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U.S Market: A Top in Place for Oil & SPX?

March 29th, 2016 · Chris Vermeulen · 34 Comments

Stock markets rebounded solidly from their lows of February 11th, 2016, making new multi-month highs, earlier last week. The SPX rescinded 0.7% by the end of last week. These market gains can be attributed to the very bullish decisions of the European Central Bank (ECB) and the FED Central Banks.  On March 10th, 2016, the ECB surprised the financial world by announcing a much stronger than expected stimulus package. One week later, the FED announced that it would not raise its’ short-term interest rates. It was only three months earlier, back in December of 2015, that they suggested that they would raise rates four times in 2016. It is now my belief, that they will not raise short- term interest ‘materially’ in 2016.

Most broad-based indexes are now trading flat thus far in 2016, as range-bound conditions persist.  FED members will be speaking during the course of this week, including FED Chairwoman Dr. Yellen who will speak, tomorrow morning, Tuesday, March 29th, 2016, to discuss the next move of this unprecedented intervention.

The change of attitude is due to the fact that the global economy is so weak that Central Bankers fear a ‘market crash’. Obviously, they want economic growth. They want inflation, but, so far that has not materialized. They have had the power and independence, in these past seven years to do so, but we are still spiraling towards ‘deflation’.  What they have achieved was ‘Asset Inflation’ and ‘Earning Inflation’. We will see and feel the effect of such ‘excessive monetary stimulus’ induced by the Central Banks, very shortly.

The charts of stock markets are still long- term bearish (refer to the charts below) and are currently approaching a critical juncture!  This is a location that we could see a very short -term bounce, but I am not interested in taking any long positions. The markets could still push a bit higher. In April 2016, global stocks will enter their annual period of negative seasonality along with its’ bearish technical internals. I am waiting for confirmation of the top being in place, in order to finally recommend Inverse ETFs.

Overall, this is just the beginning of the major SPX turn.  We are currently at an ‘ideal resistance’ area. The SPX is currently in a downward channel. The momentum oscillators are extremely overbought and are now trending downwards. They need to cycle back down. Volume is declining with higher prices and that is a sign of weakness.  I will keep monitoring this new major event which continues to slowly unfold.

The U.S Dollar has moved up in the past few days. This is placing pressure on gold, silver and crude oil.  The retracement of gold and silver is now in the process, as I have been discussing over the past few weeks. We are heading even lower for a fantastic long term entry.




Stock Market & Crude Oil Relationship

The recent month long rally in stocks which started early in February was given a lot of upside momentum from the rising price in crude oil. But when oil stalls, tops and starts another decline expect the stock market to fall fast and hard.



Market Tops: S&P 500 and Crude Oil Conclusion:

In short, the stock market and crude oil prices have posted some serious gains in the past month. But both are not showing signs of weakness in terms of price action, buying volume, and cycle analysis.

We may see stocks and oil hold up and possibly make minor new highs over the next five to ten sessions but it’s going to be a struggle (choppy market) before we likely see the next market selloff.

Time The Market Using Inverse and Leveraged ETF’s:


34 responses so far ↓

  • 1 Lachlan // Apr 19, 2016 at 5:45 pm

    Chris has been very bearish for a while now. Some things of note; the USDX is in danger of a sharp break down, technical upside for oil and AUD does not look bad for a little while at least. Announcements from major CBs, financial institutions are erratic so not much help there however the feds less tight stance seems to have started a trend which might stick until the usd drops a bit more.

  • 2 Stillgotshoeson // Apr 20, 2016 at 6:33 pm

    I still am bearish too. The commodity price rise seems to be coming at USD dollar weakness. US elections in November. I’d say Obama has said to the Fed ant their recent meeting. No surprises till after the election.

    USA is not the whole world but the major influence at this time.

    We could see further rises in commodity prices,the AUD too, for a few more months yet. Crisis averted this year I believe. Next year? Not so sure.

  • 3 Lachlan // Apr 21, 2016 at 6:42 pm

    Shoes I haven’t neglected to buy more goldies of late which are obviously beaten down. Added some DCN too. Still refusing to sell anything no matter what. One of them died, I don’t care. Wake me up when I have a 50 bagger lol.

  • 4 Biker // Apr 21, 2016 at 8:25 pm

    As Kohler just noted, despite the share market being at its highest this year, it’s right where it was a year ago. I’m still bearish… and maintain my earlier prediction that by year’s end we’ll be back where we started.

    Some very disruptive technology on the horizon, but it’s still early daze. Government intervention / policy will affect development.

    Politics? We truly live in interesting times… .

  • 5 Lachlan // Apr 23, 2016 at 6:07 am

    Feel the same Biker and hoping for more discounts… yet that wonderful dji continues it’s awkward, liquidity driven, bear killing, levitation acts. Either the yanks are leading us to the next economic utopia or they’re going Texas style out on a limb to do everything bigger and better, including an atomic bomb-esque market meltdown.

  • 6 Stillgotshoeson // Apr 23, 2016 at 7:40 am

    Well the DOW was heading down when it looked like the FED were going to continue rate rises into 2016. Rate rise looks off the table for the rest of the year so risk on again for the DOW.

    Will we see, sell in May scenario? Remains to be seen.

  • 7 Lachlan // Apr 23, 2016 at 11:33 pm

    Well the xjo has a nice little bottoming formation but even if it does come away and even if the Dow does pop a new high there remains a pretty good reason to suspect later that the dow will need to retest lower support even if it it does begin from a new higher level. I concur with Chris on that much. I wouldn’t want to be shorting the beast though, which he is waiting with baited breath to enter a trade on.

  • 8 Greg Atkinson // Apr 27, 2016 at 9:32 am

    The ASX 200 (XJO) seems stock in a fairly narrow range at the moment and it’s hard to think of many (any) reasons why it would burst much higher for now. As for oil – well a few months ago many analysts were saying it would head and remain below $20 whereas now it’s above $40. Yes there is an over-supply of oil for now but I doubt that’s going to last for years.

  • 9 Lachlan // Apr 27, 2016 at 7:38 pm

    Not news Greg but here’s one option

  • 10 Lachlan // May 3, 2016 at 7:46 am

    Dollar index breaking support, could be a flurry of activity.

  • 11 Biker // May 7, 2016 at 9:56 pm

    Lachlan: “…could be a flurry of activity…”

    It’s possible, Lachlan. It’s also likely that many of us are standing back, attempting to assess LNP policies… and how they might affect us.

    Take this new direction on Super, for example. The proposal that those aged 65 – 74 may soon contribute to Super (without the 30-day work requirement) presents a range of enticing possibilities to those in our age-group, in a comfortable financial position to significantly contribute… .

    Given the possibilities, we’re now reverting to decade-old strategies in which we 1.) develop dozens of Big Questions on index cards; 2.) Try to imagine possible outcomes; 3.) Document these; 4.) Present them to our accountant and her FA for consideration… .

    Major question include: How would such an ‘offer’ affect CGT? What’s the potential for SMSF initiatives? Could we maximise potential for reduction of tax in retirement? Could we recommence a new building program, within a SMSF, after selling numerous rentals currently ‘taxed’?

    More questions relate to Super-sharing, given my missus has extended her retirement date to December 2017.

    I imagine there are many BBs my age pondering the possibilities… weighing-up likely options… and seeking answers to these kinds of questions… .

  • 12 Lachlan // May 10, 2016 at 9:42 pm

    Biker I still don’t have my head around Super and still sailing solo. I read through the policies. Your assessment methodology sounds rigorous though, what more could one do?

  • 13 Stillgotshoeson // May 11, 2016 at 9:46 pm

    Superannuation changes have ramifications for me too.

    Will wait and see post July 2nd to see who gets in and what, if any, other changes are made.

    The $1.6M cut off for tax free pension is not too bad and at a limit I was sort of expecting. I was sort of hoping/expecting an upper limit of $2.5M attracting some tax. Then higher tax above the $2.5M

    $2.5M was a figure being thrown about a few months ago in the media.

  • 14 Lachlan // May 21, 2016 at 7:29 am

    Chris Vermeulen took his short position on US stocks this week and also bought the VIX.
    I’m not phased either way and have no strong opinion however I still feel that stocks could just as easily rally and the dj could pop a new high with upside in the aussie market too.
    There are many thinking that oil could stay depressed for some time by going sideways or heading south again. A message preached by Rick Rule concerning energy junk debt and excellent times ahead for energy investors toward years end is interesting.

  • 15 Biker // May 21, 2016 at 11:26 pm

    The place for oil? I realised tonight, as wild storms hit southern WA, that we can power just about everything in our home using a combination of our Thumper and a Powertech 230VAC converter.

    So, if the power went out during our dinner party tonight, we could still show our Canadian guests ‘Red Dog’ and/or ‘The Castle’… .

    Furthermore, we can floodlight the entire house, including the mezzanine, using our Kogan 10W dimmable floodlight.

    As we prepare for a month-long trip through the NW, solar-panel-equipped, I suspect that oil’s dominance is fleeting. Our dependance on oil is _very_ gradually waning, as new, cheap technologies overtake fossil fuels. Possibly, within my lifetime, we may see new technologies relegate oil and coal to history.

    Mine dew, I still have two wood fires (a wood stove and a hearth fire) keeping the home fires burning… . 🙂

  • 16 Lachlan // May 22, 2016 at 7:36 am

    Biker I’m just waiting for my son to pick up on solar given the lengths he’s been to with his robots,computers and electrical.
    I have a wood stove and an abundance of fuel. Had my daughter cook up a gigantic damper yesterday though generally I light up the stove for heating.

  • 17 Biker // May 22, 2016 at 12:20 pm

    I really enjoy some aspects of winter, Lachlan. We refurbished our 30-y-o Rayburn recently. It cooks our meals, heats the water, and with the addition of a heat-driven fan* heats the main living areas…

    Like you, we have abundant fuel. I have three years’ jarrah stacked… and gift two other families firewood and kindling each year. (Keeps me fit!~)

    It’s a while since we’ve made a damper, but I’m drooling thinking about it! This year an unexpected bounty of pumpkins (resulting from seeds in our compost) has meant our home-grown meals have included wonderful pumpkin soups, roast pumpkin, etc.

    * Ecofan Model 812: We brought two of these gems back from Vancouver last year. One sits on the stove top and directs a warm breeze to the kitchen or dining room. More ‘free’ energy!~

  • 18 Greg Atkinson // May 26, 2016 at 11:17 am

    Lachlan I guess many investors are thinking that the US Fed won’t raise interest rates for a while and that the US stock market will continue to inch upwards. As for the energy sector I also think it will provide good returns in the years ahead. Perhaps oil will be around $80 USD a barrel next year?

  • 19 Lachlan // May 29, 2016 at 4:04 pm

    Biker, my home at present, lets say a very well ventilated old timber home typical of Queensland country, on a high scrubby hill with a 2km driveway. Old and nearly rent free. Great views, otherwise it’s rough and suits my current lifestyle. Now once I’ve made my fortune luck continuing as it has I will build on the self sufficiency theme purely out of passion. Making your own unique things is a real blast in an age where so much can be bought for so little.
    Otherwise for now, the owner of this block is a grain grower. We’re hoping for a few inches of rain soon at which time he’ll sow wheat. All going well I have been promised a drum of that grain and I intend to mill it for my daughter to cook with, as we need it. Bought flour ain’t always so great. We might mix up home made with bought stuff.
    I have continued to grow my business and it’s worth something now. Its approaching a peak next few years so I am pushing with a diversification idea. Most of my capital is in business in the sense of stock, fixed assets and machinery …in descending order of value. I have then my metals and speculative shares which are a small portion. In the next phase I would like to see a pile of quality shares with yield bought at lower valuations. I’ve started on that. Otherwise how about a beach house? We just had a relaxing four day vacation in a brand new beach house. The rentals would help keep the idea looking sweet plus the utility of being able to stay there when we want. Then it’s a store of wealth and helps with asset diversification. With my current situation I’m doing ok building wealth however actually owning my country abode seems like an idea better put off another ten years. I think buying the land to put it on could be a nearer term goer though. Maybe I could make a home there in a different phase of life.

  • 20 Lachlan // May 29, 2016 at 4:11 pm

    Ha ha Greg ain’t that the question? Will oil bounce back hard or stay with the new normal…low rates, low energy costs, sideways grinding markets and economic repression theme. I won’t bet on it except to say that the latter case is not unreasonable imo. And that being the case then plenty of time will be had for spending a dime or two on energy investments.

  • 21 Greg Atkinson // May 30, 2016 at 8:40 am

    Lachlan I am guessing we will follow the usual cycle in that rigs will go offline, exploration budgets will be slashed & older (and more costly) operations shut down. Then at some point down the road the supply/demand balance will work itself out and the oil price will creep up again. This will probably be followed by the people who were saying oil would remain under $20 a barrel getting on TV and saying oil is headed for $200 a barrel 😉

  • 22 Biker // May 31, 2016 at 9:11 am

    Lachlan: “I will build on the self sufficiency theme purely out of passion.” That’s a great goal, Lachlan. We’re close to achieving it, with solar battery back-up our next milestone… .

    On the beach house theme, I’ve proposed a holiday home (island or beach) for several decades now. The missus has argued that tax and income-wise it’s not a proposition. I’m not so sure. None of us is here forever…!

    In regard to energy, I’m sure that Greg is right in regard to cycles… but at some point disruptive technologies may intervene to break-the-circuits.* Then, of course, political interventions sometimes speed or retard cycles. There’s a BS event on the US horizon right now. It may be interesting to see how a certain republican black duck affects US energy policies(!)

    * Our eldest, moving his business from Singapore to Seattle in June, has a Tesla on his shopping list. I may get to drive it later this year… or maybe not… given the length of the waiting list for the Model 3… .

  • 23 Lachlan // Jun 1, 2016 at 4:51 am

    Ha ha that’s interesting Biker. I know where your missus is coming from too. To be honest I’ve been taking those little spells in different spots and light heartedly considering the beach house for some years now. They’re not going pay a lot either but i figure that neither are houses near beautiful Australian beaches ever likely to fall out of favour. Otherwise I admit there could be a wee bit of emotion involved in the idea 😉
    I gotta go but will think more about the energy questions.

  • 24 Biker // Jun 2, 2016 at 12:43 am

    Awaiting moderation?

    Was it my comment on Trump, on beachside erosion, or my reference to climate change, I wonder?


  • 25 Biker // Jun 2, 2016 at 7:21 pm

    Highly amused at editorial sensitivity, anyway!~

  • 26 Lachlan // Jun 3, 2016 at 6:33 am

    Limited room for politics here Biker, I tried to be cynical once. Oh well it’s not a democracy eh. I often remind my son that I’m a fascist dictator. Dunno whats wrong kids these days…it’s that pesky, western conditioning again. I promised him he can be a fascist when he gets his own house though and he seems content with that.

    Yes I am with Greg on the cycles. I am going to admit though that if the renewable thing disrupts the current paradigm shortly then I will be blindsided by it. Before predicting anything like that I would need to do a lot of research and it seems I haven’t had enough lives to make that possible…not just yet anyhow. Many of my friends are true believers though.

  • 27 Biker // Jun 3, 2016 at 9:53 am

    Comments on (permanent) hold were _tame_ Lachlan. Two links which showed some beach erosion, brief mention of Trump’s views on the pipeline… and my passion for beach / island habitation, despite any risk of sea levels rising.

    Hard to know which comment has offended any fascist dictators… 🙂

  • 28 Lachlan // Jun 3, 2016 at 9:59 pm

    I don’t follow Trumps antics too much. I noticed he has polarised people and reinvigorated the political process. However if he actually becomes president I will take notice of what he…actually…does since the economy is brittle and he will affect the USD.

  • 29 Biker // Jun 4, 2016 at 11:19 pm

    The possibility of his election as PoTUS might be viewed as a Black Swan event, Lachlan. If the rhetoric was actually applied to domestic and foreign policy, it might present opportunities… including prices of PMs…!

    My previous, ‘unpublished’ comment may have been misinterpreted… or too politically dangerous to appear here… (?) In reference to oil / energy, I made no personal position evident at all… .

    I do maintain a belief that Trump’s election might indeed be a BS event… .

  • 30 Lachlan // Jun 8, 2016 at 6:45 am

    I certainly wouldn’t be betting against you on the BS thesis either Biker, for the record. Sometimes political and market timing converge for explosive results. And there’s an awful lotta dynamite lying around this time. There has been a trend of horrifying news against a backdrop of fairly boring conditions though. I keep that notion afloat in the mind space too. There’s a lot of black boats and white boats in there in the one flotilla.

  • 31 Lachlan // Jun 8, 2016 at 8:40 pm

    Sorry, reading and writing in a rush. I meant there’s been a trend of horrifying market predictions against a backdrop of boring market conditions. What was Taleb thinking then if BS predictions are possible? Seems now in fact I always concurred with your final statement.

  • 32 Biker // Jun 10, 2016 at 4:47 pm

    No drama, Lachlan!

    Re: “…a trend of horrifying market predictions…”

    Can you imagine what would happen to Australian property prices if this occurred?*

    * Not that I think he’s right!~ Mind you, we were getting around 37c in Hawaii sixteen years ago… . 😉

  • 33 Lachlan // Jun 11, 2016 at 6:53 am

    Ha ha, I’ll have a nice bag of those AUDs thanks!

    Well in any event Biker, lets say we be good little scientists and try to falsify our less drastic thesis of things in OZ. I come back to a same conclusion very quickly, that Australia is a lucky country as far as we have reason to know and that investors here have a generally favorable prognosis. Lets say the BS comes to fruition anyhow, lets say there is an uncontrolled credit destruction. What are the fundamentals is my question because human nature is always human nature and for the best part continents (geophysical) and global power dynamics only change at practically meaningless and relatively slow paces respectively. We have a very small, modernised population living on a paradise of minerals, cow food and vast natural beauty. The overlay of finance on this equation** only introduces opportunity for capital/investors and the necessity of a more or less fresh start/new direction for the populace/economy. That would be the structural changes Greg and others anticipated in previous commentary. What the changes would look like would be a concern for the day at hand. The time frames could be very brief.

    *and it’s always inevitable abuses within secular time frames
    * yes I stole your asterisk

  • 34 Biker // Jun 11, 2016 at 3:55 pm

    Lachlan: “Australia is a lucky country as far as we have reason to know and that investors here have a generally favourable prognosis… . We have a very small, modernised population living on a paradise of minerals, cow food and vast natural beauty.”

    +1 🙂

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