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Is Wall Street Overheating?




Is Wall Street Overheating?

Many expressions describe a heated situation: if you can’t stand the heat, get out of the kitchen; some like it hot; it’s getting hot up in here.

They are all in our vocabulary for a reason – people can gauge when an atmosphere has become slightly to exceedingly warm. 

Is this what is happening on Wall Street? 

And what are the causes for this temperature climb that might lead to a melting down?

The Dow Industrial charts have shifted into warp drive. 

As can be seen below, the period that is under view here is September 2015 to this month, July 2016. 

This profile very much meets the criteria for a hyperdrive shift.

wall street 1

Some signs of agitation are beginning to be felt on Wall Street in the wake of these new moves. 

In fact, the chart above could very much be a mirror of the sense of concern felt by analysts and investors.

More than a few Wall Street strategists and analysts have voiced words of caution over the past few days. 

This is a pattern that lends itself to various degrees of unsettling worry. 

Some of these trends are:

  • Equities are climbing ever higher
  • All signs point to the market rapidly becoming overheated.

The Dow Jones Industrial Average (also known as DJIA, the Industrial Average, the Dow Jones, ^DJI and just, the Dow) is one of the indices that was created by the Wall Street Journal editor and Dow Jones & Co co-founder, Charles Dow, over one hundred years ago. 

It is currently owned by S&P Dow Jones Indices. 

It calculates the sum of all the component prices divided by a divisor – that changes whenever one of the component stocks have a stock dividend or a stock split.

Last Wednesday the Dow Jones Industrial Average recorded a seventh highest close ever logged in succession. 

And according to the data on file at Dow Jones, this will make it the longest run of continuous closing highs since the March 15, 2013, eight session run.

This run was not confined to the DJIA, however.

  • Blue chip gauge recorded a ninth gain in a row for consecutive sessions
  • COMP, +0.52% (Nasdaq Composite Index) ended trading with an all new highest level for 2016.
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On viewing the chart below, it can be seen that the Nasdaq Composite Index has maintained continuous high closing levels.  

wall street 2

Finishing at a record level of 2,175.03 last Friday, the S&P 500 Index had a wider stock market retreat in the prior session.

Not exactly word on the street, but an opinion and voice that is clocked as a potential crowdsource opinion, by analysts and investors on Wall Street: Dr. Lev Borodovsky, who writes on the current financial newsfeed website The Daily Shot, refers to CNN’s index of “fear and greed.” 

This sounds like a movie title but is used to show that greed is approximately at a two-year high.

The chart below is an indication what is the driving motivator in the markets currently:

wall street 3

Dr. Lev Borodovsky indicates that with greed levels running so high, it could mean that the market is possibly unaware that it is overextended and has become alarmingly complacent. 

It would follow, that from this posture, the market would be in a bad position and under prepared to handle a shock fall or rapid market adjustment.

Wall Street has its gauge of fear too.

The CBOE VolatilityIndex (5.65%) is one of the key measures of the expectations in the market for the near term volatility conveyed by the S&P 500 SIO prices. 

Other measures of volatility are being referenced as also showing signs of extended exuberance.

Greed and Fear indices are the two emotional states that are intrinsic when relating to the subject of the unpredictability of the stock market. 

The vulnerability that is linked to those two states can be as a result of investors having a small comfort level because of market instability. 

Or maybe, in this case, having too much comfort and confidence. 

Both emotions, without oversimplification of the facts, can have a total and deleterious effect on both the stock market and investors portfolio.

Tom McClellan, another well-known market technician, stated in a post last Tuesday, that a potential “Fourteen-day choppiness Index” which tracks the profile of a short term trend, indicates that Wall Street uptrend may be getting tired. 

He goes on to further explain that any extremely linear path for the index will imply that the current trend is perhaps likely to end shortly. 

But when choppier and more volatile action occurs, it, of course, will suggest the opposite.

The 14-day Choppiness Index is reprinted below:

wall street 4

The small reading that can be seen above in Tom McClellan’s index shows a relatively straight line and linear movement. 

His Choppiness Index, at present, is at the lowest level recorded for the last two decades.

What Tom McClellan goes on to say in his July 19, 2016, post re the volatility measure – is that the readings last Monday were at the lowest ebb since February 12, 1996. 

And the instance in 1996 marked a price top not attained again until three months after.

Upward or downward linear trends are exhausting. 

They require a lot of energy from either a bearish market or a bullish market for everything to stay information and step. 

The natural state of the markets is to drift towards entropy, so brief interludes like this trend towards the extreme organization, cannot last for long.

The upshot of all this in McClellan’s opinion is that things will snap back lower soon. 

He maintains a relatively bullish long term and an average outlook for stocks.

Another financial commentator who also is a graduate school finance professor, both at New York University and Georgetown University, Salil Mehta, posts that the further the Wall Street’s fear gauge falls below 12 – the higher the probability is that stocks will fall alongside. 

Flicking back to the VIX (CBOE Volatility Index)  at 11.77, they say it is approaching a near one-year low.

The chart below displays this small point:

wall street 5

The graph that Mehta’s uses indicate that at current levels:

  • There is about a 20% chance that the market will go lower
  • The market is now more susceptible to falling.

He goes on to say that it is dangerously close to the floor, but probabilities are higher that it won’t go lower on VIX but may instead spike up on a risk-off day at 11 on the VIX. 

That is a relatively mysterious way of saying that there is a higher chance of a further drop NOT occurring.

It goes without saying, that record highs for stocks make investors and analysts nervous. 

This is exacerbated by the persistent concerns about global growth in the wake of the shock Brexit results and the departure of the United Kingdom from the European Union. 

In the ensuing market upheaval, $12 trillion in government bonds were pushed into negative yield territory. 

This was documented by Fitch Ratings.

This whiplash action for stocks trending from the Brexit reaction doldrums to the now record highs has resulted in a few nagging doubts in the minds of many investors. 

A Bank of America Merrill Lynch monthly fund manager survey recently recorded that investors are benching the highest proportion of holdings in cash funds since 2001 (approximately 5.8%).

Chief market strategist for Asbury research, John Kosar, said on Wednesday that although he does not see on long term pull back destined for equities, the market is, however, due for a retreat.

He goes on to further state that this is exemplified by the Chicago Board Options Exchange put/call ratio and the VIX. 

These are a measure of both bearish and bullish bets that are on the market. 

Kosar predicts that the five-day moving average of the put/call ratio shows signs that the market is becoming less bearish. 

This trend tends to precede a market downturn.

Bull Market Supporters 

Not all Wall Street observers are expecting the sky to fall just yet. 

Some are even predicting that markets will make a powerful move even higher.

BTIG market technical analyst Katie Stockton, stated in a research note last week, that the S&P 500 index SPX, +0.46% is one step away from actualizing a long term trend that may see it break out to 2,400. 

She has been waiting for the large cap gauge to be registered 2 Friday closes above 2,135. 

This is likely to happen soon, given its 2,173 close last Wednesday.

To be sure, chief market strategist at New Albion Partners, Brian Reynolds, follows a different opinion by making the case that most investors are shoveling up protection against a possible market fall. 

It is not able to be seen how massive the market stumble could be at this point if it happens at all. 

This is the reason why prices are being driven higher in three-month VIX futures.

Is this a display of caution? 

Or is this fear that the future is indeed holding some sudden monster crash? 

Crowded bets are driving VIX futures higher, and that may just force bears to concede, especially if the record rises for stocks continue unabated.

Reynolds goes on to say that bearish investors now pay over 50% extra for 3-month protection as opposed to what is paid for the spot VIX. 

That is an enormous premium to pay for just the thought that there is a possibility that things may go wrong.

But could a reluctance to spend this extra protection end in artificially buoying up the stock market?

On the charts that Reynolds’ uses for his analysis, the three-month futures for the volatility gauge and spot price for VIX are shown to be at their widest levels.

Looking back to 2012, 2013 and 2014 – expected disasters did not materialize then either. 

So, while the spread could increase shortly, it is highly unlikely to persist for more than a month or two. 

This is because of the costs that are involved, as was made clear above. 

When the hammer does not fall, bearish investors are likely to cover their positions in the out months.

And bears will have to go into hibernation for a while.

Some analysts and investors have taken a more measured approach to the recent stock elevations. 

Nicholas Colas, the Chief market strategist at Convergex, said last Wednesday that all of the hyperventilation and concern about a possible fall in stocks on the back of the fact that records are being hit daily does not necessarily guarantee that the S&P 500 and the DJIA will follow suit and trade lower.

Colas calls it the “Monte Carlo fallacy” as there is no predictability in a coin toss or spin of the wheel. 

All probabilities start at zero. 

So whether some trends have been predicted in the past, it does not follow, in the law of averages, that any expected fall of the dice can reflect an expected result.

As seen in the vast variety of opinions flying around Wall Street at the moment, the reliability of this recent run in stocks can serve as absolute confirmation that few strategists and pundits know with any certainty, exactly where the market is heading. 

So there is no real reason to get out of the kitchen because of the heat just yet.



STUDY: Number of Billionaires Doubles in Last Decade




Number of Billionaires Doubles in Last Decade
Image via Shutterstock

The number of billionaires has doubled in the past decade and the world’s wealthiest 2,153 people controlled more money than the poorest 4.6 billion combined last year, the charity Oxfam said Monday.

Meanwhile, unpaid or underpaid work by women and girls adds three times more to the world’s economy each year at least $10.8 trillion than the technology industry, the Nairobi-based charity said in its “Time to Care” report.

Women around the world work 12.5 billion hours combined each day without any pay or recognition, while the world’s 22 richest men have more wealth than all the women in Africa.

“It is important for us to underscore that the hidden engine of the economy that we see is really the unpaid care work of women. And that needs to change,” Amitabh Behar, CEO of Oxfam India, told Reuters.

“Our broken economies are lining the pockets of billionaires and big business at the expense of ordinary men and women. No wonder people are starting to question whether billionaires should even exist,” Behar said ahead of the annual World Economic Forum in Davos, where he will represent Oxfam beginning Tuesday.

“Women and girls are among those who benefit least from today’s economic system,” he added.

There will be at least 119 billionaires worth about $500 billion attending Davos this year, according to Bloomberg, with the highest contingents coming from the US, India and Russia.

“The very top of the economic pyramid sees trillions of dollars of wealth in the hands of a very small group of people, predominantly men,” the Oxfam report said.

“Their wealth is already extreme, and our broken economy concentrates more and more wealth into these few hands,” it said.

To highlight the inequality, Behar cited the case of a woman called Buchu Devi in India who spends up to 17 hours a day walking almost two miles to fetch water, cooking, preparing her kids for school and working in a poorly paid job.

“And on the one hand you see the billionaires who are all assembling at Davos with their personal planes, personal jets, super rich lifestyles,” he said.

“This Buchu Devi is not one person. I in India encounter these women on a daily basis, and this is the story across the world. We need to change this, and certainly end this billionaire boom.”

Behar said that to remedy the problem, governments should make sure above all that the rich pay their taxes, which should be used to pay for amenities such as clean water, health care and better schools.

“If you just look around the world, more than 30 countries are seeing protests. People are on the street and what are they saying? That they are not to accept this inequality, they are not going to live with these kind of conditions,” he said.

Source: New York Post
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Pump Prices to Edge up After Attack on Iranian General, but Long-Term Effect Unclear

Editorial Staff



By Jeff Ostrowski, The Palm Beach Post, Fla.

Motorists soon will see the effects of President Donald Trump’s decision to kill a prominent Iranian general. Whether pump prices rise a little or a lot depends on how quickly international tensions intensify.

Florida gas prices climbed an average of 7 cents a gallon in the past three days and could increase an additional 5 cents, AAA – The Auto Club Group said Monday.

The 7-cent increase was coming even before the U.S. air strike Thursday that killed Iranian Maj. Gen. Qassem Soleimani. That hike was a result of a rise in the price of crude oil in December.

News of the targeted killing of Soleimani sent crude oil surging nearly $2 per barrel on Friday. An increase of that magnitude typically translates to a 5-cent hike at the pump, AAA said.

The U.S. benchmark for crude oil traded Monday just above $63 per barrel, the highest level since May 2019. The price of oil makes up about half the price of a gallon of gas.

“What happens in the Middle East can have a direct impact on Americans’ daily lives by influencing what they pay at the pump,” said AAA spokesman Mark Jenkins. “Crude prices rise when there’s a threat of war, because of concerns over how the conflict could hamper supply and demand.”

Oil analyst Tom Kloza of energy firm OPIS agreed that pump prices in Florida likely will rise about 5 cents a gallon in the coming days.

“Then I have a hunch that things are going to calm down,” Kloza said Monday. “I don’t think we’re looking at $3 gas.”

The national average pump price Sunday was $2.585, while the Florida average was $2.526, AAA said.

Kloza expects only modest increases in part because of the timing of the attack. January is always a slow month for gas consumption in the United States.

There’s also the reality that sanctions leave Iran unable to export oil. Complicating the calculus is Iraq’s response to the U.S. attack. The drone strike on Soleimani took place in Baghdad, and some Iraqi politicians considered the assault an affront to Iraqi sovereignty.

While there’s no Iranian oil supply to be disrupted by a war, Iraq is an important producer.

Trump keenly watches oil prices and realizes that a price spike might erode his support in this year’s presidential election, Kloza said.

At the same time, Kloza added, “This president has proven to be unpredictable.”

Trump’s response has been typically uneven. Delivering an official statement at the Mar-a-Lago Club in Palm Beach, Trump’s tone was measured. He said the targeted killing was designed to pre-empt Soleimani’s planned attacks on American diplomats and soldiers.

“We took action last night to stop a war,” Trump said Friday. “We did not take action to start a war.”

However, over the weekend, Trump took to Twitter to threaten attacks on Iranian cultural sites.

“The United States just spent Two Trillion Dollars on Military Equipment,” Trump wrote Sunday on Twitter. “We are the biggest and by far the BEST in the World! If Iran attacks an American Base, or any American, we will be sending some of that brand new beautiful equipment their way…and without hesitation!”

##IFRAME_1##Iran has vowed vengeance, but military experts say the nation isn’t powerful enough to wage a direct war against the U.S.

“It’s still far too early to know how much of an impact this conflict will have overall on prices at the pump,” AAA’s Jenkins said.

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Stocks Rally Despite Impeachment News

Editorial Staff



Stocks rose on Thursday as investors looked past the news of President Donald Trump’s impeachment as well as mixed U.S. economic data.

The Dow Jones Industrials advanced 53.85 points to begin trading at 28.293.13

The S&P 500 recovered 4.93 points to 3,196.07

The NASDAQ added 19.39 points to Wednesday’s all-time record, at 8,847.12.

The S&P 500 is up nearly 7% since House Speaker Nancy Pelosi launched a formal impeachment inquiry in September.

Cisco Systems was the best-performing Dow component, rising 1.6%. The consumer staples and real estate sectors led the S&P 500 higher, gaining 0.4% each. Micron Technology shares also contributed to Thursday’s move higher. Conagra shares surged more than 14% and were on pace for their biggest one-day gain since Oct. 16, 1989.

Micron shares climbed 3.5% on the back of strong quarterly results. The chipmaker posted earnings per share and revenue that topped analyst expectations.

On the economic data front, weekly jobless claims fell to 234,000 from 252,000 the week before. However, economists expected claims to fall to 225,000.

Meanwhile, the Philadelphia Federal Reserve’s business conditions index fell to 0.3 in December from 10.4 in the previous month. Economists expected the index to slip to 8.

The Democrat-led House of Representatives voted Wednesday to impeach Trump for abuse of power and obstruction of Congress. Trump became only the third president to be charged with high crimes and misdemeanors and will now face a trial in the Republican-controlled Senate.

Prices for the 10-Year U.S. Treasury were lower, raising yields to 1.94% from Wednesday’s 1.93%. Treasury prices and yields move in opposite directions.

Oil prices gained seven cents to $61.00 U.S. a barrel.

Gold prices moved forward $1.80 at $1,480.50 U.S. an ounce. Copyright © 2019 Media Corp. All rights reserved.

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