Low Oil Means Lower Stocks: Dow Low Due In 2nd Half Of December

December 12, 2014 Stock Market No Comments

Lower Oil prices are unequivocally Great News right?

Despite leading experts incessantly stating how great falling energy prices are, falling Oil prices coincide with lower stock markets and slowing economies. The only major Oil price drops in history – 1980 and 2008 – signaled the start of major recessions and lower stock prices. Even the sharp but more modest price collapses in 1990 and 2011 signaled difficult times ahead. We will explore this aspect more in our full newsletter this weekend, but our long time negative stance on Oil and technical stock market warnings regarding how Junk Bonds and other indicators were indicative of lower stocks prices is taking place as forecast and doing so at a seasonal time when stocks “always rally” in time for the Holidays. When energy prices bottom stocks will blast off once again in 2015.

hourly dow

 

12-12-14: Short term stock market update:

The huge rally Thursday morning appeared to most confirming a bottom, however the reversal back to the lows hours later confirms our frequent call for lower prices into a 2nd half December bottom. The handful of indicators we have shown the last 3 weeks signaling a top are all now moving toward “potential” buy points, but more time is required. Should Thursday highs be exceeded again, then perhaps the Bulls can start a stampede. For now we continue to be patient.

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Review of recent forecast highlights:

In mid November we warned of a late November to early December Top and a 2nd half December low. When prices were indeed peaking from Thanksgiving to early December prior to their recent correction we gave this series of updates to guide investors and traders over the short term:

Advance Decline Ratio Oscillator 12-14

High yield bonds

 

11-20-14: With stock market prices rising virtually every day this A/D oscillator is rolling over for what is typically a short term sell signal. In addition we have shown the High Yield Price Index divergence in our market letter calling for a general stock market pullback over the next few weeks.

11-24-14: Current levels of sentiment momentum are easily surging to new record extremes and hint of a temporary price reversal soon. Consensus is usually wrong & remains for a significant 4th quarter stock market rally with a final surge expected by analysts into December carrying the SP 500 Index into the 2100 area. However, caution is warranted for traders into early December.

12-05-14: Less than 2 weeks ago we warned of potential for a mild price pause/correction to start by early December. Thus far prices peaked 11-26-14 and continue to test that record SP 500 close with no pullback of note. The Nasdaq Sentiment chart we shared on 11-24 remain at historic extremes raising the odds even further of a surprise price correction. The A/D chart above shows that an overbought indication occurred within a fraction of the current highs and despite the momentum sell-off this Advance/Decline breadth ratio appears destined to move right back to an oversold Buy zone before the end of December. While a stronger price pullback is now even more likely, theoretically prices don’t have to correct much for a new short term Bullish indication. Certainly analysts are uniform in expecting higher prices and seasonality favors their perspective, but sharply higher prices near term is increasingly unlikely. The next medium term surge phase in equities is likely when Europe adopts more stimulative monetary QE type policy. Today they confirmed such a trigger is almost impossible until at least sometime during the 1st quarter of 2015. No Euro stimulus should be factored into forecasts unless Germany starts to contract or deflate.

Advance Decline Ratio Oscillator 12-10-14

 

 

12-08-14:   With the unanimity of top tier analysts continuing to expect a steady appreciation in stock prices the rest of this month and consensus of SP 2100 or higher it’s hard to stand against the wind.  Yet again we will note that several indicators warn of a possible stock market pullback.  (Current 3% correction began on December 8th)

12-11-14: It appears our repeated warnings of a correction this week are being validated even though the large price drop amounts to less than 3% from the top thus far. As the Oil momentum drop culminates perhaps this week stocks may soon slow their descent. The forecast remains to expect a December pullback in stocks with a modest Buy signal during the 2nd half of the month

 

 

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