Wall Street And Bear Scat

As seen in the Bear’s Eye View (BEV) chart below, the last all-time high for the Dow Jones happened on March 1. Since then however, it’s been slowly deflating. The post-election run up in the Dow Jones (enclosed in the Red Circle) was an excellent advance; one of the best in the post March 2009 market. So we shouldn’t begrudge the bulls should they now take a rest before their next upward assault on the stock market, which I’m sure they are planning. However, some plans never get past their conception stage.

I like this BEV chart for the Dow Jones. It displays each advance and percentage decline of the Dow from its 09 March 2009 bottom (6,547) to its last all-time high of 01 March 2017 (21,115.55). The typical correction was a little over 5%, with only four double digit declines (none greater than 17%) since March 2009.

But we’re looking at an eight year, 14,568 point, 222% advance in the Dow Jones. After eight years of this, I think current market values are low hanging fruit for Mr Bear.  

The remaining year will prove to be interesting. Will the “policy makers” allow the Dow Jones to correct 5% to 7.5% as was typical since March 2009? They must be very concerned that somewhere in this BEV chart, there is a threshold, a percentage decline from where there is no return.

Here’s the Dow Jones (Red Plot) with its 200 count (Blue Plot) from 1990. The 200 count being the number of days the Dow Jones moved (+/-) 2%, or more from a previous day’s closing price in a running 200 day count. 2% Days (day of extreme volatility) are rare market events during bull markets, but quite common when the market is deflating.  As seen below, during the 2000-02 tech wreck and 2007-09 credit crisis, occurrences of 2% days peaked at the bottom of these bear markets.

Currently the 200 count for the Dow Jones is at 2. So, since 07 July 2016 (200 trading days ago), the Dow Jones has seen only two days where it has moved 2% or more from a previous day’s closing price. That’s a nice low number for a 200 count. Not surprisingly, since last July the Dow Jones has seen a very nice advance.

But as the above chart makes painfully clear, a nice low number for the Dow Jones 200 count isn’t a permanent situation. When daily volatility returns to the stock market, we’ll see an increase in the 200 count, and a decline in the Dow Jones.

How far could the Dow Jones decline?  The lower trend line in the chart above suggest the Dow Jones could break down to 5000, a 76% decline from its March 1st bull market high. No “market expert” today would suggest such a thing is possible, but further on in this article I make a case for even worse to come.

The simple truth is that for all too long, college professors, politicians and bankers have had their way with the financial markets. After decades of “injecting liquidity” into market valuations, and manipulating interest rates far from where an unfettered market would have them, there is going to be an equal, but opposite reaction in the market that I, and my readers want no part of.

Let’s look at gold and its step sum. For the third time in the last two years a bull box is forming. The first two of these bull boxes failed. Hopefully that won’t be how this one terminates.  

Let’s hope in the next few weeks, or months, we’ll see gold’s step sum break out to the upside with a big advance in the price of gold. Such a market event would most likely catapult the price of gold far above its highs of last summer. This new development is something I’ll be following closely in the weeks to come.

You can see gold’s bull box forming in the table below.  Since March 17th gold’s step sum has seen no movement; 242 then and 242 today, as the price of gold has advanced by $55. Should gold’s step sum break out to 252 (up ten net steps) in the next few months, it could be an explosive market event for the price of gold.  

No guarantees for that, but this is a great setup for a big advance in the price of gold. It doesn’t hurt that gold’s 15 count is only a +1; lots of room for gold to move to the upside.