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Meanwhile, in the real world, mark to market had been replaced by mark to fantasy, and price discovery was banished from the equity world.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

Seven Years Out, The Great Recovery Is Over As Eric Andrews Is Awarded $55 Million She'll Never See

Flash back to March 6, 2009 and what does one find?

The S&P 500 was trading at 666.79, which would eventually become known as "the bottom," the intraday low for stocks after the great crash which began in earnest in October of 2008.

As late as September 19, 2008, the S&P had traded as well the mid 1200s, closing, on that date, at 1255.08. Nearing the end of October, the same index was in the 800s (October 27: 848.92), nearly a 33% haircut in just over a month.

Gains that had taken years to produce were dissipated in less than 30 trading sessions. That was only a sideshow. The slide that began in 2007, started from a high point of 1565.15 (the close on October 9, 2007) had taken a full year to gut the S&P, cutting the valuation nearly in half. The rest of the damage would be done in the fall and winter of 2008-09, for a total rout of 57.4%, wiping out the savings of millions of Americans and foreign investors.

Most people aren't aware of the extraordinary measures taken by the Federal Reserve and other central banks around the world to stop the plunge, but perhaps the most instructive - and eventually damaging - measure was taken by the FASB (Federal Accounting Standards Board) on April 2nd, 2009, to suspend rule 157, relieving financial institutions - primarily the too-big-to-fail banks - of the rigors of mark-to-market accounting. The banks would no longer have to value assets at any perceived market value, but at any value they deemed "reasonable" or otherwise flattering to their balance sheets.

At the time, the banks were saddled with billions of dollars worth of nearly-worthless mortgages, which they themselves had originated, or bought, in the bubbly real estate market of the early-to-mid 2000s. The entire bubble they created had burst, assets were impaired, homeowners were walking away from commitments they should never have made on houses they normally could never had qualified to buy.

Eventually, the Fed came in and rescued the banks further, buying up all the toxic paper in various rounds of QE, the last one ending in 2014. By then the markets had recovered, stocks had soared to new, unimaginable heights, and the global economy was pronounced "saved."

But, the FASB has never reinstated rule 157, meaning, in simple terms, that bank assets are still, to this day, based on fictional valuations.

To get an idea just how far down the rabbit hole price discovery has gone, just contemplate for a moment that Erin Andrews has been awarded a judgment of $55 million for being peeped upon in a hotel and having a video of her distributed online. Some models have posed au natural for significantly less.

Seriously, is anybody's body, or their pride, worth $55 million? The hotel she is suing isn't even worth anything close to that amount of money, so, in effect, this jury basically awarded the victim the entire assets of the hotel, and more.

Andrews will never see that money, however. Nobody has all of it. She will get some, her lawyers will get a third or more, of whatever she can recover, but, in essence, Erin Andrews is now a hotel owner.

Yes, she was wronged, but the point is that price discovery was done away with in 2009 with the suspension of rule 157, and nobody can place accurate valuations on anything.

Is gold worth $1200 an ounce, or $600, or $30,000. Is your car worth $35,000? Who knows? It's all relative now.

And relativity, in the sciences at least, is still theoretical.

So is existence. And we're back to where we began. Whoever can set the prices, dictates the terms. For now, the markets - as rigged and manipulated as they are - sets the prices. That's not going to last.

Good night.

S&P 500: 2,001.76, +1.77 (0.09%)
Dow: 17,073.95, +67.18 (0.40%)
NASDAQ: 4,708.25, -8.77 (0.19%)

Crude Oil 37.87 +5.43% Gold 1,268.40 -0.18% EUR/USD 1.1014 -0.0018% 10-Yr Bond 1.9020 +1.01% Corn 359.50 +0.35% Copper 2.28 +0.24% Silver 15.67 -0.15% Natural Gas 1.69 +1.56% Russell 2000 1,094.15 +1.13% VIX 17.35 +2.91% BATS 1000 20,677.17 0.00% GBP/USD 1.4257 -0.04% USD/JPY 113.4160 +0.03%

Mark-to-Market Mark Up

Stocks made it three in a row for the Bulls, with impressive gains on all major indices, thanks to some benign economic data, a downgrade of GE's credit rating (already priced in) and a promise from the Federal Accounting Standards Board (FASB) to review and revise mark-to-market rules within three weeks.

Largely ignored was the rampaging unemployment ravaging US businesses, which saw another 654,000 new unemployment claims and a record of 5.3 million now receiving benefits.

Retail sales for February were down just 0.1%, which was less than expected. January retail sales were revised higher, to a 1.8% gain, from the previous read of +1.0%. Business inventories continue to decline as companies shed excesses, down 1.1% in January, a figure likely to be revised lower next month.

General Electric's (GE) credit rating was dropped by Standard & Poors to AA from AAA, though that piece of news was widely expected and already priced into the stock price. GE was one of the best gainers of the day for Dow stocks, up 1.08, to 9.57, a gain of more than 112%. Overall, 28 of 30 Dow components priced higher on the day. The only losses were in Boeing (BA) and Microsoft (MSFT).

A panel of representatives in the House urged the FASB to issue new guidance on mark-to market accounting for financial institutions. The rule is largely regarded as undervaluing bank assets such as mortgage-backed-securities, which have contributed greatly to the economic malaise of the past six months.

Two major resistance points were exceeded by today's upswing: the Dow crossed over the 7000 mark and - perhaps more importantly - the S&P passed 730. As a bonus, the NASDAQ flew by 1400 for the first time in two weeks.

The day's gains - indeed, the gains from Tuesday and Wednesday also - were aided by furious short-covering as investors scramble out of positions predicated on stocks falling rather than rising. All of these elements contributed to an unstoppable rally that sent stocks of all stripes soaring.

Dow 7,170.06, +239.66 (3.46%)
NASDAQ 1,426.10, +54.46 (3.97%)
S&P 500 750.74, +29.38 (4.07%)
NYSE Composite 4,684.99, +179.61 (3.99%

Market internals affirmed the upside move. Gainers beat losers by a huge margin of moer than 5-1, 5550-1015. New highs vs. new lows remained muted, with the lows ahead 220-16. Volume was very strong again as investors made sure not to miss out on the opportunity for short-term gains.

NYSE Volume 1,804,937,000
NASDAQ Volume 2,456,664,000

Commodities participated in the rally as well, especially oil, which gained $4.70, to $47.03. Gold was up $13.10, to $923.80. Silver added 14 cents to $12.94. Most other commodities were higher, including food stocks which continued to gain.

Of the companies showing the best gains were Bank of America (BAC), the big winner on the day, up 0.92, to 5.85, an 18% rise. JP Morgan Chase (JPM) also was up sharply, gaining 2.80, to 23.20. Both Jamie Daimon and Ken Lewis, CEOs of JPM and BofA, respectively, issued memos that their businesses were profitable during January and February. This seemed to be an orchestrated round of PR by the banks, fast on the heels of Vikram Pandit's assertion that Citigroup (C) was making money in the first two months of 2009. Health care and pharmaceuticals were also higher. Pfizer (PFE) and Merck (MRK) both posted gains of more than 9.5%.

The market has responded to its formerly-oversold condition with considerable aplomb. The news flow, especially the interventionary advice offered by the congressional panel on accounting rules, has been decidedly favorable this week and there aren't any caution signs on the road ahead. As previously stated, this bounce could turn into an outright boom, though how long it will last is surely an unknown.

The best bet is to jump in and use tight stops on the downside in the event Wall Street wakes up from this daydream. No true bottom has been put in at this juncture and the market is near overbought conditions. In just three days, the Dow has risen an astonishing 623 points. These sharp moves are always features confined to bear markets and are not at all unusual. Knowing when to get out of the way of the bears is the key to keeping any profits. The swings can be gut-wrenching.