They That Sow The Wind, Shall Reap The Whirlwind

This week the Dow Jones made two new all-time highs, the 64th and 65th of the past year.  And as we’ve come to expect in the current advance, there’s no indication of a market correction, however tiny that may be, to be seen on the horizon in the Dow Jones’ BEV chart below.  The Dow hasn’t seen a 5% decline from an all-time high since June of 2016.  A quick look at the Dow Jones’ BEV chart below shows us that sixteen months between 5% (or more) corrections is a long time.  

How much longer this can continue?  That’s the 64 trillion dollar question.  

This market may continue advancing longer than I believe possible.  After all, considering all of the problems the world is having now, including the real risk of seeing military action against nuclear North Korea, with the complications of Chinese and Russian involvement should this happen,  I don’t even understand why this market is going up, let alone when it will stop advancing.  

I’m just telling my readers the truth; this market is a real mystery to me.  The only answer that makes sense is that the massive amounts of “liquidity” flowing from the global central banking cartel continues flowing into financial assets, because it doesn’t know any better.  This advance may be only a pernicious bad habit taken up in the past three decades since Alan Greenspan began inflating bubbles in the financial markets in 1987.

Okay, I admit it; concerning what the heck is going on in this market – I am totally ignorant; nothing makes sense to me.  But admitting my ignorance in the current situation doesn’t mean I’m stupid.  On the contrary, admitting it helps me resist any impulse of jumping into this rising market, as doing something with money based on ignorance usually guarantees something less than desirable as an outcome.

So, what indication or market event I’m waiting for that will signal the market is once again behaving in a manner I understand?  What I’m waiting for is a return of extreme days in the stock market, signaling that a top in the market is at hand, or possibly actually past us. I’m talking about Dow Jones 2% days, days the Dow Jones have moves up or down 2%, or more, from a previous day’s closing price and days of extreme market breadth, NYSE 70% A-D days.

Next we see the Dow Jones and its 200 count (the number of 2% days in a running 200 day count) going back to 1990.  Market advances are associated with low market volatility (declining 200 counts), market declines with increasing volatility, rising 200 counts.  

Currently the Dow Jones’ 200 count is at zero, and market volatility isn’t going any lower than that, and the Dow Jones is reacting favorably to this.  If history is any guide, and it usually is, when the 200 count once again begins to rise, it will signal the pending termination of the current advance.

As market volatility, and market breadth has been docile for well over a year, either type of extreme day will create big news.  For the Dow Jones, seeing it move up or down by over 460 points, or more, in a single trading session will create the first 2% day in over a year, and lots of buzzing in the financial media.  And should the NYSE see over 2,700 advancing or declining issues of the 3000 or so that trade daily at the NYSE, that also would produce the first NYSE 70% day since last March, and generate much market commentary on this happening.

After the top is in, we can count on the market producing both types of extreme market events on a frequent basis, two to five a week on a major decline. I’ve plotted below the 1813 NYSE trading sessions from January 1900 to October 2017 where the Dow Jones has moved 2% or more from a previous day’s closing price.