A Deeper Look At The Markets

If the doors of perception were cleansed everything would appear to man, as it is, infinite. For man has closed himself up, till he sees all things thru chinks of his cavern.
William Blake1757-1827, British Poet, Painter

It appears that while the indexes are holding up well, the rest of the market has corrected very severely. This neat little trick provides the necessary ingredients to maintain the illusion that everything appears to be fine on the surface. The key words being on the surface, a deeper look reveals some interesting facts.

We will look at some random stock and some stocks that yielded huge returns for us in the past. We are only going to use data starting from Dec 2003.

Notice in comparison to the Dow and Nasdaq how much some of these stocks have corrected. It makes one immediately think of covert propping up operations. How can the indexes correct so little and while some of the strongest stocks in the top sectors are smashed mercilessly.

In terms of sector strength the Dow 30 have a score of only 11 and yet they have corrected so very little when compared too much stronger sectors that have scores in excess of 70. If you ever wanted evidence of manipulation you can clearly see it here. We stated sometime last year that the easiest way to make it look like the markets were healthy was to keep the Dow up. In order to do this, one only has to push 15-17 of the Dow components up, while allowing the other 12-15 to slowly correct. Then all you do is prop the ones that were allowed to correct up and allow the others to slowly pull back. This completes the illusion that we are in a healthy bull. By the way this can be repeated over and over again, and so the idea is not to fight it but to be wise and trade in the direction of the trend. Manipulators have and will always be around, trying to get rid of them is the equivalent of trying to get rid of maggots in a rotting body.

When one looks at the Dow it appears that it still has not finished correcting. However when you shift your gaze to most of the other sectors it looks like the correction is almost complete and we should start to rally. So we have a series of conflicting pictures emerging. As we get closer to the final stage it becomes harder and harder to be able to distinguish myth from reality and so we must rely on our indicators rather than our gut feelings.

When one looks closely at the Dow components you see that many of them are at or close to their highs, and almost none seem to be next to their lows. Could it be that the Central bankers are so nefarious and cunning that they allowed the entire market to correct while just holding up the Dow and the main components of the Nasdaq. If this is true then the bears that are waiting for a serious plunge will be caught flatfooted and creamed. The bulls to will be caught off guard as they think the indexes need to correct more and so are mostly standing on the sidelines. Only the quick and the nimble will most likely benefit from shorting this market.

The data at least seems to substantiate this theory and it will be interesting to see how things unfold in the near future. What is very clear though is that fear is at historically low levels and one nice healthy flush is needed to clean the system up. Our indicators are stating that at the worst we should witness one final spike down at the best more range bound action to force the remaining weak hands out of the market.

We must always tell what we see. Above all, and this is more difficult, we must always see what we see.
Charles Peguy 1873-1914, French Poet, Philosopher