The S&P 500 has been falling since the end of February. It is down about 170 points since it hit all-time highs three weeks ago.
And yet, as you can tell by this five-year chart, the uptrend remains on track.
The S&P 500 remains well above its 200-day moving average, and the MACD remains stuck in overvalued territory, as it has been since 2012.
If the uptrend breaks, the most dominant support level is around 1,700, where the 200-day moving average would meet the drop at the 2013 highs.
The P/E ratio on the S&P is now at 17.7, which is above the 10-year average of 15.8. It should be noted that in the year 2000, before the dot-com bust, the P/E ratio was at 35. Bubbles run further than you think.
It may not be “the top,” but it is far from the bottom.
Good News is Bad
The downdraft lately is based on the absurd idea that “good news is bad” and will enable the Fed to hike rates in the summer. This liquidity-driven market hates the idea that the money will dry up, and it didn’t like the job numbers.
The good news comes in the form of the unemployment rate.
More Jobs
Employers added more jobs than forecast in February, and the unemployment rate dropped to 5.5%, the lowest in almost seven years, showing the labor market is sustaining progress after the best annual performance in 15 years.
The 295,000 advance in payrolls last month followed a 239,000 January increase. The unemployment rate fell from 5.7%.
The Fed has said that unemployment between 5.2% and 5.5% will be sufficient to raise rates.
These numbers are all bunk, however. The quality of jobs is poor, with the largest surge coming in the restaurant trade’s 66,000 new jobs.
The labor participation rate was at 62.8% for February — a low not seen since March of 1978. The number of people who don’t work is now at 92,898,000.
Fewer Jobs Going Forward
Numbers will deteriorate in March as energy and drilling jobs begin to get counted.
U-Haul recently reported that in the Bakken region, four out of five rentals are one way out. The three top oil service firms — Schlumberger, Halliburton, and Baker Hughes — have announced a combined 22,000 layoffs in recent months.
Despite the jawboning by Fed Chief Yellen about removing the word “patience” from the next round of Fed statements, they will not raise interest rates. They can’t simply because there is a good chance we are heading into another recession.
Just look at the earnings numbers…
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Earnings Are Dropping
Earnings projections for the S&P 500 are dropping rapidly due to the strong dollar and falling oil prices.
According to the latest data from FactSet, analysts now expect companies in the S&P 500 to report earnings growth of 2.4% for 2015. That’s the weakest pace of annual profit growth since 2009, when profits fell 7.9% from the prior year.
According to the Wall Street Journal:
Analysts typically overshoot their corporate profit targets, only to lower them before the earnings reports roll in. But these latest cuts are particularly deep and particularly early. As recently as December, analysts had been expecting S&P 500 profits to grow 8% for 2015.
Which brings us to gold.
The Market Vectors Junior Gold Miners ETF (NYSE: GDXJ) just hit an all-time low.
Check out the massive volume as long-term gold bugs puke out their shares. This is a classic capitulation low.
In another sign of a bottom, Allied Nevada Gold (NYSE: ANV), a stock that went from $4.00 to $45.00 after 2009, just declared Chapter 11. It now trades at $1.08.
Dead companies lay the foundation for new bull markets in commodities. This is the first corpse but assuredly not the last.
If you are a market contrarian, you have to love it. No one wants to own gold now. The gold conferences I’ve attended over the last two years were woefully unattended.
And yet check out this chart Bloomberg put out:
It shows that gold outperforms during stock market crashes.
Winning gold mining stocks — those with solid balance sheets and savvy management — go up 1,000% or more. And yet they are giving these companies away.
I’ve recently found four companies that trade less than the cash on their balance sheet, which I’m looking into further.
My associate Nick Hodge has written a special report on the gold cycle and has three junior gold stocks that he thinks will be among these 10-baggers over the next few years.
Good hunting,
Christian DeHaemer
Check us out on YouTube!Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
