• February 19, 2019

ELAM: Earnings slump, markets retreat - Odessa American: Dennis Elam Column

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ELAM: Earnings slump, markets retreat

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Posted: Sunday, February 10, 2019 9:00 am


More than 30 companies have offered first quarter earnings forecasts that fell short of analysts’ estimates in recent weeks citing deteriorating outlooks for the global economy as well as uncertainty around trade policy.

Bull Markets Test and Earnings Slump, Wall Street Journal Feb 8 2019


It is fashionable to make annual forecasts in market-oriented columns like this. So here is my forecast. The stock market will probably not surpass its October 3 high of 26,600 (round number) this year. It is likely the markets are at best in a trading range defined by that high and the recent low at 22,200. And if my Elliott Wave count is correct, the lower level of 22,200 will be tested this spring.

No stock market rally has ever lasted more than ten years. And the ten-year mark is up in March, 2019. Indicators reveal peak momentum for near all major stock indexes.

The Dow Industrials and chipmaker SOX index barely squeaked above their 200 day MA.

The Transports, NASD 100, Russell 2000, and NYSE have fallen short of the same target.

Defensive asset classes such as REITs and Utilities are hitting new highs. Treasury yields are falling, indicating investors are retreating to safe ground than stocks.

This column has noted the poor performance of energy service stocks as well as bell weathers like Anadarko and Apache. Sadly that observation continues to be accurate. Anadarko APC has fallen from $50 to $42.60 the last three days. A 14.8 percent decline! Apache’s APA rally from $26 to $33 has ended.

Energy oriented ETF XLE is also well below its 200 day Moving Average, falling 2.21 percent Thursday.

Energy Service ETF XES fell to $8 and rallied to $11.50 and is falling once again.

Halliburton HAL is a mainstay of the energy service sector. It fell 478 percent Thursday amid forecasts of declining revenue. Likewise Schlumberger SLB dropped 3.57 percent.

Shale producers represented by the ETF FRAK fell 4.62 percent Thursday. This ETF is likely headed to single digits from its current price of $11.76.

Even the refiners are being hit. The refining ETF CRAK fell 2.16 percent Thursday and is rolling over at $29, up from $26.

This weakness in the energy sector seems to be broadcasting lower demand for energy which speaks to a weaker economy.

It is notable that weakness took hold immediately after the State of the Union. As the President announced all time low unemployment, the opposition party could only frown in their seats. The new Democrat voice AOC touts government takeover of everything.

That sets the stage for political discord. The stock market typically leads the economy by six months.  Get set for a slow summer.

Odessa, TX

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