On the heels of the Dow tumbling on fears of war with North Korea, one of the greats in the business just released this fantastic piece which covers the all-important question, are we really staring at nuclear Armageddon? And what the heck is going on with the major markets?
No Nuclear Armageddon For Now
By Jeffrey Saut, Chief Investment Strategist at Raymond James
August 12 (King World News) – So I have been in Boston most of this week speaking at events for our financial advisors, visiting our retail offices, and seeing portfolio managers (PMs). Yesterday (Thursday), I spoke at Cantella’s National Conference (Cantella uses Raymond James as its platform) to a few hundred advisors, and then spent the rest of the day at Fidelity seeing PMs. Much to my surprise, I ran into my friend Tony Dwyer, one of the brightest minds on Wall Street, and a real gentleman. On August 7, 2017, Tony scribed a report that began with the question “How will we know when to expect ‘the’ top?” Asked and answered, Tony went on to write:
“With such low volatility, close proximity to record highs, and likelihood for pause in the upside, there is much discussion about ‘the’ market peak and bubbles. Indeed, while there are nasty corrections every cycle, THE market top is identified by close proximity to recession. Importantly, the market makes a cycle peak on average 7.2 months prior to recession, so unless the synchronized global recovery and domestic re-acceleration suddenly stops, we are still years away from recession.”
The report then described three credit-based indictors he uses to gauge the possibility of a recession and that for the past 50 years every recession has been proceeded by an inversion of the yield curve (short interest rates rise above long rates). None of these are even close to suggesting a recession; yet given the recent stock market weakness “recession” is on the lips of a lot of folks…
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While we agree with Tony about NO recession, we will remind folks that our short-term model called for caution at the end of last week and we wrote about that last Thursday/Friday.
So, in yesterday’s session many of the indices we follow closed below their respective near-term support levels combined with negative internal readings (see chart at right). In fact, yesterday’s close below 2453.34 (the upside breakout point) turned the Daily Trend Indicator negative combined with a negative reading from the MACD Indicator.
What About Nuclear Armageddon?
As we have said since our short-term model went into cautious mode late last week, “Unlike what we have said since mid-April, we would not buy this first stock market dip.” However, this expected release of downside energy is actually incredibly bullish, especially given the long-term upside bullish trend. So by next week the negative energy release should subside, just like it did with the President Trump “impeachment low,” which as we advised was a great buying opportunity. What about nuclear Armageddon? My contacts on Capitol Hill suggest it is NOT going to happen! And then there was this from our friend, the sagacious PM from Canada often quoted in these missives, Craig White:
“That said, the current selling pressure shouldn’t come as a surprise (although North Korean tensions appear to be the main catalyst currently) as we have been telegraphing the likelihood of this since mid/late July. At that time, a number of indicators began rolling over as was seen with the Transports and the Russell 2000, while participation within the NASDAQ was not as broad based as at previous highs. Moreover, consensus had become overbought with Investor Intelligence bulls over 60% and the number of stocks above their 10 & 50 day moving averages had reached elevated levels.
With the VIX hitting 8.84 on July 26th, a day count reaching 260+ days without a 5% correction or more, the advance/decline line diverging from the major averages and a weak seasonality bias before us, caution was our preferred approach. That looks to be paying off thus far with further divergence in some of our leading indicators this week. Technically, key support rests around the 2,450 for the S&P 500 (50 DMA), with any violation of this support level likely pointing to a deeper sell-off (we closed at 2,438 today). Also key is 1370 for the Russell (200 DMA) and 21,540 for the Industrials (50 DMA). It should be noted that we are still only 2% from an all-time high.”
Numerous Questions About War…
Speaking to the numerous questions about “war,” we leave you with this quip from the super intelligence community connect Robert Hardy, captain of the must have Geostrat letter:
“We still see no signs of North Korea preparing for war. To reiterate our 08/10/17 edition, which was edited before the publication of the general’s statement, one of the most important diagnostic indicators is the North establishing a semi-war alert condition. This set of pre-war preparations disrupt civilian normality and must occur to protect the work force and support the Army before the Army can start military action. The last time North Korea declared such an alert condition was in early April about two and a half weeks before it notified China that it intended to detonate a sixth nuclear device. We have seen no actions yet to indicate North Korea is on heightened alert, although it is logical to conclude the Army and the Strategic Force have increased their alert and readiness conditions.
One indicator of normalcy is seen in the daily KCNA press review for August 10, which listed six routine diplomatic receptions in Pyongyang. The Minister of Agriculture of Equatorial Guinea and his delegation held a meeting with a North Korean Vice Premier. During a semi-war alert condition foreign delegations are invited to leave. No disruptions of trade with China have been reported. No border closures have been announced. “The attack at the first sign of attack” language seen in the Tuesday statement from the spokesman for the General Staff has appeared regularly in military statements published by KCNA. It seemed amped up because there have been so many statements published in the wake of UNSC R-2371.”
This morning (Friday) the preopening futures are relatively flat as the headline reads, “China should be neutral if North Korea fires first on the U.S.”
***KWN has just released Dr. Stephen Leeb’s remarkable KWN audio interview and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***ALSO JUST RELEASED: Analyst David P. Out Of Europe – These Are Two Of The Most Important Wildly Bullish Gold Charts Of 2017! CLICK HERE.
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