Taking a divergence
What’s happening in the general economy deserves some attention, says Richard Brock. Here's his viewpoint on the matter.
By Richard Brock
Allow me to diverge from writing about the grain markets for once. What’s happening in the general economy deserves some attention and my viewpoint is likely quite different from the majority.
From mid-February to mid-March, the S&P500 futures declined by 10% in value. One of the biggest corrections in recent years. Many investors retirement funds have declined 5% to 10% during that timeframe. The news has been negative. But let’s remember that the only news that really sells is negative news.
Many economists look at the price of copper as an indicator of how well the economy is doing. Since January 1 copper prices are up 22%. From five years ago copper prices are up 144%.
Copper is used in many areas of construction including electronics, plumbing, automobile components, electric motors—and the list can go on and on. There is a reason copper demand is a leading indicator of where an economy is headed.
Since mid-January crude oil prices are down 15%. Gasoline and diesel fuel prices have also plummeted. This alone will help stimulate economic growth. Jobs are being created in industry—just not in the government. Many universities, anticipating a cut in funding, have established hiring freezes. Undoubtedly some sectors of the economy are going to be under pressure. But industry and agriculture are not in that camp.
Technical buy signals indicating a bottom
Not everyone believes in technical signals in a market. I do and so do many other market analysts. In the second week of March the S&P500 established a major five-wave technical buy signal. They’re not 100% reliable but under the current conditions, I would put 70% reliability on this one. Crude oil also established a five-wave technical buy signal at about the same time. There are flashing lights in many markets that trends are turning.
The news is always the most bullish at tops and the most bearish at bottoms. News over the last month and a half has almost all been bearish. The average person does not handle change well. We’re going through some very major changes and particularly for people employed in the government, many of whom are there because they do not like change and do not like pressure, are having difficulties with what is happening in our economy right now. Granted, a lot of changes are happening quickly. But this is the way markets normally work. Emotions are high at every major top and at every major bottom. Here are a couple of bold predictions:
The energy market is making a temporary bottom. Risk on the downside is minimal. Fuel for spring and summer should be bought.
The Dow Jones Industrial is also making a bottom. The correction is likely over. Anticipate a stronger stock market for the next several months.
We shall see.
