Now, It’s A Depression

3:43 p.m., EST

Recession’s over … Depression starts

Boots on the ground update from Dan at ‘I Allegedly’.

Drastically reduced economic activity at premium retail locations.

From Uneducated Economist: There’s news the lumber mills are going to curtail production … right in the middle of summer … the high season.

Couple that with the strange ‘going’s on’ reported at this link concerning the database that’s being monitored.

Then, we have another strange ‘coincidence‘ that takes place every hundred years like clockwork.

Which brings us to the sector at hand: Biotech

SPBIO Analysis:

We’ve taken the hourly chart of biotech SPBIO, and inverted it; shown below:

Price action pushed through the spring set up conditions noted in the last update.

SPBIO went on to retrace to the 38%, level … where it is now.

Looking at the price structure of inverse fund LABD (not shown), the downward thrust energy on a daily basis has declined significantly.

That analysis to be forthcoming.

Stay Tuned

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

Lumber Crash … Economy, Next?

Lumber futures’ follows familiar ‘crash’ pattern.

From a July futures contract high of $1,711/thousand board-feet, futures prices have crashed to $1,284/thousand board-feet, in less than a month.

As this ZeroHedge article states, the futures collapse was precipitated by delays in construction.

Those delays were because of … well, high prices.

Now, the cycle starts.

Delays precipitated the price collapse. That in turn, will cause more delays as construction entities wait for lower prices.

Those lower prices could materialize. Right along with project cancellations from contract loss, job loss, earnings downturns and on.

Personal anecdote below (skip to ‘Analysis’ if not interested):

Yesterday, a trip was made to the local home improvement store … the one with the orange logo.

During robust economic times, the loading area at the lumber ‘contractors’ end, is so busy that pickups, flatbeds and trailers, are lined up in double rows.

This time, walking into the contractors entrance, there were no customers in the loading area. Treated fence pickets were stacked two – three bundles high in rows. At the same time last year, there we none available.

Going inside and down the lumber isles, inventory was well stocked.

The treated 4X4s were available (although more expensive) and another re-stock bundle was available to be pulled from an upper rack.

Treated 4X4s, are high volume sellers at that location (Ft. Worth area). It’s a good gage of economic activity.

Last year at the same time, there were no 4X4s in that rack for several months in a row.

At the time, similar reports of such were being presented by Uneducated Economist. No treated 4X4s, anywhere.

In the lumber isles, there were just a handful of customers (mom and pop types) and absolutely no professionals or contractors.

The lumber carts, typically called ‘H-Carts’ because of their H shape, were plentiful and all lined up on the main isle. That’s also different from a year ago when it was so busy, customers had to go search for their own carts out in the parking lot.

There was one cashier and nobody in line.

This is all happening around 5:00 p.m., on a Friday.

One Friday does not a trend make … but it is a data point. The lumber area of this store on a Friday afternoon (when contractors typically get stock for the weekend) was dead.

Analysis:

We’ll look at one of the usual suspects in the lumber industry; Weyerhaeuser (WY).

On the daily chart below, it topped and reversed right along with the futures. Its had a decisive trend break as well.

If we’ve seen the top in the lumber futures and if we’ve just had a crash, the events that follow, play out like a script.

Prices stabilize at some point and begin a counter trend move.

Everyone (almost) is fooled into thinking it’s coming back … until another break lower. That’s when the real panic starts; in the market as well as the economy.

Biotech, SPBIO is in this position now

After the initial reversal, prices stabilized; then came back in a counter trend. Thus far, they have reversed at the 23.6%, level.

Summary:

It’s probably an accurate statement, that nobody really knows what’s going to happen as a result of ‘speck’ injection. Seems like all information could be compromised (controlled opposition) in one way or another.

However, what tends to repeat with high levels of probability are specific set-ups in price action.

Price action is truth.

Above, we see WY either traded at a particular level, or it did not.

Once a crash scenario (if that’s what we have) like lumber futures gets set in motion, it will be years and potentially decades before prices return to or exceed the highs.

Stay Tuned

Charts by StockCharts

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

Sentiment Shift

There’s been a change in direction; a sentiment shift.

Not in any particular order:

The Fed will not, or does not want to control the long end of the curve (long bond).

Interest rates (mortgage rates) are now rising and have been there long enough to start affecting the real estate market.

As reported by Uneducated Economist, there’s been a shift in behavior of his lumber customers.

Instead of furiously attempting to secure lumber (as prices continue to rise), now, there’re backing off; Not wanting to be holding overpriced inventory if/when there’s a reversal.

Remember:

Sentiment first. Then volume. Then direction

From way across the pond, Bjorn Andreas Bull-Hansen gives his input that ‘Things are changing … the entire structure of society’.

He also sates, as this site has done many times … ‘it’s not coming back’.

Has all this fed into the markets?

Let’s take another look at the S&P 500 (SPY), analyzed on the 15th.

At that time, we stated the SPY’s at the danger point.

The original location of that analysis is the orange arrow. Indeed, the SPY continued a brief rise before reversing.

Downward pressure (thrust energy) has increased.

Unless it’s a flash-crash, markets do not go straight down.

The SPY shows a nascent reversal. Price could come back to test resistance (black line) or continue to decline from here.

It’s important to note the overall market position (of the large indices) as they affect everything else.

With that, our focus remains on biotech (IBB) as it appears to be the weakest of the major sectors (not advice, not a recommendation).

Sunday futures open in a few hours.

Stay Tuned

Charts by StockCharts

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

Shorting The Bond Market

Who goes first?  Do bonds break to the downside, rates up, market reverses lower into a potential crash; a-la October 1987?

Or, does the market (S&P 500) peak and reverse with a flight to safety (bonds) that mitigates or negates a sharp rise in rates.

Fotosearch_k6354877Maybe it’s stocks and bonds going lower together.  No safe havens.  Is it possible?

Early this session, the ten-year rate (inverse of bonds), is hovering just below the trend-line shown in the last post.

The bond bull market has lasted forty years.  Since 1980.  Obviously, at some point, it’s over.

With long bonds (10-yr, 20-yr) hovering near a breakout to lower levels, all it would take is some kind of ‘event’ to tip the scales.

Remember that Prechter  (no matter what you think of him) said years ago, the market leads the news … not the other way around.  It’s a complete mind-shift to understand that market position, price action, actually set the conditions for news events.

The market does not ‘react’ to the news, it ‘creates’ the news itself.  So, the bond market may be about to create an event.

With that in mind, inverse fund TBT attempts to give exposure to twice the downside of the 20-year bond.

In a nutshell, if the long bond moves lower, TBT moves higher at approximately twice the percentage amount.

The chart of TBT is below and it looks very similar to the $TNX chart in the prior update.  Looking closely, one can see the downward bias errors.  With each move lower in the $TNX, the TBT moves lower still.

It’s common with all inverse funds.

2020-08-17_9-07-32-TBT-Daily-3-bar-notesEffectively trading TBT requires a sustained down move in the corresponding market (to mitigate the down-bias).  The latest example shows bonds ready to break lower with rates ($TNX) moving higher.

TBT could be in a position for trade entry (not advice).

Additionally, if bonds break decisively lower, they have potential to stop dead what’s left of the economy:  Housing market, lumber market, building construction, and on.

Remember ‘the speck‘.  It’s all about the speck floating through the air.

On a separate topic and as a courtesy (not financial advice), the short position in biotech via BIS, was closed early this session as price action hit the pre-determined 8.15, stop.

Gain on the overall short position was about 5%.

 

Charts by StockCharts

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

Bonds Critical

The 10-year bond has reversed.  Rates are moving higher.

Fotosearch_k0005935-borderIf the chart pattern (below) is in effect, if price action moves according to the breakout forecast, real estate … along with lumber prices, as well as the entire economy could experience a series of dramatic ‘air pockets’ all-the-way-down.

Of course, all of this is because of a little ‘speck’ floating around in the air.

Rates are at the wedge trend-line and instead of a breakout upward (as expected), could reverse back lower.  Anything can happen.  The next week is likely to be very interesting.

2020-08-16_8-43-46-TNX-Daily-3-bar-notes

 

Charts by StockCharts

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

Random Notes

Notes for the day … not in any particular order.

Lumber futures:   Prices up over 180% in five months.

2020-08-12_11-40-37-notesInterest rates are rising.  10-yr rates up.  Similar set-up as August, 1987?

Frustration with the mindless herd growing.

Biotech testing yesterday’s move lower.

Moderna (MRNA) has formed a wedge and is near a downside breakout.

Drunk and ‘working’ from home.

Internet censorship:  Oppenheimer Ranch Project no longer monetized.

Silver and gold, future test of new lows?  At time stamp 2:58, Sajad hints at same ‘testing the lows’ scenario as was posted with Silver Up, Then Down on July 25th.

 

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.