Dow Rally Fades, NASDAQ Drops From New Highs; Bonds Rally Sharply

As the first full week of June trudged forward, stocks ripped higher in the New York morning before hitting afternoon speed bumps that saw the Dow fade from the day's highs and the NASDAQ retreat from Wednesday's new all-time highs.

Late in the day, treasury yields were hammered lower. The 10-year note was bid dramatically, the yield falling from the 3.00% level to 2.89% on heavy demand.

Markets were generally orderly except for the flash-crash action in the treasury market. While the 10-year was being bid, so was the 30-year bond, as the spread between the two longest-dated securities fell to 16-18 basis points, the obvious elephant in the room fear of an inverted curve.

The treasury curve has been flat and flattening for over a year, ever since the Federal Reserve announced plans to sell assets on their bloated balance sheet while also raising rates via the federal funds rate.

If anything is clear from recent market action it is that high levels of volatility are evident in everything from oil prices to stocks to bonds.

As far as the Dow is concerned, the past five sessions have seen the index ramp higher by 825 points, the only pause a 13-point decline on Tuesday. For chartists, the industrial index was approaching the higher end of its recent Bollinger band range and also nearing critical Fibonacci levels.

Astute market observers are likely unsurprised by recent activity, noting that the June meeting of the FOMC - at which a new, higher federal funds rate is likely to be announced - is just days away. Market veterans are trimming exposure and limiting risk, shifting their positions from stocks to bonds. The Fed's action in the coming week will culminate on Wednesday when the policy decision will be announced to the general public.

The Fed has been adamant in its position to raise rates, though it is still unclear whether they will hike three or four times this year. One rate increase is already in the books, and June's increase has been well-publicized. With the Fed actively affecting the treasury market, a 10-year note consistently above three percent poses a significant threat to the stock market, which has been shown to be at risk extremes this year. The safety of bonds appears to be more and more appealing as risk aversion rises with every violent action in stocks.

The NASDAQ continues to amaze and amuse, reaching an all-time high on Wednesday prior to Thursday's retreat. It's an outlier to the other major indices as the Dow, S&P and NYSE Composite continue to be range-bound below the January high points.

Something has to give in this scenario, since the Fed cannot have it both ways. A galloping stock market and rising bond yields cannot coexist in a peaceable manner. The money flows currently support a flight to the safety of bonds and Thursday's treasury stampede is more proof that smart money is quietly abandoning the most risky positions in stocks.

Dow Jones Industrial Average June Scorecard:

Date	Close	Gain/Loss	Cum. G/L
6/1/18	24,635.21	+219.37	+219.37
6/4/18	24,813.69	+178.48	+397.85
6/5/18	24,799.98	-13.71	+384.14
6/6/18	25,146.39	+346.41	+730.55
6/7/18	25,241.41	+95.02	+825.57

At the Close, Thursday, June 7, 2018:
Dow Jones Industrial Average: 25,241.41, +95.02 (+0.38%)
NASDAQ: 7,635.07, -54.17 (-0.70%)
S&P 500: 2,770.37, -1.98 (-0.07%)
NYSE Composite: 12,788.50, +10.27 (+0.08%)

How the Dow Divisor Helped Industrials Blast Through 25,000

The Dow Jones Industrial Average isn't really an average at all.

If it were, one would take the price of each of the 30 components and divide the sum by 30. That would yield the average price. Since that number would barely move the needle on a day-to-day or minute-by-minute basis, something more was needed to satisfy the voracious appetite of investors. Ergo, the Dow Divisor.

The Dow Divisor is 0.14523396877348. Since it's a fraction of a point, the divisor doesn't actually divide anything. Rather, it's a multiplier, which serves to enhance the gains of the higher-priced stocks and minimize the losses of lower-priced shares. That explains why declines on the Dow are serious events. It's rigged to go higher regardless of volume.

One can clearly see - using such a valuation (weighted) method - why tin-hat theories abound about market manipulation. The Dow leads the market, not only in the US, but around the world. A big move on the Dow triggers the herd instinct to buy other stocks.

Boeing (BA) was the biggest percentage gainer on the day, adding 11.46 points to 371.56. But, thanks to the divisor, Boeing contributed nearly 79 points to the overall Dow gain, despite less than 4.5 million shares changing hands.

By contrast, General Electric was the big loser, dropping 1.16%. But, since GE is the lowest-priced stock on the index, by far, at 13.64, the point loss was a mediocre 0.16. The magic of the divisor meant GE's loss to the overall index was a measly 1.10 points, despite the fact that more than 62 million shares were traded, more than the total number of shares in the three next most-widely traded stocks, Pfizer (PFE), Microsoft (MSFT), and Intel (INTC) combined.

Only four Dow stocks traded lower on the day. In addition to GE, Wal-Mart, Pfizer, and The Travelers finished down, though modestly. Also contributing to the day's massive spike were 3M (MMM), Goldman Sachs (GS), and United Health (UNH), each trading above 200 per share. Their combined advance of 10.77 points were good for another 74 Dow points, despite the fact that they were three of the four least-traded stocks on the exchange (Pfizer was the second least-traded).

So, four low volume stocks were good for 150 points on the Dow. The other 22 gainers were cannon fodder against the bear case as the Dow Industrials outpaced the other indices by a wide margin. The day's gain resulted in the highest closing price on the Dow since March 13.

Happy Dow divisor days!

A couple of good reads on the Dow divisor can be found here and here.

Dow Jones Industrial Average June Scorecard:

Date	Close	Gain/Loss	Cum. G/L
6/1/18	24,635.21	+219.37	+219.37
6/4/18	24,813.69	+178.48	+397.85
6/5/18	24,799.98	-13.71	+384.14
6/6/18	25,146.39	+346.41	+730.55

At the Close, Wednesday, June 6, 2018:
Dow Jones Industrial Average: 25,146.39, +346.41 (+1.40%)
NASDAQ: 7,689.24, +51.38 (+0.67%)
S&P 500: 2,772.35, +23.55 (+0.86%)
NYSE Composite: 12,778.23, +119.53 (+0.94%)

Stocks Split as Dow Flirts with 25,000 Mark

The Dow Industrials and the NYSE Composite ended the day lower on Tuesday, while the S&P 500 and NASDAQ posted gains.

All of the moves were muted, amounting to nothing more than market noise, except for the frothy NASDAQ, which posted an all-time closing high at 7637.86, barely - by 0.59 points - topping the previous high from mid-May.

The soaring NASDAQ should remind veteran traders of the red-hot dot-com market of 1999 and early 2000, which ending in tatters, cascading lower in March of 2000 in one of the greatest stock market routs of all time.

It took the NASDAQ a full 13 years to regain those 2000 highs, with an additional collapse in 2007-09. If anybody is thinking that the NASDAQ is once again running full throttle on hope and hype, they're probably in the cautious camp that has seen this kind of market madness before.

The leading stocks of the NASDAQ are the usual suspect, overvalued companies - the FAANGS - and traders will be riding their valuations for as long as the good times roll. The obvious question is how long before these titans of technology roll over.

Nothing lasts forever, including stock manias based on companies that have recently come under fire for misdeeds and faulty business practices and products. Tesla (TSLA), Facebook (FB), Starbucks (SBUX), and Alphabet, parent of Google (GOOG) have each had bouts of bad publicity, though the fallout hasn't readily struck their valuations.

Amazon (AMZN) and Apple (AAPL) are testing their upper ranges, adding some supposed value nearly every day. Apple is approaching a valuation of one trillion dollars, while Amazon is not far behind. Is any company worth a trillion dollars? That is a lot of money.

Meanwhile, the Dow continues to plow along just below 25,000, a figure it has achieved only one time since March 13. While 25,000 is still 1600 points below the all-time high on that index, it appears to be a psychological barrier that may prove difficult to surpass and maintain.

Date	Close	Gain/Loss	Cum. G/L
6/1/18	24,635.21	+219.37	+219.37
6/4/18	24,813.69	+178.48	+397.85
6/5/18	24,799.98	-13.71	+384.14

At the Close, Tuesday, June 5, 2018:
Dow Jones Industrial Average: 24,799.98, -13.71 (-0.06%)
NASDAQ: 7,637.86, +31.40 (+0.41%)
S&P 500: 2,748.80, +1.93 (+0.07%)
NYSE Composite: 12,658.70, -15.21 (-0.12%)

Dow Jumps As Factory Orders Slump

Fast on the heels of four straight triple-digit moves from the prior week, the Dow Jones Industrial Average shot up 178 points to open the week and put the month of June solidly in the green, Monday's move happening on absolutely no news whatsoever.

If anything, data was poor, as factory orders slowed in April, down 0.8% after jumping a revised 1.7% in March, according to the Commerce Department.

Recent data has only served to confirm that the US economy is operating just beyond stall speed. All of the hoopla over tax cuts, President Trump's crowing over the jobs numbers and growing economy reinforces the growth narrative which has failed to reach much of mainstream America, especially those in the lower economic rungs.

While corporate profits may continue to surprise, it's suspected that very few homeless people own stocks or bonds. It's the forgotten part of the economic landscape that continues to be forgotten. Starting a business is still a dicey undertaking in the US, due mostly to onerous laws and regulations from the federal government on down to the local level.

Still, according to official statistics, the economy is chugging along, though the metrics employed to record and track the economy are antiquated and do not take into account the odious debt overhanging all aspects of American industry. When one takes into consideration all the borrowed money going into what comprises such data as GDP, the only conclusion is that the American experience continues to be goosed higher by ever-increasing government, business and individual borrowing.

What keeps economists and investors up late at night is the memory of 2008, when a global liquidity crisis sent the global economy to its knees. That kind of nagging worry will prove to keep a lid on excessive speculation. Renewed attention to risk aversion has been keeping the stock markets within a range for the last three months running and is likely to do so going forward.

Date	Close	Gain/Loss	Cum. G/L
6/1/18	24,635.21	+219.37	+219.37
6/2/18	24,813.69	+178.48	+397.85

At the Close, Monday, June 4, 2018:
Dow Jones Industrial Average: 24,813.69, +178.48 (+0.72%)
NASDAQ: 7,606.46, +52.13 (+0.69%)
S&P 500: 2,746.87, +12.25 (+0.45%)
NYSE Composite: 12,673.91, +53.08 (+0.42%)

Weekend Wrap: May Ends Dull, Jobs Data Sends Stocks Higher 1st of June

The see-sawing of the markets continued for another week ending in bifurcated manner, with the Dow and NYSE Composite suffering losses while the S&P and NASDAQ posted gains.

In particular, the Dow has seen 12 weeks with positive results, versus 10 weeks of losses, resulting in a relatively flat index, down a mere 84.01 points since the 2017 year-end close (December 29) of 24.719.22, the gains all made in January, when the Dow topped out at 26,616.71 on January 26. The losses were mostly confined to the correction in February and another poor showing in March. April and May both were positive for the Dow, though those small gains still leave the index nearly 2000 points below the all-time high.

Two stocks - Boeing (BA) and Apple (AAPL) have kept the Dow from sliding back into correction territory. Since April 30, Apple gained 15%, Boing added 23 points, or about seven percent, though both stocks have basically flatlined since mid-month.

On the holiday-shortened week, the Dow recorded losses on Tuesday and Thursday (May 31), and gains on Wednesday and Friday (June 1), the latter upswing largely attributable to the better-than-expected June non-farm payroll release, getting the new month off to a flying start.

As has been evident since the February and March selloffs, this has become a trader's market, with individual stocks and sectors favored over pure index plays. All of the major averages have gravitated around their respective 50 and 200-day moving averages, the divergences seldom taking any of them far above or below those critical lines of support and/or resistance.

With summer coming on fast, volume continues to wither away, with select stocks getting the bulk of the trading action. Bullish deniers of the Dow Theory change from April will be hard-pressed to make much of a case for buying stocks during the hot weather, as the Dow's all-time high fades farther and farther away.

Dow Jones Industrial Average June Scorecard:

Date	Close	Gain/Loss	Cum. G/L
6/1/18	24,635.21	+219.37	+219.37

At the Close, Friday, June 1, 2018:
Dow Jones Industrial Average: 24,635.21, +219.37 (+0.90%)
NASDAQ: 7,554.33, +112.21 (+1.51%)
S&P 500: 2,734.62, +29.35 (+1.08%)
NYSE Composite: 12,620.83, +93.69 (+0.75%)

For the Week:
Dow: -117.48 (-0.48%)
NASDAQ: +120.48 (+1.62%)
S&P 500: +13.29 (+0.49%)
NYSE Composite: -14.12 (-0.11%)