Posts by The Trend Letter

Headlines1

Headlines – August 26/16

  • Fed chair Yellen sees stronger case for rate hike. Read story
  • World’s largest Pension Fund loses $52 billion in stock rout, Read story
  • Puerto Rico Pensions: $2 billion in assets, $45 billion in liabilities. Read story
  • US corporate profit climbs as GDP ticks down to 1.1%. Read story
  • TD, CIBC results beat expectations with higher profits. Read story
  • China to prosecute former statistics bureau chief for corruption. Read story
  • Turkey fires on US-backed Kurdish militia in Syria offensive. Read story
  • How Uber lost more than $1 billion in first half of 2016. Read story
  • Uber’s first self-driving cars spotted in Pittsburgh. Read story
  • EU hopes helping workers will blunt populism. Read story
  • Lotte executive found dead amid South Korean corruption inquiry. Read story
  • Iran warns encroaching US ships ‘will be severely punished.’ Read story
  • Trump’s mixed signals on immigration roil campaign. Read story
  • Judge orders search of new Clinton emails for release by Sept 13. Read story
  • French court suspends ‘burkini’ ban. Read story
  • On the lighter side. Read story

Cheers!

Oildrop

Oil headed to $30?

Is it really possible that we could see oil drop back into the low $30 range? – absolutely! While the mainstream media is all abuzz about yet another potential OPEC production freeze, supply continues to outpace demand. Even if OPEC were to agree to a freeze, which is unlikely, they are talking about a freeze at the July level, which happen to be at all-time record-high levels.

The countries that are calling for a freeze, such as Venezuela, Angola, Algeria etc, are the ones that for a variety of reasons, are maxed out, they cannot raise production beyond their current capacity. Venezuela for example, has seen a drop in production, as it cannot afford the diluent to mix with its heavy crude to produce exportable product.

Venezuela oilprod

Countries that can raise production, such as Iran, Iraq, & Saudi Arabia, have no interest in capping production, as they are in desperate need of the cash generated from oil production. In Iran’s case, they have been playing catch-up ever since the lifting of US sanctions against them, and they have no intention of freezing until they feel they are back to where they want to be with their oil exports, most likely around the 4 mb/d level.

Iran_oilprod

This summer’s ‘driving season’ was late getting started, and yesterday’s data from the EIA showed that gasoline supplies were flat for the week, far higher than the expected decrease in inventories. US domestic crude supplies rose by 2.5 million barrels in the week ended Aug. 19th, which was significantly above the 200,000 barrel climb expected by analysts polled.

There are only two weeks left in the seasonally strong ‘driving season’, and after the Labour Day weekend, we can expect demand to drop by up to 1.5 million barrels per day, as the glut of oil will start building again, which should drive the price of crude significantly lower. Bottom line is, there is simply more oil being produced than is being consumed.

To add to the supply problem, for the eighth straight week, we have seen the US rig count rise. Technology has dramatically increased US shale production efficiencies, and many of these producers are now able to eke out a small profit at the low $40 range.

US rig count

In the near-term, as US production looks to rise, and with driving season coming to an end, there will be real pressure on oil prices, unless there is a ‘real’ OPEC production freeze, at much lower than current levels. Add to these issues, our models are forecasting another leg up for the $US, which will be another headwind for oil prices.

Tomorrow we have the much anticipated speech by US Federal Reserve chair Janet Yellen. As always, this speech will be dissected into tiny pieces as the mainstream media will look to fill up the airwaves with their view on whether we get a September rate hike. We will no doubt see whip saw action, with each word that comes out of Yellen’s mouth.

If they hint at delaying a rate hike, then the equity markets, and commodities will move higher, while the $US will dip, at least until the next hint from the Fed as the September Fed meeting approaches

Aside from these Fed events, and/or a geopolitical event, our models are forecasting that over supply will drive oil prices lower, likely below $40, perhaps to the low $30 level. If we get a European banking crisis, which is certainly possible, then oil could hit new lows. In the very short-term, watch the $46 support level, and then the Near-term Support at $40-$46.

Stay tuned!

Headlines1

Headlines – August 25/16

  • Stocks fluctuate with bonds as traders brace for Yellen’s speech. Read story
  • Central bankers eye public spending to plug $1 trillion investment gap. Read story
  • Baltimore police defend secret aerial surveillance program. Read story
  • Chicago’s detective force dwindles as murder rates soars. Read story
  • Italy death toll nears 250 as rescuers search demolished towns. Read story
  • China’s central bank moves to clamp down on speculation. Read story
  • RBC hikes dividend as profits rise 17%. Read story
  • German business confidence falls post-Brexit. Read story
  • Iran vessels make ‘high-speed intercept’ of US ship. Read story
  • How to stay rich in Europe: Inherit money for 700 years. Read story
  • China’s new ‘it’ city charms travelers year-round. Read story
  • WhatsApp users to receive adverts. Read story
  • AshleyMadison security protocols violates privacy laws, watchdog says. Read story
  • A $67,000 home robbery exposes a $500 billion problem in Argentina. Read story
  • Japan’s ANA cancels Dreamliner flights over engine trouble. Read story
  • On the lighter side. Check it out!

Cheers!

taxes

Canadian now pay more in taxes than on food, clothing, & shelter combined

For decades governments have borrowed far more in debt than can ever be paid back. They make election promises that they know can never be met, and even though their country is in an unsustainable debt situation, they just keep promising and spending.

In Canada, according to a study by the Fraser Institute, the average Canadian family’s net income is $80,593. Of that amount, that family spends 42.3% of their income on taxes, and 37.6% on food, clothing & shelter.

This age of entitlement is coming to an end, & we are about to enter the age of consequences.

Headlines1

Headlines – August 24/16

  • Earthquake in central Italy leaves dozens dead. Read story
  • Wall St opens lower as investors eye Fed. Read story
  • Developing-nation assets drop on political risks as Oil declines. Read story
  • Fine-print fortune: Two ex-Goldman traders look for bonanza in mortgage bonds. Read story
  • Largest Oil companies’s debts hit record high. Read story
  • Merkel tells Renzi he can’t bend Euro rules to boost economy. Read story
  • US existing homes dales decline in July. Read story
  • Qantas Airline profits soar. Read story
  • Tesla touts speed and driving range with upgraded battery. Read story 
  • Terror and floods have cost Paris a million visitors this year. Read story
  • Local highway drivers bear the brunt of funding gap. Read story
  • Uber’s food-delivery driver in London plan strike to boost pay. Read story 
  • France’s DCNS does not rule out ‘economic war’ after document leak. Read story
  • AirAsia announces ‘free flights for life’ for ASEAN Olympic gold medalists. Read story
  • Secret cameras record Baltimore’s every move from above. Read story
  • On the lighter side. Check it out!

Cheers!

Headlines1

Headlines – August 23/16

  • Wall St opens higher for first time in three days. Read story
  • Dollar dips on Fed rate hike doubts. Read story
  • Bank of Japan’s rush into stocks raises fears of market distortions. Read story
  • It’s getting scarily quiet in the stock market. Read story
  • Ten reasons why BOA thinks US stocks have an ‘elevated risk of correction’. Read story
  • Post-Brexit UK property sales remain steady. Read story
  • Euro-area economy shrugs off Brexit as key indexe edge higher. Read story
  • Everyone wants emerging market bonds, but there aren’t enough to go around. Read story
  • What Detroit needs now: More squatters. Read story
  • Pfizer to acquire Medivation for $14 billion. Read story
  • One of the poorest countries in the EU could be the next tech-startup hub. Read story
  • Mother’s pay lags far behind men. Read story
  • Amazon is reportedly making a half-priced Spotify – but there’s a big catch. Read story
  • Ryan Lotche loses all his major sponsors after Rio incident. Read story
  • On the lighter side. Check it out!

Cheers!

Bull

Market indicators at extreme levels

Long-term, we are very bullish on the equity markets, but in the short-term, our indicators are warning of a correction, & potentially, a blow-off correction. The S&P 500 is nearing an inflection point, indicating that we are about to see either a moon shot higher to challenge the next strong resistance level, or it corrects down, to test Key Support levels, & build momentum for its next big run higher.

Foreign capital, fleeing negative rates, sinking economies, & crumbling banking systems, has been a major impetus for the rising US equity & bond markets. Those in North America with a myopic view of the markets would suggest that things are not good in the economy, but compared to most of the rest of the world, the US economy is doing quite well; it is the ‘least ugly’.

While we are long-term bullish on the North American markets, nothing moves straight up or down, & the current market is overheated here. There are a number of indicators that are showing that the current market is very overextended.

One of the most often quoted valuations in the financial media is the Price to Earnings ratio (P/E). In the last year, the S&P 500 (red line) has gained 7.22%, while the P/E ratio (black line) has jumped 23.16% in the same time period.

S&PPriceearnings

Another indicator that is screaming ‘overbought’ is the level of complacency. The VIX Volatility Index is a mathematical measure of how much the market thinks the S&P 500 Index option, or SPX, will fluctuate over the next 12 months, based upon an analysis of the difference between current SPX put & call option prices.

A VIX reading above 30 suggests that the market is becoming ‘fearful’, with a  risk-off sentiment. A reading of under 20, on the other hand, suggests ‘complacency’, with a risk-on sentiment.

Looking at the chart below, we can see that the VIX index is at 12.20, a near-record low, while the S&P 500 is at record highs. Historically, when we reach these extreme levels, high or low, we get a reaction move in the opposite direction.

S&Pvolatility

On the chart below, we map out the three potential corrections for the S&P 500. the first two (black & blue arrows) reflect healthy pull backs, while a breach of the Key Support level at 1978-1998 would open the door for a significant correction.

S&Pcorrectionmap

Note: In last night’s issue of The Trend Letter, subscribers were given a trade to benefit from this anticipated rise in volatility.

Our current strategy:

  • Strong cash position
  • Long $US
  • Short Euro
  • Short Yen
  • Long gold, but will issue a short positon soon if technical support level breached
  • Holding some equity, but just added volatility hedge

While a near-term correction is long overdue, our models are still forecasting the S&P 500 to hit 3,000 in the next year. A correction here would give investors a terrific buying opportunity to get in on a huge bull market run, at much lower prices.

Stay tuned!

Trend News Team

Hilary_Clinton_cash

Clinton Cash, the documentary

We have warned for over two years now that 2016 would be the start of a major Trend Change, where the masses finally figure out that those in power are only looking out for themselves. We have highlighted that as Western economies start to crash, the people will finally lose confidence in the governments, & realize that those in power have no idea how to fix the massive global debt problems they created.

We also highlighted that in 2016/17 there were four key votes that would wake up the world. The first was the Brexit vote in the UK, where the masses surprised the pollsters, and said enough was enough, they wanted out of the undemocratic, self-serving bureaucracy, that was the European Union.

The next three key votes will be:

  1. The US election
  2. The French election
  3. The German election

For the US election, we have the running sound bite in Donald Trump, a man who seems to specialize in whipping up hatred. On the other hand, we have Hilary Clinton, a woman who it appears specializes in lying.

‘Clinton Cash’ is a feature documentary based on the Peter Schweizer book that the New York Times hailed as “The most anticipated and feared book of a presidential cycle.”

The film investigates how the Clintons went from being ‘dead broke’ after leaving the White House, to amassing a net worth of over $150 million, with over $2 billion in donations to their foundation. Almost all of this wealth was amassed while Hilary was Secretary of Sate, through donations to the Clinton Foundation from foreign governments and companies.

We do not believe either Trump or Clinton are the least bit qualified to be US president, but  then history suggests that the last few batches have been equally over their heads. But those who are Hilary disciples, need to take an unbiased look at this film.

Oildrop

Oil drops below $40

Oil closed today below its Near-term Support level of 40-42. Back in early June, when oil was trying to push above 50.00, we noted that the bullish sentiment was too high, & warned that oil was likely to pull back & test the 41.00 level.

As we can see on the following chart, oil has dropped below its downtrend channel, & closed today below 40.00, at 39.51. The next support level is at 37. If 37 does not hold, then the 30-32 level provides Key Support.

oilaug2

The majority is always wrong when it comes to investing. As more & more investors pile into one side of a trade, the trade becomes over crowded, & it gets to the point where there are no more buyers. For our subscribers, each week we have published S&P Energy Sector Bullish % Index, which measures the bullish sentiment in the energy sector.

The following chart shows how when the Bullish % Index is above 80%, it is in the SELL Zone, & when it is below 20% it is in the BUY Zone. As we can see, in early June the bullish % was over 80%, & was the exact top before oil started its current decline.

Oilbullish

Aside from those technical factors, for oil to decline further, there are a number of fundamental issues as well. The main issue is that there continues to be a glut of oil, where supply is exceeding demand.

Summer is supposed to be the driving season, but in July, while we saw a 2.5Mb decline in crude oil stocks, as refiners were busy creating a lot of gasoline product, that inventory of gasoline did not get consumed, resulting in a 7.1Mb build in overall inventories. If those inventories continue to build during this season where demand is supposed to exceed supply, we will see much lower oil prices in the fall.

As we have documented on our web site, all sectors move in cycles, & oil is no exception. As prices rise, producers ramp up production to take advantage of those higher prices. In the last up cycle, when oil prices were over $100, most producers borrowed heavily to expand exploration & production. As more & more product came on stream, the supply started to out pace demand, resulting in the massive drop in price, from $105 in June’14, to the low of $26 in February.

As the prices continued to drop, producers had to slow down on their drilling, as the price of oil dropped below their profit level. As we can see on the next chart, oil rigs in the US dropped from a high of over 1600 in late 2014, to under 400 today.

rigcount

But as oil prices moved up from $26 to over $50 from February to June, these producers have started ramping up exploration & drilling, as seen by the up tick at the end of the previous chart.

Unless we get a geopolitical event, which is certainly possible, prices could continue to decline into the autumn ‘shoulder season.’ Watch the $37 level, & if that does not hold, then the $30-$32 level is the next Key Support.

Note to subscribers: We have a new SELL Stop on our Short Oil position. That email will be out to you shortly.

Stay tuned!