Wednesday, March 30, 2016

The Bounce Is Over!

The market rally has been in a classic bear market rally mode, and whether you are a fundamentalist or chart watcher, the facts speak for themselves. Dear reader, I will place my thoughts for your digression. I use by the way, a hybrid approach of the two main market techniques.
continue to decline. Company revenues are reaching new highs or should I say, new lows, quarter after quarter but the government has laid out its proof that the economy is growing. The BEA revised the GDP upward last Friday from 1 percent to 1.4%. The Fed speaks. Basically saying it will continue cheap money to keep things on the right path that they envision, but never admit that errant results are by their doing.
Who is right?
Consider this: A report by CNBC that covers a period back to 1990, has shown that the Bureau of Economic Analysis has continually misrepresented the true GDP numbers by an extremely wide range of 1.3%. By that measure the last quartet of 2015 would be .01 percent. Now, I think that would be an exaggeration of the real number. I think that the original 1% is correct. Nevertheless, we now have proof that the BEA numbers are no more accurate than China's. How about this for an example. On 30th of April in 2008, the BEA stated that the economy was growing by .06%, when in fact, the recession had already started. Years later, they revised it lower to negative 2.7%. This is what they do. It is like I have been saying all along that these people are appointed shills. Their revision's are done quietly and then, it has little effect on the stock market. Mark Twain said it so well, "There are three kinds of lies. Lies, damn lies and statistics."
My Proof
lays in corporate profits which plunged 11.5% in the fourth quarter from a year-ago period. For the entire year, profits are down 3.1% and I predict that the first quarter of 2016, GDP will fall to .05%. In addition, S & P 500  profits declined by 8.3%. 
Dear reader, oil has led this market, whether down in January or up in February. Now, if you understand support and resistance levels or study Fibonacci retracement ratios, the dead cat bounce is ending. Oil has rallied 49% and only has one more percentage point upward to reach its Fibonacci 50% retracement. The next move is down to test the lows of $26 oil. The oil glut is not going anywhere. Yes, small oil firms are in line at bankruptcy courts, but even in bankruptcy, they still are pumping oil. This catch-22, leads to their ultimate collapse unless a miracle happens. GM was still making cars in bankruptcy. They received a miracle, a bailout. There is a difference between one major firm as opposed to hundreds of small oil firms with taxpayer support. Consider these facts: oil revenues are down 97% in the fourth quarter of 2015. Rig count in the US is down from last month from 476 to 464. In Canada, it is down from 69 to 55. It will take along time to end the glut because Iran is looking to grab market share and they will. They and others will cover the US decline.
Another Aspect
of the oil bust is the effect it has in the economy as a whole. A closer look at one of the premier oil formations provides the answer. In the Eagle Ford oil formation, oil companies added "man towns." These communities established by oil firms for their workers made building and trailer manufacturing companies go full blast. Now, they don't. This is all across the nation from Williston, North Dakota to the Marcellus shale formation in the East. Boom towns are going bust and they take down housing, small stores and all the trickle down companies that service the oil industry. Quality jobs and real wealth producing entities are in a down swing. It will take the market with it.
Back to Retracement Levels
All three major market indexes still have a little more upside, however many have exceeded their bounce levels. Sometime, after the "April Fool," a switch will flip, and a new test will begin. The S & P 500 has reached my projection of 2054, however the Dow still has more upside and with "window dressing" on the last day of the month, the top should be reached in this bounce. I thought that the $COMPQ would close the gap at 5000, but it will fall to 4000 when the turn comes. The S & P should test the February lows of 2014 and the Dow sink to 15,750, however only time will tell who is right. I'll add this important reminder, if I'm correct and the market drops its second leg, the volume at the lows will indicate the next journey in 2016. If you read my Market Forecast 2016, I am leading the league in batting, shooting percentage and touchdowns. Someday I'll get some recognition, but the blog will always be free. Of course, if I'm wrong, I beg your pardon. If I'm right, what will or who will the Fed blame?