As mentioned yesterday, sharp one-day gains (Dow was up 428 points on Tuesday) should be discounted, since a clear sign of a bear market was issued by the Dow Transportation Index on Monday.
That should be the overriding theme with any and all sharp moves higher (+1.00% or more), or, in more pedestrian terms, we've moved from Buy The Dip to Sell The Rip because there is little confidence amongst traders at this juncture.
Since this is also the heart of earnings season, expect some individual stocks to outperform and those with influence may help carry the market higher. Consensus is for very strong first quarter earnings reports and there is little reason to believe that they won't be good, though probably not as good as many are hoping.
From today's activity, it's clear that there is no follow-though on commitments by traders as the major indices were uniformly in the red today. The Dow Industrials are now clinging to a mere 76-point gain for the month, barely out of correction territory, following a first quarter that was a loser. Prospects for a second quarter rebound in the stock market appear to be increasingly slim and built on false hope from an equally false narrative.
It's also quite evident that the Federal Reserve System presidents and FOMC governors are either blind, stupid, or deceitful, because in the minutes from the March meeting - released today - they were unanimous in their opinion that the economy was improving and that inflation was growing when the actual condition only mildly supports either viewpoint. Outside the rose-colored offices of the Eccles Building it's easy to see a squeezed middle class, cities that are beginning to look more like third-world sh--holes, complete with tent encampments, than the modern, urban paradise the Fed imagines.
Additionally, with individuals and families tapped out and heavily in debt, price pressure is almost nowhere to be found, except at the gas pump and the local, state, and federal tax offices.
The economy is made of mostly smoke and mirrors, built on mountains of debt.
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
At the Close, Wednesday, April 11, 2018:
Dow Jones Industrial Average: 24,189.45, -218.55 (-0.90%)
NASDAQ: 7,069.03, -25.27 (-0.36%)
S&P 500: 2,642.19, -14.68 (-0.55%)
NYSE Composite: 12,514.62, -51.35 (-0.41%)
Less than 24 hours after making the bold proclamation that the bull market was over, Wall Street traders seem to disagree, sending the Dow Industrials up nearly 400 points at the open, with the Transportation Index cruising 130 points to the upside when the bell rang to start trading.
Days like this are precisely why investing is a longer-term proposition. Markets can turn on a dime, on a word from some prominent investor (see: Warren Buffett), a Fed President, a presidential tweet or even something more innocuous, like the trade balance (a new record, ignored), or jobs data (a bad miss on Friday, not ignored).
It's imperative to maintain perspective and not question what your own eyes told you a day ago, a week ago a month ago. In fact, for the Dow Theory components to finally trigger a sell signal took nearly three months from start to finish, all that time merely suggesting something ominous, before finally saying, "yes, here it is."
Tuesday's massive bounce contained no earth-shattering qualities in and of itself. The way the markets have been performing of late, one could hypothesize an equally violent downturn on Wednesday, Thursday, or Friday, though it appears the bulls are discounting the Dow Theory as a false flag for now. One wonders what the perma-bulls will be eating come June - steak tartar or boiled crow?
Instead of taking a short-term approach and admitting one was/is wrong, it's likely a better plan to look back at the charts and see exactly where the Dow Jones Industrial Average has to go before making a judgement on the efficaciousness of Dow Theory. I's a simple number: 26,616.71, the high from January 26, and the Transportation Index would have to close above 11,373.38, the all-time high from January 12.
Those numbers are far away, so the test will come over the coming weeks of earnings releases, when Wall Street and the financial news-speakers on CNBC, Bloomberg, and Fox Financial Network will be falling over each other to proclaim the greatness of the latest "beat." Bear in mind that all of these funny numbers coming out over the next three weeks, especially the EPS (earnings per share) figures, have all been manipulated by stock buybacks, diluting the number of shares outstanding, and in many cases, by lowered expectations by analysts. The true comparisons can be found from year-ago EPS (i.e., growth) and gross revenue numbers.
So, despite the snorting of the bull for a day, reserving judgement on a dead-cat, one-day wonder of a rally may be not only prudent, but prescient.
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
At the Close, Tuesday, April 10, 2018:
Dow Jones Industrial Average: 24,407.86, +428.76 (+1.79%)
NASDAQ: 7,094.30, +143.96 (+2.07%)
S&P 500: 2,656.85, +43.69 (+1.67%)
NYSE Composite: 12,575.63, +195.08 (+1.58%)
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%)
This edition of the weekend wrap begins with a comment to an article on ZeroHedge
One need not read the article in question, only question the conclusion.
markets have started pricing in a Fed policy mistake, or
markets have started pricing in end-of-cycle dynamics.
BOTH, FTW, or, I'll take policy mistake and end-of-cycle dynamics for $1000, Alex.
This article ignores the obvious.
The policy mistake was the March rate hike. It was either too soon, or completely mis-timed. One can assert, dependent upon where one is positioned, that any and all of the Fed's policies are mistakes, but that may be significantly overstating the case.
End-of-cycle dynamics? Give us all a break. The bull market began on March 9, 2009. It's now been nine years and one month, or 119 months, whichever you prefer. Nothing lasts forever, especially bull and/or bear markets.
The Dow Transportation Index (^DJT) is all one has to watch, since the Industrials have already broken below the Feb. 8 closing low.
According to Dow Theory - which, in matters of primary trends, has a track record approaching 100% - the transports need to confirm, and that number is 10,136.61 (yes, you should have that number memorized).
Where did the transportation Index close on Friday? 10,146.37. 10 points is all there is separating this market from turning bull to bear.
After Friday's mini-crash, stocks ended the week with a significant loss from where it started the week, the month, and the quarter, predictably, the NASDAQ being the worst performer.
Forget articles, commentary, and mainstream analysis. It's all noise. The Fed has made one policy error after another (keeping rates too low, too long, and, trying to raise rates in a weakened economy) and the bull market is ending. The close on the transports below 10,136.61 will tell you exactly when the market has turned, but it's not quite there yet. It could make the move on Monday, the 9th of April, but keen minds are looking at late may or June for the turn. Either way, the bull will be dead.
While there may be a bounce in the aftermath, it will not last and there is a good likelihood of a corollary recession 6-12 months beyond the turn.
That's all one needs to know.
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
At the Close, Friday, April 6, 2018:
Dow Jones Industrial Average: 23,932.76, -572.46 (-2.34%)
NASDAQ: 6,915.11, -161.44 (-2.28%)
S&P 500: 2,604.47, -58.37 (-2.19%)
NYSE Composite: 12,349.11, -222.83 (-1.77%)
For the Week:
Dow: -170.35 (-0.71%)
NASDAQ: -148.33 (-2.10%)
S&P 500: -36.40 (-1.38%)
NYSE Composite: -102.95 (-0.83%)
Stocks gained again on Thursday as fears of a widespread trade war between the United States and China eased a bit, though the rhetoric has become thicker and more belligerent as the saga unfolds.
The escalation of tariff-building between the world's two largest economies appears to be evolving into a major spat, keeping traders on Wall Street jumping, though not out of windows, yet.
Whatever is going down, it's going to continue and no amount of speculation is going to ease the volatility in stocks.
Traders' fears will not be assuaged on Friday morning by the non-farm payroll report for March, which showed job gains of only 103,000, far below estimates of 185,000.
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
At the Close, Thursday, April 5, 2018:
Dow Jones Industrial Average: 24,505.22, +240.92 (+0.99%)
NASDAQ: 7,076.55, +34.44 (+0.49%)
S&P 500: 2,662.84, +18.15 (+0.69%)
NYSE Composite: 12,571.94, +105.49 (+0.85%)
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