Technical analysis is a securities market discipline from which investment decisions are based upon. The other market discipline is fundamental analysis. Technical analysis attempts to forecast future price movements based upon past price and volume movements. The idea is to find patterns within the past movements, and use those patterns to predict what will happen to the price in the future. These patterns have been incorporated into models, from which day-to-day decisions are made.
There’s happiness at the gas pumps. The price of gasoline has been on the decline with the average price in the U.S. down to $3.29 per gallon as of October 28, a year-over-year decrease of $0.27 per gallon. In fact, we could see even lower gas prices on the horizon as oil prices fall.
In this new energy environment in America, the country is becoming more self-efficient in producing oil from its ground thanks to the growing adaptation of fracking technology in North Dakota and Montana to squeeze oil out of the rocks in the ground.
The explosion of oil production from the Bakken region in North Dakota has been superlative and has everyone, including myself, thinking there will be a time when the country will not have to buy oil from the Organization of the Petroleum Exporting Countries (OPEC). In my view, it’s just a matter of time.
And if you add in the rise in oil from the Canadian tar sands, the move to independence in oil demand will become even more realistic. According to IHS, the amount of oil being moved via rail cars could rise to about 700,000 barrels a day by the end of 2015. (Source: Domm, P., “Canadian oil rides south even without Keystone pipeline,” CNBC, November 4, 2013.) The hotly debated Keystone XL pipeline, if it’s ever built, could move 830,000 barrels of oil per day from Canada.
Clearly, the numbers are there, and unless a crisis in the Middle East surfaces, we could see oil prices continue to decline as domestic and Canadian oil flow rises.
The days of high oil prices … Read More
The housing market has had a nice run up over the past several years, but the party is beginning to fade.
Home prices continue to edge higher with a 12.8% jump in August, according to the S&P/Case-Shiller 20-City Home Price Index. While this seems positive, you also have to wonder if the housing market is headed for a bubble down the road as mortgage rates rise—and they will.
The chart of the S&P/Case-Shiller 20-City Home Price Index below shows the current recovery in home prices. The index is still far below the peak in 2006 and 2007, prior to the subprime blow-up. These were unrealistic levels. We saw downward moves in 2009 and 2012, but it has been clear sailing. Yet the problem is that much of the buying in the housing market was driven by institutional buying. Once this begins to fade as home prices rise, we could see a relapse in the housing market.
Chart courtesy of www.StockCharts.com
We saw a 5.6% decline in pending home sales in September. This metric is not considered as critical as the housing starts and building permits readings, but in my view, it’s a good indicator. In August, pending home sales slid 1.6%. We may be seeing a trend of lower demand for homes, which suggests there could be some issues on the horizon if pending home sales continue to be negative.
Existing home sales were also flat at 5.29 million units in September, down from 5.39 million units in August. Less people are buying homes, and this cannot be good for the homebuilder stocks.
What makes the situation in the housing … Read More
It’s that time again. As we move into the always interesting month of October and fourth quarter, I expect some surprises are in store for us in the stock market, as was the case in previous years. The big difference is that the stock market has already made some strong gains, so the upside in the last quarter is debatable, given the slew of market uncertainties surrounding us.
There’s the debt ceiling deadline today, the third-quarter earnings reporting season, the Fed’s tapering, and Black Friday, an important holiday shopping season.
For stocks to move higher, we need some major evidence the economy and corporate America are healthy. So far, it has been merely decent, but clearly not deserving of the stock market rally.
We are into the fifth year of the current bull stock market, so there are reasons to be concerned.
The chart of the S&P 500 shows the sideways channel established since 2000. We had market tops in 2000 and late 2007, prior to the subprime crisis and recession in 2008.
Now, here we sit at another key economic crux, but the S&P 500 is still on a breakout; albeit, its staying power is still questionable. The fact that we are in the fifth year of this rally makes me nervous, based on my technical analysis.
Chart courtesy of www.StockCharts.com
Also take a look at the declining volume that accompanied this rally since 2009. In the previous five-year rally, from 2003 to 2007, the trading volume on the S&P 500 trended higher. My feeling is that there’s a lack of mass market participation in the current rally, which … Read More