The word can be traced to so many outcomes in sport, job opportunity, life and of course, the economy. You can probably think a few more where it applies. We, at Evolution, are using the point of the word as it pertains to the stock market and the economy.
Last week...
...we stated that a market bounce could be coming, but it should peak by Friday. Our timing was off. It showed itself late Thursday and continued into Friday. The indicators that we apply still point to the same outlook. Why, you ask?
Many Aspects
The stock market uses the current trend price as an outlook for six months in advance. With that concept, the investors are seeing earnings, the leading component to price action, as a negative. This is their thinking:
1) Higher interest rates make the future earnings of companies a lot less. 2) Higher yield on bonds along with their safety, makes them more attractive than stocks. This moves money out of the market to go into bonds. 3) A stronger dollar means less profits and thus, less earnings because most of the company's income comes from the outsourcing of their product. 4) Inflation increases costs to all firms and consumers. The results lead to a slowing economy. 5) Finally, the effects of higher interest rates on residential and commercial activity are becoming a larger worry as construction affects so many aspects of the economy.
Fraud
This corrupt activity always seems to show itself just before a market crash. We are seeing it now. Think back to recent recessions and the revelations of fraud just prior to the market sell-off: Long Term Capital Investment, NINJA loans in the financial industry and the king, Bernie Madoff. Today, we got the crypto-currency poster boy, Sam Bankman-Fried. We bring this up because last week, oil changed course in a volatile way. The contract dropped $10 bucks for the week. This is an unusual price movement with little news. However, it does relate to the market's future outlook. Investors took profits, but then conflict broke out in the Middle East.
Oil Bounce
It actually only popped to its upper range, consolidation level. When there is trouble in the world, the US military lobbyist gets to work. It means more military aid. It means more spending which means more deficits. It means a return to the status quo. The bounce could turn into a rally. The SPX could hit 4450. There is a gap at that price. However, there is resistance at that level and with more unpleasant revelations about the economy, the rally will end.
Getting back to oil, a little blurb about oil contracts and fraud. We feel there is more to the story. Then, we read about a Singapore oil tycoon, Lin Oon Kiun. He falsified oil sales to a bank, HSBC Holding Plc. I don't know all the details. We will not speculate, but we give credit to the Singapore High Court to find justice. All these cases can lead to other cases and since the oil contract moves so quickly, we say maybe the timing of more bad news is coming. Peace.
