• July 1, 2020

ELAM: Important test ahead for markets - Odessa American: Inthepipeline

ELAM: Important test ahead for markets

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Posted: Sunday, June 28, 2020 5:00 am

FED Sets Caps on Bank Payouts amid $700 B Loss Threat

WSJ Headline today

Since the rebound high June 8, all the big stock market moves have been to the downside. Day downdrafts of 1,800 and 700 DJIA points have occurred. An island reversal surrounds the June 8 high. This means a gap occurred on either side of four days where no trading took place. The gap remains, another bearish indicator.

The Transports will turn its trend down on a weekly close under 8,700. The S & P Small Cap 600 is also weak threatening to break its 50 day Moving Average at 782.The important test of the next couple of weeks will be the shelf of support for the Dow Industrials at 23,000. If that holds, expect a nice rally back up. If not, we may be in for a much deeper correction, possibly to the March 23 low of 18,000.

My proxy stock to watch is Cullen Frost Bank. It is well managed and earning millions of dollars while paying a 3.5% dividend. But since the high on February 12, CFR has fallen first 50%, then risen 70%, and has now fallen 16% just this month. This is in stark contrast to the long bull run up to February 12. This tells us the tenor of the market has totally changed. Such yo-yo behavior of a blue-chip stock is indicative of at least an uncertain if not bear market.

Financial stocks finally helped a 300 point rally Thursday, but again the downtrend is once again in force. Such stair stepping down is bear market behavior.

Crude oil briefly vaulted over $40 and is flirting now at $38.72. The shares of energy and service companies are not fairing nearly as well. Profits are slim to none at this price level of crude. XLE ETF is below both its 50 and 200 day Moving Averages MA. Exxon Mobil peaked at $55 and has already fallen to $44 this month.

Valero managed to top its 200-day MA for, well, one day at $75. It has already sunk back to $57. Again this kind of volatility is broadcasting uncertainty if not an outright bearish posture.

The news is turning negative along with prevailing social mood. Now we learn that millions more had the virus than first thought. Lockdowns are renewed in Texas. Elsewhere mayhem reigns with monuments toppled amid increases in violent crime in Democrat controlled spots like Chicago, NYC, and Detroit. Bull markets do not begin in this fashion.

At this point Trump trails badly in the polls, running against himself rather than Biden. Trump certainly does not play well with others cascading through a notable string of advisers, several of who are already speaking out in negative fashion. No wonder Biden stays shut in his basement. The best strategy would be to put the Convention to good use. Have Trump declare victory over the economy, the virus, and over regulation. He will retire to his golf clubs and let Mike Pence run alongside Tim Scott as VP. It would catch the Democrats flat footed with no ready Trump Target, which is about all they have to run on.

But that would be the smart move. Republicans have been short in that department for some time.

DAILY OIL PRICE: July 1

  • Crude Oil: 39.82   (+0.55).
  • Nymex MTD AVG:  39.8200.
  • Natural Gas: 1.671   (-0.080).
  • Gasoline: 1.2169   (+0.0154).
  • Spreads: August/September   (-0.10)   September/October   (-0.17).
  • Plains WTI Posting: 36.25   (+0.50).
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