• July 20, 2019

ELAM: Markets at resistance - Odessa American: Dennis Elam Column

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ELAM: Markets at resistance

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Posted: Sunday, March 24, 2019 7:30 am

Last week I suggested the prices of stocks, bonds, and oil were at extremes. The FED met last Wednesday. Let’s see what happened.

The big surprise was the FED reversal of policy. Three months ago, new FED Chair Jerome Powell was able to crystal ball a year into the future. Then he saw multiple FED overnight-rate increases. After a tongue lashing by President Trump, suddenly the FED Crystal Ball was sending the opposite message. And so on Wednesday, Chair Powell announced no rate increases for the rest of the year.

Since December this means the Ten Year Treasury yield, today the most watched, has fallen from 3.2 percent to 2.6 percent, a huge 19 percent drop. Gee that would have been a great trade!  Shares of bank stocks have sagged but utilities and REITS rallied, as have municipal bonds. Trump in usual outlandish fashion claimed Powell was the greatest threat to the recovery. Well one thing is for sure now, if things go awry, Trump won’t have Powell to blame. American spending on services dropped 1.2 percent in the fourth quarter.

I also suggested that the XLE and XES ETFs were not forecasting higher oil prices given the sluggish nature of energy share prices. Still energy prices have chugged up from the $42 low last December. Now they are set to challenge the 200 day moving average at $61.95. Unleaded gasoline cleared its 200 day MA and stand at $1.89. But both charts show over bought momentum across numerous indicators.

Apache: $36.08, 200-day MA .8.39

XLE Energy: $67.29, 200-day MA 68.29

XES Energy Service: $11.93, 200-day MA 13.85

In the stock market tech reigns supreme. At 7,838 the NASD previous high is 8,100. The QQQ is closest to its previous high, now 18.5 versus 187.5. It is important to note that, as in all long rallies, the number of leaders like Apple are fewer and fewer. This means we have reduced breadth. Leading indicator Transports failed to cross its 200-day MA and has retreated. The Russell 2000 small cap is tracking the Transports and has retreated as well.

I suspect tech stocks will remain strong into post tax season after April 15 while other like thee Transports fail to regain their October highs.  The economy remains strong. But as noted, new car inventories are rising and service spending is declining.

A bright spot for Texas is wind power. West Texas is a breezy place and now features more wind power than any other state. Wind power generates some 22 gigawatts of electricity each year. That is one-quarter of the wind energy generated in the entire U.S. In perspective, it would power 6.2 million homes. If Texas were a country, it would rank fifth in installed wind capacity.

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