Dollars Paper And Dollars Gold 1925 To 2018

It doesn’t look like it in the Dow Jones’ Bear’s Eye View (BEV) chart below, but in the past three weeks the venerable Dow has increased 1,100 points (4.39%).  Three Fridays ago the Dow Jones closed with a 24K handle. Two weeks later it has almost blown through 25,000, closing the week at 25,803. When a market series makes ninety-four new all-time highs in only fourteen months, things like this happen.

How much longer can this continue?  Don’t ask me.  I’m great on the WHAT in my market predictions. It’s the WHEN a market is going to do it is where my prognostications fall apart. Let’s see, in the past two weeks the Dow Jones has advanced by 4.39%. That’s a big move in a bull market.  

However, in bear markets the Dow Jones can move that much, and much more in a single trading session. So, I think I’ll continue being short-term bullish until the Dow Jones once again begins seeing days of extreme volatility – daily percentage moves up or down of 2% or more.  

Don’t be surprised if the Dow Jones finds itself over 30,000 before it once again sees these days of extreme volatility, but then it may happen next week.

Here’s a scary chart. Since the November 2016 election (fourteen months ago) the Dow Jones (Blue Plot below) has overlaid its 52Wk High Plot (Green) as it advanced in its last seven-thousand points. You can see the problem in the Dow’s BEV chart above; not a single 5% correction going back to July 2016.

This isn’t how markets are supposed to work. So, how are they supposed to work?  Look at the Dow’s BEV chart above and its point chart below.  During bull market advances the Dow Jones is supposed to make a few 52Wk Highs, and then see a correction in the advance. Since the 14% correction of February 2016 (BEV chart above), the Dow Jones, my proxy for the general stock market, has refused to correct. My fear is when it does break below its BEV -5% line above, all hell is going to break loose.

The Dow Jones Total Market Group (DJTMG) currently has 153 groups in it, but I track only 74 of them.  Many of the additional groups have only been published for the past three years or so, while my 74 groups go back to 1992. Being an old geezer, I really don’t care about data that hasn’t been properly aged by a few decades and seen the bull and bear markets those years contain. This is something to keep in mind when you’re looking at my DJTMG data, like my chart on new all-time highs below.

Geez Louise, this week 33 of my 74 groups closed at new all-time highs, a level not seen for twenty years. What’s going to happen next week; pigs sprouting wings and begin flying around the barnyard?  Come on now, the stock market began this advance in March 2009, nine years ago. This isn’t how geriatric bull markets should operate, unless our central bankers are “injecting ample liquidity” into the financial system, which they are.

As I’ve said many times in the past, if what you’re doing is making money in the market, don’t stop doing it because of anything I’m saying. I’m just going on the record that one of these days Mr. Bear is going to come back and all hell is going to break loose. We’ll know exactly when that will be; the Dow Jones will once again see frequent (+/-) 2% daily moves and the NYSE will also see days of extreme market breadth – NYSE 70% A-D days; extreme market events we haven’t seen for a long time.

Here are the DJTMG’s top 20, or the number of groups I follow within 20% of their last all-time high. The top 20 has been at 53 for the past three weeks. Looking at what happened with this data series during the high-tech and mortgage booms and busts, this shouldn’t be.

In the past the top 20 inflated to a high during the bull market, and then deflated during the following bear market. And come Barron’s  January 18,  2016 issue, when the top 20 deflated down to 26, I believed that was what was going to happen in the chart below.

But 2016 was a presidential election year, and no one in Washington or on Wall Street wants a bear market during an election year. I expect the “policy makers” were hoping Hillary would win in November 2016, and you should thank God that didn’t happen. The “policy makers” hate Trump (which is why I like The Donald so much), so why do they continue inflating financial market values? Do they plan to crash the market for the coming November mid-term elections and blame it all on Trump?

Since I took my holiday break, gold has done very nicely. In my last letter of December 15, I was concerned if gold would hold above the rising trend line below. I thought it would, but who knows anything for sure in the market?

At the close of this week, gold is in position to take out its highs of September 17th of last year (-28.58%) and then the -27.67% of July 2016.  A mere 2% advance in the BEV chart below would accomplish both.  A close above the BEV -25% line would create a powerful bullish chart formation.

But I’m not buying any champagne just yet because of anything I see in the chart above. Don’t misunderstand me; I’m a bull on gold and silver. But until we see the bond and stock markets come under pressure, motivating some flight capital to come into precious metal assets, which includes the miners of gold and silver, I’m tempering any excitement I have for the old monetary metals.