and Netflix (NFLX) has also added 15% of the gains to the S&P 500 index.
When just four companies account for 84% of the gains of all S&P 500 companies for half of the year, we have a serious problem. In truth, it is just 10 companies that account for 100% of the gains for the S&P 500 (AMZN, MSFT, AAPL, NFLX, FB, GOOG, MA, V, ADBE, and NVDA).
What this means is 490 companies are struggling in 2018 within this index. There is no sugarcoating this, especially when we note that the global stock market is breaking down.
While the financial media such as CNBC, Fox Business, and Bloomberg etc. speak of how glorious the economy is, let’s be clear: they are paid to be promoters. They are not watchmen on the tower to help you guard against loss.
As I have warned you, the market is struggling with $75 crude oil, burgeoning debt, sky-high health insurance premiums, and a Federal Reserve determined to keep raising interest rates and draining liquidity. This isn’t a market environment you can trust.
A storm is coming. Up until now, we’ve only seen the advancing wind that is doing some damage. We’ve seen this storm brewing for quite some time. While the storm hasn’t come ashore yet, we’ve been warned and that’s an advantage.
To your wealth,