ELAM: Summer Slumber Underway in Markets

After May, Go Away

Stock Market Axiom

We may already be in a mild recession.

Economist Gary Shilling

There are numerous studies of historic data regarding the stock market. In most years, investing in November and exiting in May gives a better long-term return than staying through the summer.

With every other economist forecasting rosy scenarios, Shilling lists slower job creation, trade wars, and a ten-year boom probably ending. He sees a mild recession with stock prices retreating 200 points below the late December low.

Last week I mentioned that yes the DJIA hit a new high. But that high was not confirmed by a new high in the Dow Transports. Charles Dow created his two indexes in 1896. The Industrials made goods and the Transports shipped them. Then shipping was primarily rails and steam ship. He postulated that each needed to complement the other, a new high in Industrials was only valid if accompanied by a new high in Transports. One might question that today suggesting the high tech NASD indexes are more important. But as it stands neither the Transports nor the Small Cap Russell 2000 are joining the Industrial party with new highs. This is reason for the Caution Warning issued in this space weeks ago.

Gold has confirmed its new bull market with five waves up from its Augusts 2018 lows. It is now pulling back in corrective fashion.

The ETF proxy for oil prices is USO. USO has rallied right to its 200-day moving average today and looks toppy. Crude prices are right at their 200-day MA as well which is $59.03. I am suggesting lower oil prices lie ahead. The moving averages are converging which usually is the precursor to a change in direction.  The XLE ETF in energy will likely not regain its April high of $68.  XES Energy Service is failing below $10.

Natural gas prices are still low at $2.32.

And now, a comment on Higher Education, which by the way is my day job. We have multiple events including the admissions scandal to elite universities, the promise of debt forgiveness to millennial voters (hey Bernie, I want my PhD tuition at UT Austin refunded if you get in!), and a $44 M judgment against Oberlin University for discrimination against a bakery vendor. And this is happening amidst a higher than ever default rate on $1.5 Trillion in college loans. I suspect we are at a social mood ‘apogee’ (the farthest or highest point) in Higher Education.  Enrolments are likely peaking as alternatives to expensive under and graduate degrees proliferate. You read it here first.

Dennislelam@gmail.com