Wednesday, May 19, 2010

Today, the Collapse Began; Cash Reigns Supreme

While the headline numbers for today's trading on the major indices weren't all that startling, but the largely unnoticed event - an indicator which I watch like a hawk and report on daily - occurred today, as the new high - new low metrics completely reversed, with new lows taking the edge over new highs.

Of all the indicators which investment analysts cite in their mountains of research and charts, this simple indicator has proven to be the absolute best and most accurate for determining both bull and bear market direction, long term, and isn't long term what investing is supposed to be about, anyway?

The first time I made note of this simple indicator was when it turned negative in August, 2007, an innocuous time for many, but the actual beginning of the still-ongoing financial crisis. New lows took the edge from the new highs in that month and did not give up the advantage - on a day-by-day basis - until April of 2009, a span of some 20 months, a spectacular indicator, to be sure!

There were a handful of days in which there were more posted new highs than new lows, but through those 20 months, new lows led new highs nearly every trading day. When they turned over last year, with new highs surpassing new lows on a daily basis, I was slow to comprehend its meaning and power, but finally caught on in June as the markets embarked upon a truly breathtaking nine-month rally.

Today marked the second time new lows have surpassed new highs in the past two weeks. The first instance was on the day of the "flash crash" on May 6, nearly two weeks ago. Today, the move was decisive, with 167 new lows compared to only 90 new highs. It would bear to watch this indicator closely for the next ten trading sessions, to see if it continues to trend in this manner, but my gut feeling is that it has flipped and the market is heading for a renewed bout of bearishness, marked by sharp selling and equally sharp rallies off fresh bottoms.

Investors would be well advised to get out of equities as soon as possible, if not already in cash, equivalents or tools of trades as I have been suggesting for some time.

Dow 10,444.37, -66.58 (0.63%)
NASDAQ 2,298.37, -18.89 (0.82%)
S&P 500 1,115.05, -5.75 (0.51%)
NYSE Composite 6,927.21, -32.00 (0.46%)

Losing issues outstripped advancers by a colossal margin, 5030-1549, or better than 3:1, another indication of more pain to come for Bulls. Volume was also strong, indicating that the selling has not yet reached fever pitch.

NYSE Volume 7,827,840,000.00
NASDAQ Volume 2,588,426,750.00

Crude slipped to a seven-month low today before regaining its footing, adding 46 cents, to $69.87 per barrel at the close, though that gain was likely a knee-jerk reaction to the relentless selling the entire month of May which has brought the price down more than 15%.

If there was any indication of deflation, it was not only in the April CPI numbers released prior to the market's opening, which showed a decline of 0.1% (same as yesterday's PPI), but in the price of gold, which sold off considerably. The yellow metal plummeted $21.70, to $1,192.60. Silver suffered an even larger percentage loss, diving 76 cents, to $18.09.

As are all other commodities, they are trading vehicles, and while they may fare better than other asset classes, they are still not immune from the ravishes of deflation, which has been and continues to bombard global markets with price dislocations and a general lack of pricing power.

The race to the bottom is on again. Cash is king once more!

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