April 20, 2017
By Mish Schneider
Continuing with the Wild West theme, “Buffalo Bill” Cody staged the period with “border dramas.” Buffalo Bill’s fame as a westerner gave his shows star appeal and an aura of authenticity.
The market has had its own border drama this week.
The sentiment has fluctuated between fear that the talk of strengthening fundamentals are just a show TO faith that the fundamentals have an aura of authenticity.
The Russell 2000, of the four indices a reliable measure of consumer sentiment, began the week looking like the warning phase would accelerate. By the end of Thursday’s session, IWM returned to an unconfirmed Bullish Phase.
The losers during the Wild West were the bisons. While Buffalo Bill and the army hunted, the bison went nearly extinct.
Today, agricultural commodities were the big losers. DBA, the agricultural fund ETF, made a new all-time low. Wheat, corn, soybeans, coffee, and sugar all declined as well.
Sure, cheap food prices sounds great. However, a deflationary trend may not be so good.
Could an oversupply indicate a more insidious underlying issue of an economic extinction?
Indeed, the small U.S. farmer faces extinction. Hunted by big Industrial farms, the use of commercial machinery has greatly reduced the cost of production.
Furthermore, an article in the WSJ states that Brazil has taken over the grain export market. The U.S.’s agricultural dominance has eroded.
“America’s share of global corn, soybean and wheat exports has shrunk by more than half since the mid-1970s,” the USDA says.
Rural communities will feel the biggest impact. Job losses and lower farmland values will cut the tax bases in these areas.
On the positive side, U.S. companies like Cargill, Bunge Ltd., Deere and Mosaic are exporting machinery to help Brazil’s market.
Brazil is also aiding Monsanto by ramping up its genetically modified seed production.
In 1873, an economic depression hit the country. Cody’s claim that he killed 4,280 Buffalo appealed to those who sought to make money from Buffalo byproducts.
Naturally, the bison market flooded, prices dropped and eventually herds became harder to find.
Comparing history to present day, the grain market is flooded, prices are dropping but grain supply is plentiful. (Exceptions are in countries where grain is not readily distributed.)
Back to the border drama, U.S. corporations benefit while the U.S. worker does not. Moreover, another major U.S. business falls to technology in the name of progress.
The anomaly of fewer jobs versus increased automation is a problem the administration said they could reverse. That may be a side show.
Cody depended on his ability to draw on his experiences to make himself a commanding figure. But with “times, they are a-changin,” by 1913, Cody’s Wild West show went bankrupt.
Certainly, times are a-changin again. And I cannot help wondering what the ripple effect of today’s collapse in grain prices will be for the U.S. Plus, how long the crowds will buy into the market’s aura of authenticity.
S&P 500 (SPY) 235.33 is the 50 DMA to clear not intraday, but on a closing basis. Still in a warning phase
Russell 2000 (IWM) Unconfirmed bullish phase. Needs a second close over 136.90
Dow (DIA) Needs a close over 206.83 the 50 DMA to clear
Nasdaq (QQQ) 131.50 support to hold. Here is where the money is-technology. Can it sustain the market?
KRE (Regional Banks) Optimism drove this back over the fast-moving average. Still far from the overhead 50 DMA
SMH (Semiconductors) Confirmed bullish phase. 80.00 back in focus
IYT (Transportation) 166.10 the overhead 50 DMA to clear to prove this has legs
IBB (Biotechnology) This must clear and close over 292.80 to return to bullish
XRT (Retail) Granny surprised today. Now 43.83 the 200 DMA is in the story.
IYR (Real Estate) 79.00 the 200 DMA to hold. 81 some resistance
GLD (Gold Trust) 125 in focus if holds 120
SLV (Silver) Back on the 50 DMA-interesting place to watch for strength or more weakness
GDX (Gold Miners) Closed over the 50 DMA with a good risk below 22.60 if confirms the recovery phase
USO (US Oil Fund) Needs to get back over 10.90
TAN (Solar Energy) 17.00 major support to hold
TLT (iShares 20+ Year Treasuries) closed right under 123.55-pivotal tomorrow
UUP (Dollar Bull) 25.50 area support on multiple timeframes