ELAM: Decision Time for Markets

Yes, most stock market indexes have rallied about 10 percent of the December lows. That has emboldened the bulls who are calling for ‘all clear’ on the financial television shows and media. And crude oil has rallied ten dollars off its $42 low along with stocks. This column has warned that the DJIA 24,400 level is the half way point of the entire from (round numbers) 26,600 to 22,200 this past quarter. The question now is, will stocks continue their rise confirming the ‘correction’ has ended? Or was the 2,000 point rise just a relief rally in a new bear market?

In the longer term, monthly and weekly charts take precedence over daily and shorter term views. But in the short term, the two-hour chart has much to offer. That time period shows the DJIA completing a typical up down up rebound since Dec. 24. It has tracked more sideways than up the last few days. And various reliable indicators are topping now. Apple has been de-throned as the most valuable company and is unable to rally. GOOGL, MSFT, and AMZN are also topping short term. Understand those three stocks have accounted for most of the move up in the NASD and NASD 100 last year from January to September. Berkshire Hathaway at 196 is well below its 222.50 2018 high.

My worry is that we have seen a relief rally which is ending now. Every indicator on the short-term charts is flashing caution, topping now signals. This suggests a re-test of the fall low at 22,200.

Flip through the pages of the WSJ or any major newspaper. The news is not encouraging. Retailers did not enjoy a great Holiday Season. Big truck orders are down. Bolton receives the cold shoulder from Turkey regarding the Kurds. Russia has Assad living in his Syrian Palace. Congress is deadlocked with no compromise in sight on the Wall. Trump is the first Republican President who has not caved and Schumer/Pelosi are mystified.

Crude oil followed stocks up from 2016 to fall 2018. It then fell with the stock market from $76 to $42. Yes, the ten-dollar rally since seems impressive, but still leaves oil prices well off their highs. The rebound in energy shares has been shallow on low volume. Apache has only managed a four dollar rally and languishes at $30. As predicted, crude has rallied on a weaker dollar.

The bottom line is that evidence suggests we have seen a relief rally rather than a resumption of the bull market in stocks and energy. Caution is advised. Another week of trading should reveal the answer. Until then follow us at www.themarketperspective.com.