All 11 sectors of the S&P 500 closed in the red. It was the Dow’s worst one day performance since May.
Stock Bonds Fall After Strong Report, WSJ
The economic data does show a strong economy but the mood is changing, and that is what drives stock prices.
Two weeks ago we stated June 15 might be a pivotal date. The DJIA hit a new high above 34,500 and then reversed for the day. Thursday stocks came off the worst of the day but still closed down 339 points. Every single bank stock I track closed down for the day. The most reliable indicator, the New York Exchange Advance-Decline Line made a slightly lower high than its February peak and reversed. Transports joined the Industrials to the downside.
The bear fund Hedge which advances as stock prices fall jumped 1.86%.
Commodity indexes have fallen but check out the Two Year Treasury Yield. It is not waiting for Jerome’s FED to make a decision. The Two Year Yield bottomed this year in May around 3.8%. In a short two months it has soared to 4.99% and hit 5% Friday morning. That is a whopping 28% gain in two months! Short term rates are still higher than longer term rates. The Ten Year is a full point lower at 4% (all numbers here are rounded).
My conclusion is that stock prices will decline for at least the next month or two. This may be a top of greater significance.
Energy
West Texas and Brent are both testing their respective 200 day moving averages. Momentum indicators are bottoming. In the real world Iran is selling 1.5 million barrels of oil a day discounted about $30 from the cash market. This is frustrating Saudi attempts to throttle back output to maintain prices.
The futures market is now in a condition known as Contango. Normally the more distant prices by month are higher than the current price. The simple reason is that it costs money to store the oil. Now the more distant prices are lower than the cash market. This usually indicates a weakening demand for crude. Higher rather than lower oil prices are expected by this fall.
Social Mood
Fidelity reports that senior citizens have their portfolios stocked with stocks. This is risky rather than the safe harbor of a 5% Two Year Treasury. Option trading is setting records. If we are right all those buying calls, a bet on higher prices, will be disappointed. But this is what one would expect at a market high, irrational exuberance as Greenspan put it.
In real estate a Nantucket sale at $38.1M sets a Massachusetts record. James Cameron lists his 100 acre California ‘ranch’ for $33M. A helipad is included, interesting for a low carbon footprint guy.
After hitting a new low the volatility index, worry, jumped yesterday. This is another indicator a top has been seen.
