Weekend Wrap: If This Isn't A Bear Market, Then What Is It?

Is this a bear market?

Nobody wants to admit it, but the patterns are clear on the charts.

In the most recent week, all of the four major averages displayed the same kind of market action throughout, all ending in the red, from the Dow's 0.62% loss to the S&P's narrow, 0.01% decline.

All four are currently trading between their 50 and 200-day moving averages.

It's been three months since the averages made new highs, which just happened to be all-time highs, occurring more than nine years into the second-longest expansion in market history.

Even though the indices are not at correction levels (-10%), they are close, and the argument that a bear market is defined as a 20% drop is begging the question to a large degree. In the case that investors want to wait until stocks are another 10% lower, it will mean that the smartest investors got out early and those remaining will be eventual bag-holders, losing anywhere from 35-60% of their investments as the bear matriculates to lower and lower levels.

Since Dow Theory has confirmed bear market conditions, only the most hopeful or ignorant traders will cling to the belief that those all-time highs made three months ago will be surpassed somewhere down the road. The closing high on the Dow is 26,616.71, made on January 26. A rally of more than 2300 points would be needed to get back to that level.

Does anybody in their right mind see that happening?

Presidents of the various Federal Reserve System regional banks may try to make a case that the economy is strong and still growing, despite evidence to the contrary and their overwhelming desire to raise rates in the face of obviously weakening data.

Friday's first estimate of third quarter GDP might have been the straw that broke the back of the Fed's narrative, coming in below consensus guesses at a depressing 2.3%. When one backs out inflation and considers that almost all of the contributions to GDP - consumer, business, and government - are based on borrowed money, i.e., debt, the real GDP figure might be somewhere closer to -2.3%, consumer and business debt beginning to grow beyond sustainable levels, while government debt is already well past that point at $21 trillion.

There is little doubt that this is indeed a bear market and the flattening of the treasury interest rate curve is more evidence that a recession is just around the corner. Raising rates at this juncture - which the Fed plans on doing again in June - will only exacerbate an already stretched situation and actually contribute to causing the very recession the Fed wishes, publicly, to avoid. In truth, behind closed doors, the Fed presidents and governors of the FOMC know full well that a slowdown is coming, not just for stocks, but for the general economy. That's why they are in such a rush to raise rates: because they need the additional ammunition of being able to reduce rates when the recession comes.

Investors have had sufficient time to reallocate funds to safe havens. Sadly, the bulk of investments are held by pension and other funds, and the bag-holders are going to eventually be the millions of working people whose investments and livelihoods are inextricably tied to the market with little opportunity to allocate funds correctly nor the ability to leave the market completely.

Life has its ups and downs, and its fair share of joy and pain. The joy of the past nine years is about to be eclipsed by the pain of 2019-2022, a bear market and deep recession that will reveal - to some - the true state of the US and global economy, one that has been built on debt, low interest rates, non-stop issuance of fiat currency, stock buybacks, manipulation, and shady practices by the world's central banks.

Forewarned is forearmed.

Dow Jones Industrial Average April Scorecard:

Date	Close	Gain/Loss	Cum. G/L
4/2/18	23,644.19	-458.92	-458.92
4/3/18	24,033.36	+389.17	-69.75
4/4/18	24,264.30	+230.94	+161.19
4/5/18	24,505.22	+240.92	+402.11
4/6/18	23,932.76	-572.46	-170.35
4/9/18	23,979.10	+46.34	-134.01
4/10/18	24,407.86	+428.76	+294.66
4/11/18	24,189.45	-218.55	+76.11
4/12/18	24,483.05	+293.60	+369.71
4/13/18	24,360.14	-122.91	+247.80
4/16/18	24,573.04	+212.90	+460.70
4/17/18	24,786.63	+213.59	+674.29
4/18/18	24,748.07	-38.56	+635.73
4/19/18	24,664.89	-83.18	+552.55
4/20/18	24,462.94	-201.95	+350.60
4/23/18	24,448.69	-14.25	+336.35
4/24/18	24,024.13	-424.56	-88.21
4/25/18	24,083.83	+59.70	-28.51
4/26/18	24,322.34	+238.51	+210.00
4/27/18	24,311.19	-11.15	+198.85

At the Close, Friday, April 27, 2018:
Dow Jones Industrial Average: 24,311.19, -11.15 (-0.05%)
NASDAQ: 7,119.80, +1.12 (+0.02%)
S&P 500: 2,669.91, +2.97 (+0.11%)
NYSE Composite: 12,594.02, +11.12 (+0.09%)

For the Week:
Dow: -151.75 (-0.62)
NASDAQ: -26.33 (-0.37%)
S&P 500: -0.23 (-0.01%)
NYSE Composite: -13.13 (-0.10%)