A Primer On The Bear’s Eye View

Back from my two week break and nothing much has changed:

The Dow Jones broke above 24,000 this week on Thursday. It was trading in the 23,000 range only since October 18th, a month and a half back. What’s next, the Dow Jones with a 25K handle by February?  Well, when a market refuses to go down, the only thing it can do is go up until something happens to knock the wind out of the bulls’ sails.  

It needs to be said, and then said again, that the big bulls in this market are the central banks, institutions that never fear they may lose money. These are the guys their governments gave the monopoly of counterfeiting their national currencies to. Central banks can and do print as many dollars, yen, euros, etc, and etc as they need, whenever they need it.  And since the NASDAQ High Tech bubble began deflating in 2000, central banks have been printing money like never before.

The only thing central bankers fear losing is their “credibility”.

Look at the Dow Jones BEV chart below; it hasn’t closed 5% below a BEV Zero since June 2016, eighteen months ago, or 2.5% from a BEV Zero since last April. This is a real market anomaly, not that the bulls (big or small) are complaining, and really why should they? I just have this feeling that the next time the Dow Jones finds itself below the red -5% BEV line, it will continue going down into its deepest decline since the sub-prime mortgage bear market – and then some.

Why would that be?  Look at the Dow’s last two double digit percentage corrections in the BEV chart above (summer 2015 & early 2016), and find them in the chart below plotting the Dow Jones along with its 52Wk High & Low lines. Without a pause (correction in price) the Dow Jones has been advancing since February 2016, almost two years now.  

And then there’s the growing gap between the Dow Jones 52Wk High and Low lines; this is a trend that can’t continue forever. One of these days we’ll see the Dow Jones stop pushing its green 52Wk High line ever higher, as it reverses and begins bearing down on its red 52Wk Low line, as it did from 2008-09.

But when is that going to happen? Sorry to say I haven’t a clue on the when of this coming sad day in the market, only the what. Right now I’m just admitting the bulls are having their way in the market – because they are. So I’m looking for Dow Jones 25,000 by March or April of next year, and I’m stating this with the understanding that I’ve been wrong before, but sometimes I get it right too.

Here’s the chart for the Consensus Index. The good people at Consensus Inc. conduct a poll of futures traders asking who is bullish or bearish on the market.   In the chart below we see the percentage of bullish future traders since 1994.  This link shows where I get my weekly data from Barron’s.

Take a moment to study this chart.  Do you see how the plot changes after the March 2009 bottom in the stock market?  The rough edges begin to disappear, and the plot takes on the appearance of a moving average smoothing out the data. It’s not a moving average. But compared to the plot’s appearance before March 2009, it looks as if it is. And this is significant observation too; after March 2009 the plot never declines below the rising-trend line I inserted on the chart. Is it just me, or do you also see how something changed after March 2009?

What’s with this?  I’d say it’s verification from the professional futures traders that they agree with me; that after the “policy makers” in the Federal Reserve and other central banks in the global banking cartel began their quantitative easings in late 2008/early 2009, the financial markets had only one way to go – up, with little perceived risk to the downside by a growing number of market participants.

This ingrained bullishness in the markets won’t last forever, but darn if I know when it’s going to stop. Look at the Dow Jones Total Market Groups (DJTMG)’s top 20. In the past I said the 52 seen in Barron’s 27 July 2014 issue would prove to be the high for the post March 2009 advance.  And for the past three and a half years it sure looked as if this 52 would hold.

Then three weeks ago the top 20 climbed to 50, and in the past two weeks it increased to 51 of 74 groups within 20% of their last all-time highs.  Here’s the frequency table where this data is constructed.

This week there were 21 new all-time highs (BEV Zeros) in the 74 groups of the DJTMG I follow, the most since mid-July. In the chart below we see how new all-time highs peaked at 30 in Barron’s 20 May 2013 issue, and this series saw 29 three times since then. But seeing the DJTMG making a large number of new all-time highs is something it typically does in the first two thirds of an advance, and then tapers down as the bull market matures and then ends.