Showing posts with label bull market. Show all posts
Showing posts with label bull market. Show all posts

Thursday, April 25, 2019

Dow Theory: Primary Bear Market with Reactionary Bull in Effect

Dow Theory has been around for more than 100 years and even in today's lightning-fast markets, Fed interventions, multiple tasing platforms and indices, it still serves investors well in determining primary and secondary trends over medium and longer-term horizons.

Even as the NASDAQ and S&P 500 made new highs on Tuesday, April 23 - and scampered back from them on Wednesday, the 24th - the Dow Jones Industrial Average remains technically in a bear market which began in October of 2018 and was confirmed by the Dow Jones Transports later in the month when the Trannys slipped below 10,000, bounced back from there but were clobbered all of December (as were the Industrials), putting in a low right around Christmas.

Since then, stocks have been on a tear, but the Transports and Industrials have stubbornly resisted making new all-time highs dating back to September of 2018 for the Trannys and the first week of October for the Industrials.

As the momentum of the new year and the "Trump economy," with an able assist from the Federal Reserve - which stopped its insistence on hiking the federal funds rate 25 basis points every quarter and also suspended its balance sheet roll-off - both indices are within hailing distance of all-time highs once again. They are tantalizingly close to extending what many consider to be the longest bull market in US history, despite Dow Theory standing in the way, saying, "no, the primary trend has changed."

The issue for investors and chart-watchers is whether the Bear that emerged late last year will persist in the face of solid economic data and healthy performances by individual stocks or fall victim to excessive speculation and high valuations. The Shiller CAPE ratio remains elevated, above levels seen in 1929 and 2008, though below the spasmodic bubble highs of 2000.

Neither proposition - new all-time highs or another retreat - offers particular pleasure. New highs would confirm that the bubble economics put in place following the 08-09 financial crisis are still in play, and there's ample evidence to support that view. A systemic breakdown - first a correction (10%), followed by a massive sell-off similar to what was witnessed in December of last year - would please nobody other than the most ardent short-sellers (and maybe the Democrat party, Trump haters and the mainstream media).

Of course, the Industrial and Transportation indices are exceedingly narrow, though they are far from being outdated. The 30 stocks on the Industrial Average and the 20 on the Transportation Index still manage to provide a compelling snapshot of the US big business economy. Understanding their primary and secondary trends goes a long way towards gauging the overall health of the US economy.

This is a time to pay them extra attention, as the next major move should provide timely insight to the years ahead. Friday's first estimate of first quarter GDP may spur a move in one direction or another as estimates have ranged as low as +0.9 to +2.8.

Anything over +2.2 is likely to be viewed positively in the current risk-happy environment. a reading under +1.6 would fan the flames of the bear campfire. The estimate is due out on Friday, April 26, at 8:30 am ET.

Tuesday, October 9, 2018

Dow Closes With Losses; Is This 2007 All Over Again?

The Dow spent the day criss-crossing the unchanged line - 20 times to be exact - before finally capitulating late in the day, closing lower for the third time in four days, the losing sessions outweighing the sole winner by a margin of some 398 points.

Among the various reasons for the recent declines are the usual suspects: trade and tariffs, emerging market weakness, soaring bond yields, and widespread political unrest, not only in the United States, but elsewhere in the world, particularly Europe, where nationalism is on the rise in opposition to hard-line European Union bureaucracy and technocrats.

Italy is the most recent focal point, where the latest government consists of parties warring within themselves, with each other, and with the political apparatus that overarches all things European from Brussels. The Italian government, like most modern nations, is saddled with largely unplayable debt, seeking solutions that preclude involvement from either the ECB or the IMF, a task for only the brave or the foolhardy.

As much as can be said for the political turmoil within the Eurozone, it remains cobbled together by an overtaxed citizenry, ripe for revolt from the constraints upon income and general freedom. As was the case with Greece a few years back, the EU intends imposition of austerity upon the Italians and is facing stiff resistance from the general population and government officials alike.

Political sentiment aside, the canary in the US equity coal mine is the downfall of the treasury market, which has seen rising yields almost on a daily basis since the last FOMC meeting concluded September 26, the well-placed fear that the Fed has reached too far in implementing its own brand of monetary austerity by flooding markets with their own overpriced securities. The resultant condition is the most basic of economics: oversupply causes prices to fall, yields to rise.

Adding to investor skittishness are upcoming third quarter corporate reports, which promise to be a bagful of not-well-hidden disappointment, given the strength of the dollar versus other currencies and corporate struggles to balance their domestic books with those outside the US. Any corporation with large exposure to China or other emerging markets is likely to have felt some currency pressure during a third quarter which saw rapid acceleration in the dollar complex. Most corporations are simply not nimble enough to adjust to quick changes in currency valuations, leading to losses on the international side of the ledger book.

Valuations could also matter once again. Since the economy in the US is seen as quite robust and strong at the present, investors may want to question their portfolio allocations. Good things do not last forever, and while the current rally under President Trump has been impressive, it has come at the end of a long, albeit often sluggish, recovery period.

All of this brings up the point of today's headline, the eerie similarity to the market of 2007, which presaged not only a massive recession, but a stock market collapse of mammoth proportions, a real estate bust, and vocal recriminations directed at the banking cartel, which, as we all know, came to naught.

In 2007, the Dow peaked on July 11, closing at 14,000.41, but was promptly beaten down to 12,845.78 at the close on August 16. It bounced all the way back to 14,164.53, on October 16, but was spent. By November 26, the day after Thanksgiving, the industrials closed at 12,743.44 and continued to flounder from there until the final catastrophic month of October 2008.

The chart reads similarly, though more compressed in 2018. The Dow made a fresh all-time high on September 20 (26,656.98) and closed higher the following day. On October 3, a new record close was put in, at 26,828.39, but the index has come off that number by nearly 400 points as of Tuesday's close.

It is surely too soon to call for a trend change, but, if 2018 is anything like 2007, the most recent highs could be all she wrote, the proof not available for maybe another month or two, but the Dow bears watching if it cannot continue the long bull run.

Dow Jones Industrial Average October Scorecard:

Date Close Gain/Loss Cum. G/L
10/1/18 26,651.21 +192.90 +192.90
10/2/18 26,773.94 +122.73 +315.63
10/3/18 26,828.39 +54.45 +370.08
10/4/18 26,627.48 -200.91 +169.17
10/5/18 26,447.05 -180.43 -11.26
10/8/18 26,486.78 +39.73 +28.47
10/9/18 26,430.57 -56.21 -27.74

At the Close, Tuesday, October 9, 2018:
Dow Jones Industrial Average: 26,430.57, -56.21 (-0.21%)
NASDAQ: 7,738.02, +2.07 (+0.03%)
S&P 500: 2,880.34, -4.09 (-0.14%)
NYSE Composite: 12,960.57, -39.56 (-0.30%)

Wednesday, August 22, 2018

Of The Long Bull Run And The Short Bear

Today, the S&P 500 set a new mark as the longest bull run in stock market history, surpassing the bull market record that ran from October 1990 to March 2000.

On Wednesday, the bull market that began on April 8, 2009, reached 3,453 days. The nearly 9 1/2 year run without a decline of 20% has seen the S&P rise from its low of 815.55 on April 7, 2009, to yesterday's closing high of 2,862.96, a gain of 2047.41, an average annual return of 26.4%. It's been quite a decade for Wall Street after the financial crisis had put the world on edge.

Unlike anything seen before, excepting possibly the expansion during the 1990s dotcom boom, investors have been showered with profits from virtually all sectors. There is no denying that the bull market of the 20-teens will go down in economic history as one of the more bizarre experiences ever, fueled by unlimited free-spending by central banks in global coordination, slashing interest rates at times, in some countries, to negative yields.

Adding to the hyper activity in the markets were stock buybacks by nearly every major corporation, financed by ultra-low interest rates. Buybacks reduced the number of shares outstanding, thus boosting earnings-per-share calculations beyond normal ranges.

While many still argue that this bull market was mostly smoke and mirrors, enhanced by the Federal Reserve and of benefit to only the richest one percent of the population, anybody who invested during this period made money. That's an undeniable fact that serves to silence even the grizzliest of bears.

Shortest Bear Market?

Adherents to Dow Theory (Money Daily being of that disposition) saw the end of the bull market earlier this year, when the Dow dropped precipitously from its January 26 all-time high close of 26,616.71 to 23,533.20 on March 23. The primary trend change (bull to bear) was confirmed when the Transportation Index closed on 10,119.36 on April 9. Since then, the Dow has come back, though it has not surpassed its previous high, which would signal another primary trend change from bear to bull. However, yesterday, August 21, the Transports set a new record closing high, finishing the session at 11,436.36 and well beyond its previous record close of 11,373.38, reached on January 12, 2018.

While the Transports have been leading (without much notice) the charge to new highs, it will take another spurt higher of nearly 900 by the Dow Industrials to surpass its own all-time high. If that scenario develops, the Dow will confirm the trend change that the Transportation Index has suggested. According to Dow Theory, the two have to react in tandem, confirming the primary trend direction.

The Dow demands close scrutiny in the weeks and possibly months ahead, because, despite the larger universe of pundits and analysts celebrating the longest bull run ever, until the Dow Jones Industrial Average closes above 26,616.71, theoretically, this is still a bear market and the recent activity since late March of this year has been nothing but speculation and noise.

For all the hoopla over the bull market record, today's action was noticeably subdued. Of the four major indices, only the NASDAQ returned a winner, as investors waded back into the tech-soaked speculative morass.

Dow Jones Industrial Average August Scorecard:

Date Close Gain/Loss Cum. G/L
8/1/18 25,333.82 -81.37 -81.37
8/2/18 25,326.16 -7.66 -89.03
8/3/18 25,462.58 +136.42 +55.05
8/6/18 25,502.18 +39.60 +94.65
8/7/18 25,628.91 +126.73 +221.38
8/8/18 25,583.75 -45.16 +176.22
8/9/18 25,509.23 -74.52 +101.70
8/10/18 25,313.14 -196.09 -94.39
8/13/18 25,187.70 -125.44 -219.83
8/14/18 25,299.92 +112.22 -107.61
8/15/18 25,162.41 -137.51 -245.12
8/16/18 25,558.73 +396.32 +151.20
8/17/18 25,669.32 +110.59 +261.79
8/20/18 25,758.69 +89.37 +351.16
8/21/18 25,822.29 +63.60 +414.76
8/22/18 25,733.60 -88.69 +326.07

At the Close, Wednesday, August 22, 2018:
Dow Jones Industrial Average: 25,733.60, -88.69 (-0.34%)
NASDAQ: 7,889.10, +29.92 (+0.38%)
S&P 500: 2,861.82, -1.14 (-0.04%)
NYSE Composite: 12,992.05, -4.71 (-0.04%)

Tuesday, August 21, 2018

Stocks Continue Rally, S&P 500 Reaches New All-Time High

There was cause for celebration on Wall Street and around America on Tuesday as the S&P 500 reached a new all-time record close, gaining 5.91 to finish the day at 2,862.96, four-and-a-half points beyond the previous high set just two weeks ago, on August 7th.

While the S&P and NASDAQ have surged to new records after the February correction, the Dow is still 800 points shy of its all-time mark, though, with the economy booming, there's little to no apprehension among investors. The widespread belief is that the Dow will push forward, despite the warnings from Dow Theorists who insist a bear market on the Dow Jones Industrial Average had commenced earlier in the year. Clearly, recent data disputes the veracity of any argument made by the venerable Dow Theory.

On Wednesday, stock pickers will be in a celebratory mood once again, marking the longest bull run in US market history, surpassing the dotcom run from 1990 to 2000. According to this LA Times story there is some disagreement, but there are few who argue that this bull run has been outstanding, starting on April 9, 2009, without as much as a 15% decline throughout the duration of the run.

Tomorrow it is, then. Another record.

Dow Jones Industrial Average August Scorecard:

Date Close Gain/Loss Cum. G/L
8/1/18 25,333.82 -81.37 -81.37
8/2/18 25,326.16 -7.66 -89.03
8/3/18 25,462.58 +136.42 +55.05
8/6/18 25,502.18 +39.60 +94.65
8/7/18 25,628.91 +126.73 +221.38
8/8/18 25,583.75 -45.16 +176.22
8/9/18 25,509.23 -74.52 +101.70
8/10/18 25,313.14 -196.09 -94.39
8/13/18 25,187.70 -125.44 -219.83
8/14/18 25,299.92 +112.22 -107.61
8/15/18 25,162.41 -137.51 -245.12
8/16/18 25,558.73 +396.32 +151.20
8/17/18 25,669.32 +110.59 +261.79
8/20/18 25,758.69 +89.37 +351.16
8/21/18 25,822.29 +63.60 +414.76

At the Close, Tuesday, August 21, 2018:
Dow Jones Industrial Average: 25,822.29, +63.60 (+0.25%)
NASDAQ: 7,859.17, +38.17 (+0.49%)
S&P 500: 2,862.96, +5.91 (+0.21%)
NYSE Composite: 12,996.76, +31.66 (+0.24%)

Sunday, April 22, 2018

Weekend Wrap: Friday Fumble Leaves Stocks With Minor Gain For Week, Month

Hammered lower on Friday, stocks across the spectrum finished out the week holding relatively minor gains with the Dow Scoreboard showing a 350-point advance for the month.

On a percentage basis, the Dow Jones Industrial Average (^DJIA) was the weakest performer of the major indices with a gain of just 0.42%. After winning moves on Monday and Tuesday, stocks traded to the downside the final three days of the week as solid earnings failed to allay fears that the nine-year-old bull market had topped out in January and that any gains at this juncture might be wiped away in another cascade to the negative.

Ever-hopeful investors were still buyers, though volumes have diminished over the past few weeks as some seek the safety of bonds or more defensive positions in stocks.

A three-day losing streak to close out the week does not auger well heading into the final full week of trading on US markets. With February and March both ending in tears for the bulls, Monday's trading will likely set the tone for the remainder of the week and the month. If April's early strength continues to fade, the sight of three consecutive losing months for equity investors could turn the mostly orderly selling into more panicked disposal of assets.

While it would be folly to predict even one days' movement, the general direction may have already been established. With a downward tilt and the majors clinging to the 50-day moving average across the spectrum, it may be easier to call the market direction for the next three to six months. In conditions such as those present and the markets entering what are traditionally slow months, betting on sideways to lower could prove to be the prescient strategy.

After April, earnings flow will diminish from a steady stream to a trickle, with most of the important companies (banks, techs) having already reported, leaving a void and a downside bottom that will almost surely be tested within the next 30-60 days. June's FOMC meeting also looms largely, like a debt shadow overhanging already overpriced stocks. With the Fed determined to raise interest rates again, the threat of higher borrowing costs choking off the nascent growth theme is becoming more and more real.

Elsewhere, treasury bonds were on the move again, with yields on the 10-year-note approaching three percent by week's end. Also getting considerable notice is the commodity complex, led by oil, as prices for WTI crude reaching three-year highs, taking precious and base metals along for the ride to the upside. So important is the price of oil and gas that the president tweeted about it on Friday morning, putting a temporary cap on gains with his fiery comments.

As President Trump and others in the financial community know all too well, higher gas prices act as a tax on the American consumer and could do significant harm to the economy since nearly 70% of GDP is based on consumer spending. If the bulk of the money from the tax cuts recently passed go directly into gas tanks due to higher prices, there's little left to spend on other things, and that's also a real concern.

The week ahead should focus on oil and commodities. Any further upside to the price of crude oil could be seen as very damaging, though bulls in the precious metals arena are champing at the bit for an overdue breakout from the recent dismal price range.

All things considered, stocks seem somewhat imperiled by potentially better opportunities elsewhere and the continuing debate over whether the bull market has topped. The longer the Dow shies from the January 26 highs (26,616.17) the more compelling the case becomes for those calling this the beginning of a painfully episodic bear market.

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

At the Close, Friday, April 20, 2018:
Dow Jones Industrial Average, 24,462.94, -201.95 (-0.82%)
NASDAQ: 7,146.13, -91.93 (-1.27%)
S&P 500: 2,670.14, -22.99 (-0.85%)
NYSE Composite: 12,607.16, -64.32 (-0.51%)

For the Week:
Dow: +102.80 (+0.42%)
NASDAQ: +39.48 (+0.56%)
S&P 500: +13.84 (0.52%)
NYSE Composite: +61.11 (+0.49%)

Monday, April 9, 2018

It's OVER! Dow Transports Confirm Dow Theory Primary Trend Change Bull to Bear

Right off the bat, here's the theme for today's trading: Frankie Valli and the Four Seasons 1964 hit, "Dawn."

For the uninformed, today's epic pump-and-dump collapse on all the major indices was more than just "the usual." It was, simply put, a day to be marked in financial history, the day the most phony, contrived and manipulated bull market that ever existed, died an overdue death and gave birth to a bona fide bear market, something most of today's millennial day-trading demons have never experienced.

Why would the death of a bull market and the beginning of a bear market be something suitable for celebration?

Good question.

Here's an even better answer: because the bull market, which started March 9, 2009 - nine years and one month, to the day - was one built on fumes and Fed happy talk, endless fiat money printing, rounds and rounds of Quantitative Easing (QE), artificially low interest rates approaching zero (ZIRP) and corporate stock buybacks of unprecedented quantity. Almost nowhere was there a single sign of real growth; much of the gains in stocks were due to buyback manipulation as gross revenue stagnated for nearly a decade.

It was a decade of fakery, of spoofing and high frequency trading as GDP never reached three percent until nearing the end, and never actually did for a full year, including 2017, the last. Almost all of the supposed growth in the "recovery" was due to inflation, nothing else. A false sense of security was promoted by the governors and presidents of the Federal Reserve System and their regional banks and the public gobbled it up.

Meanwhile, in the real world, mark to market had been replaced by mark to fantasy, and price discovery was banished from the equity world.

According to Dow Theory - a nearly infallible projecting tool - as the Dow Transportation Index closed today below the February 9 low of 10,136.61, at 10,119.36, confirming the primary trend change, the bull market can be properly buried and a bear market born.

For anyone unfamiliar with Dow Theory, the primary trend change goes like this:
New Closing Low
Interim High, Below Previous High
New Low Below Previous Low.

This simple pattern must occur on both the Dow Jones Industrial Average and the Dow Jones Transportation Index (confirmation), and here's how it happened.

The Dow Jones Industrial Average made a new all-time high on January 26, 2018 (26,616.71).
On February 8, it closed at 23,860.46 (new low).
On February 26, it closed at 25,709.27 (interim high, lower than previous high).
On March 23, the Industrials closed at 23,533.20 (new low, lower than previous low).

For confirmation, the Dow Jones Transportation Index had made it's new high on January 12, 2018 (11,373.38).
On February 8, it closed at 10,136.61 (new low)
On February 26, it closed at 10,769.84 (interim high, lower than previous high)
On April 9, the Transportation Index closed at 10,119.36 (new low, lower than previous low = primary trend change, bull becomes bear).

Why is this good?

This is good because markets in a stable, trustworthy financial system must have a mechanism to clear mal-investment. Otherwise, stupid money must be purged from the system in order to create real value.

For instance, Facebook, Google, and many other stocks should not be trading as high as they currently are. They are overvalued, promoted by shysters and traded up by fools, one fool greater than the previous one. In other words, this is money chasing an unrealistic return. In order to get back to a realistic, fair, honest market, these stocks must lose value. Some companies will achieve their true value, which is zero. Others will lose 20, 30, maybe even more than 50%. The market will sort out the winners (there will be a few) from the losers (there will be many).

In the end, stocks will be properly valued, but when that time is to come, nobody knows. The perma-bulls out there can take heart that bear markets generally last 14-18 months, some like the one during the Great Depression which began with the stock market collapse in 1929, last much longer. How deep this one will be depends on how quickly stocks revert to an undervalued position, because the market always overshoots on the upside and the downside. There will be a bottom, when it will be wise to buy stocks. The only winning position presently is to sell stocks at a profit, park the money in bonds or money markets and wait for the bottom, which, just like the primary change from bull to bear, will be repeated - in reverse - according to Dow Theory.

For those wishing for the good old days of January 26, a return to those levels may take four to seven years, possibly longer, and, judging by the general insanity plaguing the human race presently, one should prepare for the much longer period. There are mountains of bad investments and onerous debts to be flushed from the system, since they were not flushed out in 2008-09, only papered over by TARP, QE, and ZIRP.

If you must, cry in your beer over the death of the bull. The rest of us will be having a cold one with the new-born bear.

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

At the Close, Monday, April 9, 2018:
Dow Jones Industrial Average: 23,979.10, +46.34 (+0.19%)
NASDAQ: 6,950.34, +35.23 (+0.51%)
S&P 500: 2,613.16, +8.69 (+0.33%)
NYSE Composite: 12,380.55, +31.44 (+0.25%)

Wednesday, April 4, 2018

Stocks Stage Rebound; Cat-and-Mouse Game Continues Between Bulls and Bears

Is it a bull market? Is it a bear market?

At this juncture, it's a good probability that neither the bull nor bear label is appropriate. At best, one could call the market transitional, or, at worst, confused.

The continuing tug-of-war escalated the past two days as the Dow took a 400-point ride in each direction, ending with a small, 70-point loss to kick off the second quarter.

If none of this makes sense, recall the oft-used quote:
The market can remain irrational longer than you can remain solvent.
Attributed to either legendary John Maynard Keynes or contemporary Gary Shilling, it's worth keeping in mind as markets gyrate. Here is an interesting discussion concerning the quote.

Perhaps John Pierpont Morgan said it best, when asked what the market would do:
It will fluctuate.
Dow Jones Industrial Average April Scorecard:

Date Close Gain/Loss Cum. G/L
4/2/18 23,644.19 -458.92 -458.92
4/2/18 24,033.36 +389.17 -69.75

At the Close, Tuesday, April 3, 2018:
Dow Jones Industrial Average: 24,033.36, +389.17 (+1.65%)
NASDAQ: 6,941.28, +71.16 (+1.04%)
S&P 500: 2,614.45, +32.57 (+1.26%)
NYSE Composite: 12,367.07, +150.36 (+1.23%)

Sunday, April 1, 2018

Weekly Recap: Stocks Get a Boost to End Month, But Still Finish Down for March

Call it window dressing, because that's pretty much what the final trading day of March will amount to, being that the markets have been battered and buffeted up and down - mostly down - for the past two months, gains on the Thursday prior to a three-day weekend should be considered a non-event.

As the March scorecard below shows, the big losses on the 22nd and 23rd could not be recouped, despite a bounce-back on Monday, the 26th, of nearly 670 Dow points. Combining the February and March declines, the Dow lost more than 200 points in those two months, and ends March more than 2500 points off the January 26 all-time high (26,616.71).

Of particular focus now are the declines following the most recent federal funds rate hike from Wednesday, March 21. Just after the 2:00 pm EDT announcement that day, the Dow rose to 24,977.65, making the drop post-FOMC a full 874 points, despite the bounce-back Monday (26th) and the close-out dead-cat-like bounce on Thursday, the 29th.

Also, keeping the chartists busy is the Dow Jones Transportation Index (^DJT), which nearly signaled bear market conditions on Wednesday, the 28th, three times dipping below the magic mark indicated by the February 8 close of 10,136.61 before finishing up with a slight positive bent. Thursday's 200+ point gain on the transports was more window dressing, short covering or outright central bank dip buying, giving the market some degree of confidence, even though there realistically should be little.

Anybody with an eye on the chart of the Transportation Index sold be keenly aware of the intra-day low on February 8, an awe-inspiring bottom at 9,806.79. Likewise, the intra-day low on the Industrial side was a jaw-dropping 23,360.29, on February 9.

The Industrials have already surpassed the February closing low of 23,860.46, finishing March 23 at 23,533.20. Therefore, according to Dow Theory, the only element missing from calling this market a bear - signifying a primary directional change - is for the Transportation Index to close below it's recent low to confirm.

As arcane and confusing as that may sound, the rigors of Dow Theory are almost never wrong when it comes to indicating primary changes. One only need check the stats from 2000 and 2008 (and many times before that) to see how that this signal is very accurate.

Not to say that the Dow and even more so, individual stocks, can't continue to dive to lower and lower depths, but it would be hard to see such a scenario developing without a significant slide on the Transportation Index.

Putting March in perspective, the losses here are notable, as March is traditionally a strong month for investors, with an average gain on the S&P 500 - according to this calculator - of 1.11% from 1950 to the present, outdone only by the months of April (1.34%), November (1.39%) and December (1.53%). If equities continue to show weakness through April it might come as a surprise, but, even if it doesn't, the months of May through September are traditionally the weakest, with cumulative returns of just 0.22% over that 1950-2017 span. August and September are actually negative for that time period, posting losses of 0.27% and 0.64%, respectively.

While those figures are for the S&P, they serve as something of a proxy for the Dow, so if a bear market is to eventually emerge (and these things often take some time to develop), there's a high probability that the bull could hang on until August, significant, as the first estimate of Q2 GDP would print late July.

For the week, the NASDAQ was by far the weak performer, the only index incapable of exceeding a two percent gain over the four-day period. It wasn't even close, as the NASDAQ gained only 1.01%, unsurprising, since the NASDAQ had been significantly out-performing the other indices.

All of this number-churning should come as a relief for both bulls and bears. As April unfolds, there may be an easing up in volatility, and some gains to be had, but the ominous signs of an overpriced and subsequently weakening stock market are proliferating, the general economy notwithstanding. This offers some time to adjust strategies before what seems to be an obvious downdraft coming this summer.

That may be a huge speculation, but that's what makes a market.

Dow Jones Industrial Average March Scorecard:

Date Close Gain/Loss Cum. G/L
3/1/18 24,608.98 -420.22 -420.22
3/2/18 24,538.06 -70.92 -491.14
3/5/18 24,874.76 +336.70 -154.44
3/6/18 24,884.12 +9.36 -145.08
3/7/18 24,801.36 -82.76 -227.84
3/8/18 24,895.21 +93.85 -133.99
3/9/18 25,335.74 +440.53 +306.54
3/12/18 25,178.61 -157.13 +149.41
3/13/18 25,007.03, -171.58 -22.17
3/14/18 24,758.12 -248.91 -271.08
3/15/18 24,873.66 +115.54 -155.54
3/16/18 24,946.51 +72.85 -82.69
3/19/18 24,610.91 -335.60 -418.29
3/20/18 24,727.27 +116.36 -301.93
3/21/18 24,682.31 -44.96 -346.89
3/22/18 23,957.89 -724.42 -1071.31
3/23/18 23,533.20 -424.69 -1496.00
3/26/18 24,202.60 +669.40 -826.60
3/27/18 23,857.71 -344.89 -1171.49
3/28/18 23,848.42 -9.29 -1180.78
3/29/18 24,103.11 +254.69 -926.09

At the Close, Thursday, March 29, 2018:
Dow Jones Industrial Average: 24,103.11, +254.69 (+1.07%)
NASDAQ: 7,063.44, +114.22 (+1.64%)
S&P 500: 2,640.87, +35.87 (+1.38%)
NYSE Composite: 12,452.06, +143.17 (+1.16%)

For the Week:
Dow: +569.91 (+2.42%)
NASDAQ: +70.78 (+1.01%)
S&P 500: +52.61 (+2.03%)
NYSE Composite: +274.36 (+2.25%)

Thursday, March 29, 2018

Stocks Little Changed As Dow Transports Flirt With Bear Market Confirmation

As outlined in yesterday's special note, the bull market has come perilously close to rolling over into a vicious bear market, or, in Dow Theory terminology, the primary trend is about to change.

Key to this chartist theory is the 20-component Dow Jones Transportation Index, which has been falling in price right along with the other major indices, but needs one more little push to the downside to confirm the change in primary change, that being the point at which the transportation index closes below its previous closing low of 10,136.61.

Twice, early in Wednesday's session, the transports slipped below the magic mark, and approached it again in the final hour, falling to 10,136,26, before the short-covering crowd came in to rescue the bulls and prolong the agony of waiting for what will someday be known as the "turning point."

While there are all manner of economic and geopolitical risks extant, it's impossible to know exactly what will trigger the final cascade into bear-market-land, though investors need not necessarily be concerned unless one's time horizon is relatively short. That's because, according to experts, who are uniformly almost always wrong, bear markets last, on average, about 16 months, and the time taken to recover all of the losses back to the "turning point," is roughly three years.

Regardless of one's position or opinion on finance and economy, one thing is certain: February and March have been different from the 106 previous months of this long-in-the-tooth bull market. They have been outright losers, changing the prevailing sentiment from buy the dip to sell the rip.

Collectively, the 30 stocks comprising the Dow Jones Industrial Average are nearly 2800 points from their all-time-high from January 26, and that's a wall of worry that may be too high to climb.

Trading for March concludes on Thursday, as Good Friday is a recognized holiday.

Dow Jones Industrial Average March Scorecard:

Date Close Gain/Loss Cum. G/L
3/1/18 24,608.98 -420.22 -420.22
3/2/18 24,538.06 -70.92 -491.14
3/5/18 24,874.76 +336.70 -154.44
3/6/18 24,884.12 +9.36 -145.08
3/7/18 24,801.36 -82.76 -227.84
3/8/18 24,895.21 +93.85 -133.99
3/9/18 25,335.74 +440.53 +306.54
3/12/18 25,178.61 -157.13 +149.41
3/13/18 25,007.03, -171.58 -22.17
3/14/18 24,758.12 -248.91 -271.08
3/15/18 24,873.66 +115.54 -155.54
3/16/18 24,946.51 +72.85 -82.69
3/19/18 24,610.91 -335.60 -418.29
3/20/18 24,727.27 +116.36 -301.93
3/21/18 24,682.31 -44.96 -346.89
3/22/18 23,957.89 -724.42 -1071.31
3/23/18 23,533.20 -424.69 -1496.00
3/26/18 24,202.60 +669.40 -826.60
3/27/18 23,857.71 -344.89 -1171.49
3/28/18 23,848.42 -9.29 -1180.78

At the Close, Wednesday, March 28, 2018:
Dow Jones Industrial Average: 23,848.42, -9.29 (-0.04%)
NASDAQ: 6,949.23, -59.58 (-0.85%)
S&P 500 2,605.00: -7.62 (-0.29%)
NYSE Composite: 12,308.90, +6.36 (+0.05%)

Wednesday, March 28, 2018

Warning on Dow Theory Primary Trend: Watch the Dow Jones Transportation Index

This is a special note to followers of Dow Theory.

Presently, one must pay attention to the Dow Jones Transportation Index (^DJT). It has to close below 10,136.61, the Feb. 9 close, to confirm a change in the primary trend from Bull to Bear.

The Industrials already made the move this Friday past, but, according to Dow Theory (which is like 95% accurate - or better - when it comes to signaling primary directional changes), the Transports must confirm.

If it happens today (currently around 10,190) or tomorrow, bear in mind that markets are closed Friday (commemorating the day Jesus was crucified) and Sunday, the day Jesus rose from the dead, according to the Bible.

Far from bible-thumping, chronic venial sinners should bear in mind that Jesus may have risen from the dead, but the stock market probably won't.

Anyhow, when the transports confirm, then you'll have the answer to whether or not this is/was a turning point in the stock market.

Added, 10:48 am EDT: Transports have fallen below the target close for the second time today. The first fall was all the way down to 10,112.05, shortly after the opening bell. The most current drop has apparently bottomed (for now) at 10,121.22. Current conditions warrant monitoring the Transportation Index into the close.

Tuesday, March 27, 2018

So, Now There's No Trade War?

Last week, all the financial media pundits could talk about was how President Trump was going to destroy the economy with his ill-advised tariffs, specifically targeting China, that great purveyor of cheap products that alternatively poison animals, emit toxic gasses, or break upon normal use (see Chinese nails, drill bits, concrete).

Well, over the weekend, the narrative somehow changed. Everything with China is "all good, nothing to see here, move along." And that's exactly what the slavish traders on Wall Street went about doing on Monday, sending the major indices soaring in one of the greatest one-day advances of all time.

The improvement on the NASDAQ was the ninth-largest ever. Interestingly, the eight advances bettering that number all occurred in the year 2000, except number one, which was a gain of 324.83 points in January of 2001. All of those gains were made in a bear market, after the NASDAQ dotcom bubble had burst.

On the Dow Jones Industrial Average, the 669.40 point gain was the largest since 2008, notably a period in which the economy was entering the Great Financial Crisis. Monday's advance was the third-best in market history.

The timing of news in relation to the market is becoming somewhat suspect, almost as if somebody was gaming the system. A similar move was just over a month ago, on February 6th, when the Dow gained 567.02 points a day after it fell a record 1,175.21 points (a Monday) and two days before it fell by the second-most ever, 1,032.89 (Thursday).

Putting a little more perspective on the matter, the Dow remains down 826 points in the month of March and is still 2400 points lower than the all-time high close on January 26 (26,616.71) and in the red for the year, albeit only 500 points down.

Therefore, Monday's gains should not be viewed in a vacuum. No single day should. It pays to have perspective, especially since Dow Theory confirmed a major trend reversal - from bull to bear - as of Friday's close (23,533.20), which was lower than the February 8 finish at 23,860.46.

Chasing this bull will eventually lead directly into the path of a very hungry bear.

Dow Jones Industrial Average March Scorecard:

Date Close Gain/Loss Cum. G/L
3/1/18 24,608.98 -420.22 -420.22
3/2/18 24,538.06 -70.92 -491.14
3/5/18 24,874.76 +336.70 -154.44
3/6/18 24,884.12 +9.36 -145.08
3/7/18 24,801.36 -82.76 -227.84
3/8/18 24,895.21 +93.85 -133.99
3/9/18 25,335.74 +440.53 +306.54
3/12/18 25,178.61 -157.13 +149.41
3/13/18 25,007.03, -171.58 -22.17
3/14/18 24,758.12 -248.91 -271.08
3/15/18 24,873.66 +115.54 -155.54
3/16/18 24,946.51 +72.85 -82.69
3/19/18 24,610.91 -335.60 -418.29
3/20/18 24,727.27 +116.36 -301.93
3/21/18 24,682.31 -44.96 -346.89
3/22/18 23,957.89 -724.42 -1071.31
3/23/18 23,533.20 -424.69 -1496.00
3/26/18 24,202.60 +669.40 -826.60

At the Close, Monday, March 26, 2018:
Dow Jones Industrial Average: 24,202.60, +669.40 (+2.84%)
NASDAQ: 7,220.54, +227.88 (+3.26%)
S&P 500: 2,658.55, +70.29 (+2.72%)
NYSE Composite: 12,433.15, +255.45 (+2.10%)

Tuesday, March 20, 2018

Stocks Dumped Again As FOMC Meeting Portends Higher Interest Rates

The most obvious cause for Monday's sharp selloff has to be the widely-anticipated 25 basis point hike in the federal funds rate which should become official when the FOMC concludes its March meeting on Wednesday.

Getting out in front of the Fed's move was paramount, as stocks slid in early going, gaining a little back in the afternoon. The Dow plunged nearly 500 points intra-day, bottoming out at 24,453.14 just prior to 3:00 pm EDT.

Anybody playing the market net short has to be pleased with recent results while bulls may be looking to gore any bear marketer caught on the loose.

What bears (no pun intended) watching is what happens on the actual announcement (Wednesday, 1:00 pm EDT) and thereafter. If the slide continues, the Dow will soon enter correction territory again with the next stop a full blown bear market, which would signal the end of a nine-plus-year bull run.

For now, it's safe to say that the Dow won't be seeing much in the way of positive progress unless the Fed surprises and leaves rates unchanged, a very doubtful expectation.

Dow Jones Industrial Average March Scorecard:

Date Close Gain/Loss Cum. G/L
3/1/18 24,608.98 -420.22 -420.22
3/2/18 24,538.06 -70.92 -491.14
3/5/18 24,874.76 +336.70 -154.44
3/6/18 24,884.12 +9.36 -145.08
3/7/18 24,801.36 -82.76 -227.84
3/8/18 24,895.21 +93.85 -133.99
3/9/18 25,335.74 +440.53 +306.54
3/12/18 25,178.61 -157.13 +149.41
3/13/18 25,007.03, -171.58 -22.17
3/14/18 24,758.12 -248.91 -271.08
3/15/18 24,873.66 +115.54 -155.54
3/16/18 24,946.51 +72.85 -82.69
3/19/18 24,610.91 -335.60 -418.29

At the Close, Monday, March 19, 2018:
Dow Jones Industrial Average: 24,610.91, -335.60 (-1.35%)
NASDAQ: 7,344.24, -137.74 (-1.84%)
S&P 500: 2,712.92, -39.09 (-1.42%)
NYSE Composite: 12,651.46, -132.93 (-1.04%)

Sunday, March 11, 2018

Friday's Moonshot Sends Stocks to Positive for March, Year-to-Date

After losing nearly 500 points the first two trading days of March, the Dow Jones Industrial Average rebounded to positive for the month - and the year - with gains every day excepting Wednesday, when the Dow shed another 82 points. However, the big days occurred on Monday, with a gain of 336 points, and Friday, when the Dow and other major averages put the dismal days of February and March mostly behind them, as the industrials skyrocketed 440 points.

Amazingly, all of this optimism came in spite of endless growling over President Trump's steel and aluminum tariffs and synchronized shouting - from the halls of congress and the canyons of lower Manhattan - about an impending trade war.

Friday's burst higher was credited largely to the impressive February non-farm payroll report, which was a blockbuster, showing 313,000 new jobs created and a 4.1% unemployment rate in the shortest and coldest month of the year, numbers nobody could claim as anything other than positive, the mere hint of good news now capable of sending the stock market back to dizzying, overvalued heights.

Indeed, the NASDAQ closed at an all-time high, though the other indices still have a way to go to exceed the marks set on January 26, though another week like this one, with gains of more than 2.8% on each of the individual indices, would smash the old records on the S&P 500, and get the Dow and NYSE Composite within spitting distance.

How likely that is to happen is a matter of some conjecture, as the FOMC meets March 20 and 21, and is expected to raise the federal funds rate another 25 basis points. This is seen as a headwind to continued expansion, but, with seven days to trade up to the release of the new "policy," the day-trading demons of the financial world will have plenty of time to ramp up and then deflate, choosing either to sell the news or buy into the continuing expansion narrative, even as the bull market passed the nine-year mark on Friday.

There's been no absence of volatility or fluctuation to start off 2018, with massive gains in January, huge losses in February, and possibly an evening out in March. To those who believe the bull is weary, standing on only two legs, the word is "so what," with the punditry claiming - rightly so - that bear markets only last, on average, 12-14 months. What they do not want to discuss is the depth of those bear markets, nor the time taken to get back the losses incurred.

The past two bears, in 2000-2001 and 2007-2009, are good cases in point, using the Dow as the barometer, even though, in the case of the 2000 crash, it was the NASDAQ that collapsed more than anything, which could again be the case should history repeat.

On December 1, 1999, the Dow closed at 11,497.12, and bottomed at 7,591.93 on September 1, 2002, making the duration of the bear market a full 34 months, or nearly three years. It wasn't until September of 2006 that the index surpassed the old high (11,679.07), a period of nearly seven years from peak to peak, a period which seemed like eternity for some. Of course, the bull had been underway since the bottom in '02, and finally apexed in October of '07, blowing through 14,000 before beginning to pull back. (For the record, it took the NASDAQ 13 years to exceed it's pre-crash 2000 highs.)

The ensuing collapse fell just short of catastrophic calamity, as the housing market went bust, along with its many derivative trades, taking all of corporate America down for the count, with the Dow closing at 6,547.05 on March 9, 2009, a date which could arguably be called the end of the '07-09 bear market (16 months) and the beginning of the Fed-inspired bull run to the present, now 114 months old, the second-longest expansion in market history, with gains from the bottom to the recent peak quadrupling the investment, truly an inspiring, incredible, nearly inexplicable accomplishment.

The average of the last two bear markets supplies a possible scenario. If the bear market began in February (which we humans will only know at some later date), the bear would run through March of 2020, or 25 months, the average length of the last two bear markets. It's at least worth consideration, because two years of losses might actually be enough time to clear the decks of much of the excess debt and mal-investment (and there's been lots of it) of the past nine years. Anything longer would be mostly unbearable, not only to Wall Street, but to the average Jane and Joe Americans, who have suffered enough at the start of this century. Likewise, anything shorter would look like another band-aid for the corrupt banking and political system of cronyism and back-handedness toward the taxpaying public.

The mammoth gains over the past nine years are exactly why one should give pause and contemplation to the continuance of the bull market. In market terms, one would be buying at the highs if one would plunge in today, and why would anybody who saw $100,000 turn into $400,000, or a million into four million, even consider adding to positions?

Perhaps the view that President Trump will single-handedly usher in a era of increased prosperity and profit with his blustering "Make America Great Again" push can partially explain any euphoria surrounding the currency of the stock market and it's possible that he might be on the right track, even though he faces many hurdles and obstacles, not the least of which stem from his own party, people in his own administration, opponents on the Democrat side of the aisle and skeptics on Wall Street.

But, it's been proven time and again, Wall Street will play along with Washington if it serves their interest, which is, succinctly, more profits, and higher stock prices. This pits the speculators, gamblers, and traders of the world against the entrenched government "deep state," which cannot stomach Mr. Trump and is prepared to do anything within its power to besmirch and/or impeach him, including sending the stock market into a tailspin, making fundamental analysis of stocks, bonds, and just about any other investment vehicle, not only an exercise in economics, but in politics, as well.

Economic data has shown a mixed, slightly positive picture; politicians are hell=bent on discrediting the president, and, behind it all, an ocean of debt created by the Fed and their cohort central banks needs to be unwound, brought under control, and eventually retired, an exercise only the Fed has recently begun, with the ECB and Bank of Japan too to follow. The wild card is China, where the PBOC has created literal cities built on nothing but debt and speculation.

All that makes for one tricky trade.

Dow Jones Industrial Average March Scorecard:

Date Close Gain/Loss Cum. G/L
3/1/18 24,608.98 -420.22 -420.22
3/2/18 24,538.06 -70.92 -491.14
3/5/18 24,874.76 +336.70 -154.44
3/6/18 24,884.12 +9.36 -145.08
3/7/18 24,801.36 -82.76 -227.84
3/8/18 24,895.21 +93.85 -133.99
3/9/18 25,335.74 +440.53 +306.54

At the Close, Friday, March 9, 2018:
Dow Jones Industrial Average: 25,335.74, +440.53 (+1.77%)
NASDAQ: 7,560.81, +132.86 (+1.79%)
S&P 500: 2,786.57, +47.60 (+1.74%)
NYSE Composite: 12,918.82, +173.81 (+1.36%)

For the Week:
Dow Jones Industrial Average: +797.68 (+3.25%)
NASDAQ: +302.94 (+4.17%)
S&P 500: +95.32 (+3.54%)
NYSE Composite: +360.83 (+2.87%)

Friday, February 23, 2018

Rally Fails As Bear Market Chart Patterns Emerge

One of the clearest chart indicators of bear markets is the "higher open, lower close" condition, which has been showing up in the daily charts on a regular basis of late.

Thursday was another in a steady stream of such charts, with the Dow higher by nearly 360 points by midday, only to lose more than half of the gains by the closing bell.

Another pattern - more often indicating broken or tired markets - is split decisions, wherein the major averages diverge as discretion becomes more prevalent. The NASDAQ, which extended its losing streak to four days on Thursday, ended the session in the red while the other indices were up.

These recurring patterns are worth noting at this juncture, though not entirely indicative of overall market direction. In general, however, the decline which began at the beginning of February has not been surmounted and continues to hold stocks below recent highs, a condition which will resolve itself at some point in the near term.

Timing markets such as this one would be a heady task, and probably result in more pain than necessary. It is likely that investors are already taking positions and executing them prior to any definitive directional signal, making the case that bearishness may already hold a winning position over the long-standing bull market proponents.

Time will tell.

Dow Jones Industrial Average February Scorecard:

Date Close Gain/Loss Cum. G/L
2/1/18 26,186.71 +37.32 +37.32
2/2/18 25,520.96 -665.75 -628.43
2/5/18 24,345.75 -1,175.21 -1,803.64
2/6/18 24,912.77 +567.02 -1,236.62
2/7/18 24,893.35 -19.42 -1,256.04
2/8/18 23,860.46 -1,032.89 -2288.93
2/9/18 24,190.90 +330.44 -1958.49
2/12/18 24,601.27 +410.37 -1548.12
2/13/18 24,640.45 +39.18 -1508.94
2/14/18 24,893.49 +253.04 -1255.90
2/15/18 25,200.37 +306.88 -949.02
2/16/18 25,219.38 +19.01 -930.01
2/20/18 24,964.75 -254.63 -1184.64
2/21/18 24,797.78 -166.97 -1351.61
2/22/18 24,962.48 +164.70 -1186.91

At the Close, Thursday, February 22, 2018:
Dow Jones Industrial Average: 24,962.48, +164.70 (+0.66%)
NASDAQ: 7,210.09, -8.14 (-0.11%)
S&P 500: 2,703.96, +2.63 (+0.10%)
NYSE Composite: 12,711.75, +16.22 (+0.13%)

Saturday, September 2, 2017

Was September 1st a Market Reality Check? Gold Hits One-Year High

On Friday, after it was announced that August non-farm payrolls had increased by a less-than-expected 156,000, stock futures ramped higher heading into the opening bell on Wall Street.

Stocks did indeed gain, on the twisted hope that a soft labor market would chill Fed ambitions to raise interest rates and/or begin to wind down their massive, $4 trillion balance sheet when the FOMC meets September 12 and 13.

Those were the thoughts of traders in the morning, but, when the NASDAQ fell briefly into the red mid-morning, sentiment seemed to take on a more sober tone, as the reality of a stuttering recovery over the past eight years - fueled primarily by massive infusions of freshly-created cash by central banks and historically-low interest rates - might actually be - rather than good news - bad news.

All of the major indices finished with gains, but they were hardly of the kind that one could take comfort in as the long Labor Day weekend commenced.

Rather, the afternoon session was mild, largely belonging to fixed assets, as precious metals traded briskly. Gold went into the weekend trading at a one-year high, $1320.40 the ounce, silver, while it didn't make any historic high marks, gains 16 cents, ending at $17.50, a mid-point range advantageous to speculation on both sides of the trade.

The 10-year note firmed up at a 2.15% yield and crude oil, in the aftermath of hurricane Harvey, regained its footing, trading higher in the afternoon to $47.35 per barrel.

Was this a wake-up call for equity traders and general market participants?

Doubtful. But, it is somewhat instructive to take into account that the second-longest bull market in history has been built on promises, fallacies, distortions, and the conjuring of more than $14 trillion worldwide.

Bull markets all end. And this one, 101 months old, is more likely to end sooner than later.

At the Close, 9/1/17:
Dow: 21,987.56, +39.46 (+0.18%)
NASDAQ: 6,435.33, +6.67 (+0.10%)
S&P 500: 2,476.55, +4.90 (+0.20%)
NYSE Composite: 11,918.08, +42.39 (+0.36%)

For the Week:
Dow: +173.89 (+0.80%)
NASDAQ: +169.69 (+2.71%)
S&P 500: +35.50 (+1.37%)
NYSE Composite: +106.05 (+0.90%)

Tuesday, December 20, 2016

As 2016 Winds Down With Stocks Up, What's In Store For 2017?

Recently, Americans and observes worldwide have been subjected to overreaction by lawmakers and media types over the "Russian hacking" of the recently-resolved US presidential elections and the possibility that certain electors in the electoral collage would bolt from the Trump camp in enough numbers to deny Donald Trump the needed 270 votes to certify him as America's 45th president.

As of 4:30 pm ET Monday, the electoral college did its job, giving Trump 306 votes, confirming his November victory and assuring the American public that all politics would proceed normally (we believe) for the foreseeable future.

Additionally, the over-hyped media and intelligence frenzy was revealed to have been yet another case of sour grapes and/or fake news fomented by the losers in the Democrat party and what appears to be rogue elements of the intelligence community. The good news is that Mr. Trump, once inaugurated on January 20, will be able to remove such rogue elements via his appointees to the CIA, FBI and other agencies. The bad news is that the sore loser Democrats and their media whores will remain, and they will likely continue to harass and object every effort Trump makes to "make America great again."

While almost nobody can reasonably oppose efforts to improve conditions for Americans, the Democrats will couch their objections in the most mealy-mouthed manners, with references to diversity, unfairness and vague commentaries on power and elitism.

Fortunately, the investor class has ignored most of the political squabbling and has moved on to increasing its wealth, with stocks up tremendously since election day. The bond markets have expressed acceptance of the Fed's minuscule rate hike of last week and have stabilized. Everything seems in place for a nice, year-end Santa Claus rally which will take the Dow Jones Industrial Average over the mythical 20,000 plateau.

The question to be asked at this juncture is, will the markets remain ebullient and bubbly into the New Year? With stocks hovering at or near all-time highs, and the bull run which began in 2009 extending into a ninth year, the answer should be obvious. Markets do not work one way (up) and corrections and bear markets often occur at what seems to be the most inopportune moments. With investor sentiment bullish to the extreme, the probability of a major correction in the first quarter of 2017 should be quite high, unless one adheres to the well-founded theory that the Fed has backstopped equity markets for years and will continue to do so. Doing otherwise, so the conventional wisdom tells, would be catastrophic, as though fair and open markets are inherently evil.

They are not, and it may be nigh on the eve of major changes in fiscal and monetary policy. On the fiscal side, Mr. Trump - a businessman with many years experience in all matters financial - the message is clear: he will do what it takes to get America on a path to prosperity for all levels of income, not just the crony capitalists and heavily financialized major corporations, but for individuals up and down the income ladder.

As for the Fed, one's guess is as good as another, but the genii inside the Fed seem intent on raising interest rates gradually in order to keep the US economy from overheating. As usual, they will be late to the party, but perhaps they can salve their damaged egos by reducing their bloated balance sheet in 2017 and leaving the number of interest rate hikes below three, ending the year around one percent, which, while traditionally absurdly low, would count as a major accomplishment since the Great Financial Crisis of the recent past.

Geopolitical events may overtake the Fed's view, however, as Japan and the Eurozone are well upon the road to financial ruin, and a crisis in either market (plus China) may cause extreme disruption to an orderly return to what is commonly referred to as "normalization."

A new administration hell-bent on returning America to greatness and leveling the playing field in international trade set against a backdrop of unelected financial and political operatives worldwide should make for an interesting, exciting, volatile year ahead.

As 2016 winds down, 2017 should present unique and various opportunities in all markets, requiring astute evaluation of not just balance sheets and P/E ratios, but insight into the political influence which has been and will continue to be exerted upon trade and commerce, globally.

At the Close: 12/19/2016
Dow: 19,883.06, +39.65 (0.20%)
NASDAQ: 5,457.44, +20.28 (0.37%)
S&P 500: 2,262.53, +4.46 (0.20%)
NYSE Composite: 11,128.54, +3.32 (0.03%)

Friday, March 11, 2016

It's a Bear! It's a Bull! No, It's a Blur Market

Money Daily has sought to explain the crooked, maligned markets since 2006, without success, though today, at last, a breakthrough may be at hand.

At last, a definition with which everybody can agree.

After yesterday's quad-engulfing candlestick on the Dow Jones Industrial Average (DJIA), which would surely, under normal circumstances (whatever qualifies as normal since 2008, nobody is sure) qualify as a key reversal day, markets would have none of it, unless one is to be persuaded to believe that the reverse of a constant grind higher is a quick slam higher.

Up is down, Down is up. Slavery is liberty and all that 1984-ish doublespeak. (h/t to George Orwell)

Are we in a bear market? Hardly. A bull market? Doubtful.

Thus, we inaugurate the Blur Market, wherein all fundamentals are obfuscated by statistics, corrupt data from the BLS, manic pumping from the PPT, the machinations of the ESF (Exchange Stabilization Fund), jawboning from the likes of Mario Draghi, Shinzo Abe, Janet Yellen, Stanley Fisher or James Bullard.

It's a market driven by algorithms, unseen by human eyes, throttled up and down by unseen scientists in hidden caverns. The blur market is so fast, microseconds are not quick enough to front-run it. High Frequency Traders (HFTs) fight for nanoseconds of advantage. Didot typefaces print prices in a dadaist diaspora.

There's only one number that matters: 2,130.82

That was the all-time high close on the S&P 500, May 21, 2015. We are just about two months away from that being a year ago, so, are we headed to another all-time high or not?

If we are, the bull market lives on. If not, a bear market is in the cards.

For now, we're in a 'tween market. Not bear, nor bull, but something in between, a 'tween, or a beull or a bulear. Something like that. Maybe we could just call it a blur market, which works on a number of levels.

So, let us. It's all a BLUR.

Friday's massive rise capped the fourth straight week of gains on the major indices. For the Dow, up 7.5% in just the past 20 sessions, Friday's gains put the rally at a solid 1200 points. For the week, the DJIA was up 206.54 (1.21%); the S&P added 22.20 (1.11%); and the NASDAQ posted a gain of 31.44 (0.67%). Friday made certain that the rally did not end, at least on a weekly basis.

While impressive, this looks like nothing more than a cynical cyclical rally, with nothing but hot air and central bank jawboning behind it.

The Friday Blur:
S&P 500: 2,022.19, +32.62 (1.64%)
Dow: 17,213.31, +218.18 (1.28%)
NASDAQ: 4,748.47, +86.31 (1.85%)

Crude Oil 38.51 +1.77% Gold 1,259.50 -1.04% EUR/USD 1.1152 -0.23% 10-Yr Bond 1.9770 +2.49% Corn 364.50 +0.48% Copper 2.24 +1.06% Silver 15.62 +0.49% Natural Gas 1.83 +2.18% Russell 2000 1,086.77 +2.14% VIX 16.55 -8.31% BATS 1000 20,677.17 0.00% GBP/USD 1.4383 +0.66% USD/JPY 113.78 +0.56%

Wednesday, September 9, 2009

Fed Slows Rally; Re-Examining Dow Theory

Those of us over 30 years of age remember the stock market before the advent of internet trading. If you're over 40, you can recall what the stock market was like prior to CNBC. If you're over 50, like me (disclosure: I turn 56 in December, God willing), you can recall much of what the market was like in the 1960s and 1970s, when investing was done mostly by a well-heeled, upper crusty wealthy class of people.

First there were mutual funds, which brought the average Jane and Joe into the stock trading mix, followed about a decade later by IRAs and 401k retirement plans which got more people into the game, circa 1974. Now, as they like to say in poker rooms, we're "all in" the stock market, thus the 24-hour coverage, unlimited internet access to trading, insight, chat rooms, etc., and the requisite madness that ensues when large funds jump in or out of positions.

With everyone (well, 60-70% of the adult population) now focused daily on what the stock market does, the indices have become less predictive and more reactionary. Witness today's release at 2:00 pm of the Fed's Beige Book, which outlines the economic landscape in the twelve districts of the Federal Reserve Bank. All the indices were sporting healthy gains (the Dow was up more than 60 points) when the data was released, but by 2:20 most of those had evaporated into thin air. After 3:00, however, investors saw more optimism than at first blush and moved the averages higher for the 4th straight session with the 9500 level on the Dow serving as support.

The Fed governors were not very enthusiastic in their assessment of the economic situation as of the end of August, but it was a rather measured account, with many of the regions showing increased activity in manufacturing and some stabilizing of prices in residential real estate. Consumer sales, however, were slow, and commercial real estate continues to slump. Overall, it was a pretty bland, mixed report, with little news and investors took it in stride.

Today's actions gets us back to our core argument: that the markets have become more reactionary rather than predictive. Little jolts of news bites over CNBC rattle traders in one direction or the other, with little to do with fundamentals. It's almost as though a third-grade mentality has permeated the caverns of commerce.

Nonetheless, the markets droned on today, stopping short of the Dow 2009 high (9580), which brings into play another burning question: are we in a new bull market or is this a bear market rally?

A few weeks back, I looked over the data from the past two years and determined that stocks may have to move higher - especially the Dow Jones Transports - to declare a new bull, but after closer inspection, I am going to make the call that we are already in a new bull market. Now, if I am wrong, recall that Richard Russell, the publisher of the "Dow Theory Letters" and a man for whom I have tremendous respect and admiration, actually made a bad call in 2007, declaring that we were not entering a bear market. It took a year, but the evidence was more than convincing that Russell was wrong. So, should my call prove to be off, be reminded that even the most astute and brightest people sometimes err.

To save everyone from the boring details of my analysis, here are the facts:

9034.69 was the recovery high for the Down Jones Industrials on January 2, 2009. 3717.26 was the January 2nd, 2009 recovery high for the Dow Jones Transports. Both of these numbers came after the second wave of the bear market, the most tumultuous part, from September to November, 2008. The initial phase was from October 2008 to September 2009, and the final leg was from November, 2008 to March, 2009. Anyone still thinking a double-dip downturn is in our immediate future better pay more attention to details. The third leg of the bear ended March 9. Today is the 6-month anniversary of that turning point. The Dow Jones Industrials entered bull market territory on July 23, when it closed at 9069.29. The Transportation Average confirmed when it finished business at 3749.58 on August 7. So, we've been in a confirmed bull market for more than a month already. My apologies for getting it right so late, but at least I now have it on the money.

Dow 9,547.22, +49.88 (0.53%)
Nasdaq 2,060.39, +22.62 (1.11%)
S&P 500 1,033.37, +7.98 (0.78%)
NYSE Composite 6,772.40, +46.33 (0.69%)

Our simple indicators are now screaming BUY. Advancers beat back decliners, 4556-1863, and new highs bested new lows, 316-62, the largest margin in two years. Volume turned up strongly after the Beige Book release, though most of it was on the NASDAQ. Much of that sell-off was likely repositioning, and traders got right back in later in the session, albeit in different stocks, shifting mostly from energy and consumer discretionary into materials, industrials and financials, though all twelve sectors showed gains.

NYSE Volume 1,329,853,000
Nasdaq Volume 2,524,738,000

Commodities took the worst of it as crude oil gave back larger gains to finish at $71.31, up a mere 21 cents. The level between $68 and $75 has maintained for weeks now, and that may be regarded as a benchmark pricing point. There is still simply too much slack demand for any further price appreciation in oil. Natural gas is also stuck below $3.00 and should remain there for at least another 6 months. There's nothing better than cheap fuel to hasten a recovery and prices should remain muted. So too with gold, which lost $2.70, to finish at $997.10, and silver, off 4 cents, to $16.47.

Those new high-new low figures are simply stunning. One should expect a major breakout any day with a quick run to Dow 10,000 by no later than October 10. All of the elements are lining up for a solid recovery. Dow Theory has confirmed, simple indicators have confirmed. What else need I say?

Tuesday, February 13, 2007

Alcoa Rumors Propels Dow 102 Higher

There are days that bring one to wonder where investors get their ideas and then there are days like this.

Amid speculation that a pair of Australian mining companies - BHP Billiton Ltd. and Rio Tinto PLC - each plan to offer as much as $40 billion to purchase American aluminum giant Alcoa (AA), the Dow Jones Industrials leapt out of the gate at the opening bell and never looked back.

The story, attributed to the London Times, citing unnamed sources, set the Dow ablaze in New York.

By the end of the day (after the market closed), the Washington Post was reporting that "few analysts believed the U.S. aluminum giant was about to be gobbled up."

My theory: These kinds of things are dreamt up and ginned up by sharpies inside the brokerages to make a quick killing in an overnight options trade and have little, if any, basis in reality. They're especially attractive during slow news periods.

Alcoa closed just a shade under 33 on Monday, but opened above 35 on Tuesday, peaking at 36.05 within the first hour of trading. It ended at the day at 35. February options expire on Friday.

While there's nothing ostensibly illegal about planting a story (though it's a thin line), it does create an uneven playing field for those in the know. Getting Alcoa to move 2 points on the open is no mean feat. The stock has ranged between 23 and 38 for nearly the past 4 years. It's not one of the more volatile stocks in the game. In fact, it's rather a dull trading vehicle.

The moral of this particular story is that market manipulation comes in all shapes and sizes. And, while no one is immune, a fraud can usually be spotted relatively easily.

If traders are this desperate to make a buck, we could be witness to the final snorts of this 52-month long bull market. Only the most hopeful would count on a continuation of this surge through the rest of the week.

Others will view today with a healthy dose of skepticism.

The Dow gained 102.30, the S&P added 10.89, but the Nasdaq lagged, gaining only 9.50, roughly half the gain, in percentage terms, of the other indices.

Oil changed course on Tuesday, gaining $1.25 to close at $59.06 though the price is largely being held aloft by continuing cold weather in the US Northeast. With Spring's warming just around the corner, and oil prices failing to overtop $60, the good news for drivers and homeowners is due shortly.