Commodities
Snippet from November 23, 2017

Since early October our theme has been that industrial commodities would be firm with the stock market. And the latter could rally into January.

However, as with the credit markets, any faltering would anticipate that the overall party is coming to an end.

Lumber enjoyed an outstanding rally from 214 in 2015 to 462 in early November. The latter part of the zoom was propelled by the prospect of rebuilding so many homes damaged by storms. As with car-leasing companies on the same wave, the break has been distinctive.

Ross noted the extreme overbought on lumber and the decline to 422 has found support at the 50-Day ma. The high needs a test, so the action could be firm into January.

Wirth unusual “reforms” in Saudi, crude oil has rallied to 58. At 69 on the Weekly RSI, it is the highest since the same level was reached on the rally to 112 in 2013. 

Oil stocks (XLE) rallied from the dismal low of 61 in August to 70 three weeks ago. This became very overbought on the Daily RSI and the correction has been to 66, finding support at the 200-Day ma. The rebound is to the 67 level, which is below the 50-Day.

Sideways into January is possible.

Base metals (GYX) soared to an overbought at 385 at the first of the month. The correction has been to 364 last week. Now at 374, it could be steady until year-end.

Base metal miners (XME) were too heroic in 2016 such that this year’s rally did not make new highs. From a low of 27 in June, the rebound made it to 33 in late October.

Then the slide has been impressive. It took out both the 50 and 200-Day moving averages and became oversold on the Daily RSI.

The rebound made it to 31.67 yesterday. There is resistance at the 32 level and it could trade in a narrow range.

There is not much to be made on the upside in the Industrial Commodities sector.

Its usefulness will be in monitoring the health of the stock bubble.

Agricultural prices (GKX) seemed to have built a base from which a rising trend would follow.

The base was set at the 225 level in October. The rise above the 50-Day occurred on November 6th, which was constructive, Now, at 286 it could make it to the 200-Day at 289. A lengthy bull market seems unlikely.

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Precious Metals
Snippet from November 23, 2017 Pivotal Events

Precious metals have been dull since the dollar’s low in early September.

In a financial mania, gold stocks underperform the big market, which has been the case since the South Sea Bubble in 1720.

This was the case in 1929 and in 2007. And particularly since 2011 on this mania.

In early September, with the probable rise in the DX, we thought the Precious Metal Sector would be weak to indifferent into year-end.

However, a financial crisis is building, and such a melancholy event would set up the Sector for sustainable rally.

As that time approaches we will be monitoring the opportunity and selecting some stocks.

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High-Yield Credit and Equity Markets
Snippet from November 16, 2017 Chartworks

Credit spreads moved quickly in the last week. The spread of ‘BofA Merrill Lynch US High Yield CCC or Below Option-Adjusted Spread’ peaked at 9.17. This was 88 basis points above the October 23rd low. It also saw the JNK and HYG ETFs drop the most since March, generating oversold alerts.

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Credit Markets
Snippet from November 16, 2017 Pivotal Events

Last week, we noted that the CCC spread in widening from 8.29% to 8.83% had set a near term trend. Getting beyond 9.05% would set the Second Breakout. Yesterday’s posting was 9.17%, amounting to 12 bps on the breakout. This is more of a jump than with the attempt in August that did not hold. Can it become dramatic? Depends on how many are offside on the position.

The CCC Yield, itself, has broken out from 10.69% to 11.09%. 40 bps over breakout is a zesty move. The recent low was 10.18% three weeks ago, which is now 80 beeps beyond the low.

This has been a fast move and it needs a relief rally.

The sector that had an impressive run has been Emerging Market Bonds (EMB), which set a momentum high in September. The price high was 117.46 and in the last two weeks, both the 50-Day and 200-Day moving averages have been taken out. Last week, the key 20-Week ema was violated.

Last year, a strong rally took the price to 118. The 20-Week was taken out at 115 and the low was 107 last November. At 114.50 now, 107 seems like a good target.

Of interest is that the decline in EMB may have forced the slide in Emerging Stocks (EEM).

Yesterday, EEM registered a Springboard Buy on the Daily.
The long bond (TLT) declined to the 200-Day ma at 122 in late October. The rally against some weakening commodities took it to 126.67 yesterday, which is getting corrected. Support could be found at the 124 level.

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Snippet from November 15, 2017 Charworks

This is the first time since April 1999 that we’ve seen simultaneous upside Exhaustion alerts in the Dow Industrials in all three time frames. Back then it initially corrected to the 50-day exponential moving average (now 22,932) followed by rally back to a marginally higher high, before a deeper correction to the 50-week moving average. 
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The Advance-Decline of the NYSE failed to confirm the new high in the stock indices (NYSE, S&P and Dow) this month.

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Chart: European High Yield vs US Treasury
​CREDIT MARKETS
Snippet from November 9, 2017 Pivotal Events

Serious credit contractions have always been consequent to a financial mania. And not due to “policy error” as the establishment ardently believes.

Basically, the curve and spreads follow the same pattern through the culmination of a great bubble and its failure.

The literature provides no evidence of the senior central bank every preventing a postbubble contraction.

The long bond (TLT) can rise in price as the hot action in stocks and industrial commodities rolls over.

High-yield stuff (JNK) was at support at the 50-Day ma two days ago. That was at 36.94, Now it’s at 36.46 which drop has taken out the 20-Week ema by a substantial amount.

The drop is an alert.

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Stock Markets
Snippet from November 2, 2017 Pivotal Events

Our October 5th edition asked the question about how long the buying frenzy could last?

The conclusion was “Until it stops”.

It was in the middle on October when we concluded that the DJIA could zoom up to a bubble climax. The other term used was that the action was heading to “Irrational Exuberance”, which contrasts with our “Rational Exuberance” of last December.

Also, in the middle of October we provided a timing target with the record of big speculations climaxing in January. The NYSE in January 1973, silver in 1980 and the Nikkei at the end of 1989.

The Nasdaq is also making new highs, following the last Springboard Buy with the August down dip.

As part of the excitement, industrial commodities were likely to be firm, credit spreads narrowing and the yield curve flattening. Generally, this is working out and it could continue for some weeks.

Stock action is into bubble territory and it would be an outstanding accomplishment if this intensity of speculation could run into the year-end.

A reversal in credit markets and industrial commodities would be an alert.

Lumber has now zoomed into extreme technical readings that could take some weeks to complete the topping process.

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