There are two ways of looking at the Chart above.
One is the Stock Market is moving on, going past a very difficult period of its history. But this implies that the DJIA is moving on to new highs, bearing no old baggage to weigh it down.
All things considered, I think the second way of looking at this chart will prove more accurate. We are in a lot of trouble. This Bear Market is going to last longer than any of us can imagine, and descend to levels I'd rather not think of. Dollar-based assets will be useless at the bottom. You will need gold-and silver-based assets to carry you through.
Setup for New 60 Year Record in NYSE 52Wk Highs
A Month ago, in Wk 101, I charted daily NYSE 52 Wk Highs - 52 Wk Lows. At the time it had just gone net positive. But in Wk 105 of the 2007-09 Bear Market, we now see 10% of the shares traded on the NYSE at their 52Wk Highs.
Markets don't move from market bottoms, to tops, in straight lines. They move in numerous pulses, frequently reversing themselves, before continuing on to their ultimate conclusion in Bull or Bear Markets. In this ebb and flow of share price variations, when 10% to 20% of the companies trading on the NYSE reach their 52Wk Highs, the stock market is set up for a Reversal (aka Correction) in a Bullish pulse.
But using peak NYSE 52Wk Highs - Lows is a leading indicator. So after a NYSE 52Wk H-L peak, the actual correction could be a month or even a year away. It would be best to review my charts in Wk 101 to see how this indicator worked in the past.
Below is a shorter term chart for our current market with a DJIA BEV Plot. The 52Wk H-L Plot is read off the Left Scale. After the 52Wk Lows of last October, it took almost a year before this indicator became positive again.
Here is what I'm thinking. With the market taking baby steps up to new highs, the longer the market continues to go up, the more time all the shares trading on the NYSE have to float up, away from their 52 Wk Lows. Also, in the months to come, the highs of the past 52 Weeks, which these shares are compared to, will be going down with last year's market's decline. How hard will it be for a company to reach a new 52Wk Highs from last March's bottom?
I think we have a chance to see a new 60-year high in this series in the months to come. The current record is held by the start of the 1982-2000 Bull Market. 31.9% of the companies trading on the NYSE reached new 52 Wk Highs in Barron's 11 Oct 1982 issue. I think we'll exceed that record by a good measure. Heck, a year ago over 85% of the companies trading in the NYSE hit 52Wk Lows. Why not something spectacular on the upside too?
Whether a new 60 year high will signal impending market doom is something I doubt. Rather, a significant new 60 year record, something like 50% of the shares listed on the NYSE hitting new 52Wk Highs, will tell us just how manipulated this market has become. I'm not predicting 50%, but I'm thinking it.
After all, there is a lot going for the market; Christmas is coming. We can be sure the "Policy Makers" will do everything in their power to make sure we get a good Santa Rally this year for all the voters. And then, America has its political primaries coming in February. Primaries are very important as it's in the primaries where political parties decide who will be on the national ballots in November. There have been cases where sitting members of congress have been voted out of their offices in February for not winning their primary.
So understand; incumbents in Washington are expecting a good market to keep the voters happy during this coming critical period in February, and more of the same until after next year's elections in November. After all, Congress gifted hundreds of billions to Wall Street for a reason. So, we may see the NYSE 52Wk H-L Plot soar to amazing new highs as the Federal Reserve and Wall Street return a favor to Congress's political class sometime in the next year.
But all bets are off if US Treasury Yields and US$ Energy Prices don't behave, and they just might not!
Dollar to Hit 50 Yen, Cease as Reserve, Sumitomo Says
Oct 15, 2009 (Bloomberg) -- "The U.S. economy will deteriorate into 2011 as the effects of excess consumption and the financial bubble linger," said Daisuke Uno at Sumitomo Mitsui, a unit of Japan's third- biggest bank. "The dollar's fall won't stop until there's a change to the global currency system."
Russia ready to drop dollar in energy trade with China, Putin says
From RIA Novosti, Moscow
Wednesday, October 14, 2009
BEIJING -- Russia is ready to consider using the Russian and Chinese national currencies instead of the dollar in bilateral oil and gas dealings, Prime Minister Vladimir Putin said on Wednesday.
So, observing the NYSE 52Wk Highs - Lows for peak values does have some predictive value in the changing of market trends, but political events will overshadow any historical significance this series has. Don't think the stock market is overvalued just because 50% of the shares traded on the NYSE are hitting their 52Wk Highs. This market will be overvalued only when Bernanke and Geithner say it is.
Still, I find following internal market indicators such as 52Wk Highs - Lows interesting for their own sake. I think it's likely it will hit a new 60-year record sometime in the next few months, and I am very curious to see how high it goes.
Until Volatility picks up again, I'm going to Drop this chart of the 8-Count as a Weekly Feature. It's like watching paint dry. The table below tells the story. I'll still post it every now and then.
Not much to say except the Bulls are prospering. Let's look at the 1929-32 & 2007-09 DJIA Step Sums.
Yep, there is something really wrong with the 2007-09 Step Sum. I hope I'm wrong, but I'm afraid I'm not. The 2007-?? Bear is going to make some real history before he's finished with us.
The Step Sum is an indicator of market sentiment. When the underlying sentiment is bullish, the Step Sum rises. When bearish, it falls.
Think of the "Step Sum" as the sum total of all the up and down price "steps" in a data series over time; an Advance - Decline Line for a data series derived from the data series itself. Logically, bull markets will have more net up days, while bear markets will have more net down days. Understanding the Step Sum is no harder than that.
I wrote an extensive focus piece on the DJIA's relationship with the NYSE's Volume in Wk75 (20 Mar 2009) of this series, and on the DJIA and the DJIA's Volume in Wk99 (04 Sep 2009). Both Wk 75 & 99 were based on Daily Volume. In Wk105, I thought I would include weekly data in the analysis too.
To see if the Stock Market's winds blow Bull or Bear, two things should be kept in mind:
The above truisms have kept investors well, since 1900. But there are those times, when the market's winds blow counter to the market's prevailing primary trend. Currently, we are living in one of those times. Let's take a quick look at key charts from Wk's 75 & 99.
As the Chart's caption states, starting in 2000, the relationship between the NYSE's Volume, and the DJIA, broke down. The 2000-02 Bear occurred with rising volume, the 2003-07 recovery to new all-time highs, occurred with Flat Volume, as was also the case for the #2 DJIA Bear Market (2007-09). This is very strange.
Let's take a look at the DJIA relationship with NYSE Volume during the DJIA #1 Bear Market, 1929-32. This chart, as the one above, was also from Wk 75.
From 1926 to 1929, rising NYSE Volume supported the DJIA, as it continuously made new all-time highs for 3.5 Years. After the September 1929 Terminal Zero (last all-time high), volume began to crash, until the DJIA and the NYSE's Volume found their lows together in July 1932. Note the August 1932 explosion in NYSE Volume. This surge in NYSE Volume marked the start of the 1932-37 DJIA Bull Market.
As we saw in my Wk75 Report, since 1900, the pattern above is typical of the DJIA's Bull Markets as they build, top, and die since 1900. But the relationship between the DJIA, and NYSE Volume, has continuously been violated since 2000, and this is really strange.
Below is a Chart from Wk99. Data is daily basis, and I used a 10-Day M/A to smooth out the volume plot.
What happened after July 2006 is quite bizarre; everything is backwards! The DJIA's Terminal Zero of October 2007 occurred on a low point in the NYSE's Volume. Last October's BEV -40% crossing, and March's BEV -50% lows, occurred on rising NYSE Volume. The market recovery since last March occurred on declining volume. All of this is in conflict with historical valuation & volume market patterns.
Remember, this ain't science. Important relationships between market series do temporary breakdown over the passage of decades. But since 2000, we have been living in extreme historic times. A time when "Policy Makers" openly admit, during televised Congressional Meetings, they intend to override natural market forces, and force financial assets valuations, interest rates, and commodity prices to levels acceptable to the "Policy Makers." And with a dollar, whose theoretical limit of circulation is infinite, they have the means to enforce their price discipline on any market they choose.
I don't approve any of this, but I must accept, as a fact that Washington's "Policy Makers" are the major factor in the market's consumer prices and financial asset valuations. How this "Economic Policy" affects the Stock Market's historic relationship between DJIA's Valuation and Trading Volume, can be seen in these charts.
My next chart uses DJIA Weekly Data.
Using weekly data, we see the same strange reversal in the relationship between the DJIA's Valuation and Volume present in the daily data. The 2002 DJIA's BEV -35% bottom (Red Plot) occurred with expanding volume, as did the 2008 & 09's BEV -40% & -50% Bottoms.
"Okay you old Seadog, so what?" Well the last 10 years really bugs me. That's what! After all, there are darn good reasons for market volume rising and falling in sync with stock valuations.
Volume is in sync with valuation, because as the market goes up in price, it attracts more investors. More investors brings in More Money to drive stock valuations even higher, because More Buy Orders flow into trading desks, and the floor of the NYSE. It's only logical market volume would also rise under the circumstances of More Investors, More Money and More Orders, as the market climbs up to its Bull Market's Terminal Zero.
But, a Bear Market discourages new money from coming into the Stock Market. Let's face it, in Bear Markets, More has a way of becoming Less. Bear Markets bring a new reality to Wall Street; fewer investors, with less money, and diminished orders coming into trading desks and the floor of the NYSE. This is what drives share valuations down. It's only natural, as a Bear Market progresses, Market Volume must also decline hand and hand with the DJIA's valuation.
Seeing Stock valuations and volume in conflict with each other for almost 10 years is a strong indication the public has largely left the market, leaving the bidding for financial assets to large financial and government interests. These people are only interested in managing market price levels for the benefit of their selfish interests, which makes current market prices total nonsense.
Look at the Chart above: during the DJIA's #2 all-time Bear Market, Volume went to new all-time highs in March of 2009. Last year, Volume should have collapsed from September to March.
Who was buying? Most investors were catatonic last March, unable to answer their phones let alone call their brokers to place buy orders. So who, other than the US Treasury and the Federal Reserve, had the money, and motivation to buy stocks last March? You can be sure Secretary Geithner and Chairman Bernanke would deny this, but I think the Government has been funding the stock market bulls, the so-called unnamed favored financial institutions, with monetary inflation since 2000.
They have been very slick, so far. But the day will come, when natural forces present in the market (China, Russia, India, Brazil, et all) will overwhelm the "Policy Makers" and we will then see the DJIA decline in both its valuations and trading volume.
I still expect to see the DJIA to fall below its BEV -60% level, and possibly take out the 1929-32 Bear for the #1 position. Maybe this won't happen, but based on the market's history of Valuations and Volume going back to 1900, I can't accept last March's lows in the DJIA as an honest market bottom acceptable to the Bear. Anyways, why should the Bear go away? None of the Bull's garbage from the housing bubble has been cleaned up, and now the "Policy Makers" are creating even more garbage in the mortgage market. This Bear isn't going anywhere until all this garbage has been properly disposed of.
I want to see a very hard bottom for the DJIA with trading volume collapsing. I'm not being vindictive; thinking this is not a source of joy for me. But I believe market cycles, going from one extreme to the other, are the natural order of things, exactly as our lungs breath in only to exhale. The "Policy Makers" will not cheat Mother Nature! The current political interference in pricing financial assets will only make the Bear's final bill to the stock market more expensive than it needs to be.
This Bear Market still has a long way to go. How long? I don't know, but the DJIA's Bear Market in the 1890s lasted for over 6 years.
I have the feeling that before the 2007-?? Bear is over, many records will be broken. This Bear Market could last for many years to come.
Few people track money supply these days. Thirty years ago, when Fed Chairman Volcker took Consumer Price Inflation to the woodshed for a good whipping, M1 was as widely reported upon as the DJIA.
But after the Fed's "Liquidity" started flowing away from Consumer Prices and into Financial Assets, the financial media stopped reporting on M1. Alan Greenspan testified before Congress that money supply growth and CPI Inflation had no connection to each other, so M1 became a non-news item by the early 1990s.
I don't follow M1 as much as CinC. Increases in CinC are only possible when the local Federal Reserve Banks order more coins from the US Mint or paper money from the US Bureau of Engraving and Printing. This makes all increases in CinC "Policy Decisions", while M1's growth depends on what people do with the Federal Reserve's increases in CinC.
I'm keeping this simple, so I'm not mentioning the Fed's Open Market Operations, which I admit, ultimately have more influence on inflationary price pressures than increases in CinC. But following CinC & M1 tells our inflationary tale well enough.
I indexed M1 and CinC above, but for your information, M1 is always larger than CinC. It has to be, as M1 is CinC plus bank deposits plus travelers checks.
The above chart is very informative. M1 & CinC growth was in line with each other from 1966 to 1975, then M1 velocity slowed below CinC's. 1975 is a key year. It's right after the first BEV -40% Bear market since 1942 (1973-74 Bear), which made 1975 a good year to come into the market. Warren Buffet said in 1975 he felt like a young man in a harem for all the bargains he found in the Stock Market. I believe Peter Lynch's first year at Magellan was also in 1974. Also, CPI Inflation was beginning to crest, making banks' savings deposits a horrible means of preserving wealth.
I believe the 1975 decoupling of M1 to CinC was a result of people making the decision to leave the banking system, to go into other areas of the market where a decent return on their money could be found. M1's actual decline in 1994 must have been the result of people pouring money into the stock market. Wall Street was in a feeding frenzy, sucking in money from every demographic group. In the 1990s, even banks steered the elderly into the stock market, away from depositing money in their own bank.
It's no mystery why M1 was flat for 10 years. It's also no mystery why M1 started to pick up again after 2002, and then spiked up after May 2008: people are seeking the safety of a less-than-a 1% rate of return. Too bad they didn't buy gold or silver, as now the banking system itself is now seeing record bank closings. Don't tell me about FDIC. The Bear will pay them a visit in his own good time too. Anyways, the rise in M1, seen in the chart above, suggests the money currently coming into the stock market, is not from the public.
The BEV Chart below should shock you. The big dip in the BEV Plot on the chart's right, was the result of the huge bailout for Wall Street. On the downside, the Fed exchanged their AAA Rated US Treasury Debt for worthless AAA Rated Mortgage Assets, from "unnamed favored financial institutions." On the upswing, the Fed was once again financing Washington's "Progressive" boondoggle legislation at the expense of US dollar holders worldwide.
In Barron's 13 April 2009 issue, the Fed had replaced all of its US Debt reserves with new debt, and, for the past 26 weeks, has increased their US T-Debt reserves. But a BEV Chart cannot tell us how far above the 2007's Terminal Zero, the Fed has increased its US Treasury reserves in October of 2009. So we go to my next chart.
What you see below is an all-consuming scandal. What will happen when healthcare legislation is passed? I suspect much of the debt needed to fund "Health Care" will be held in the Fed's balance sheet. This is insane!
The Table below gives the specifics of Doctor Bernanke's Yoyo "Monetary Policy", since August of 2007.
Total Fed Credit is a pernicious scandal too. The large spike in Total Fed Credit occurred when the Fed took on Wall Street's Toxic Mortgage Debt. The only item above showing any stability is CinC. But in time, I expect it to rise up to Total Fed Credit, just as the US Debt Held Outright by the Fed is now doing.
I've charted below the Fed's holdings of US T-Debt, and the US T-Debt holdings by global CB's, as percentages of the US National Debt. See how in 1995 only 16% of the American National Debt was used for global monetary reserves, and that included reserves for the US Dollar. In the past 14 years, that has increased to over 35%. This is called "monetizing the National Debt."
I get a good chuckle every time I hear someone on CNBC wonder if the US is going to "monetize the National Debt." Monetizing debt was why the Congress created the Fed! But note that in years past, the Fed didn't have to as our "Policy Makers" got our foreign trading partners to do it for us. But, starting in 2008, our trading partners wised up to our old trick! So finally, as we see below, the Fed had to step up to the plate and pick up the slack.
There is nothing naturally wrong, or corrupt, in using the paper US dollar for the world's monetary reserves. All that is required is that CinC stays constant, come hell or high water. But the US Congress, whom the US Constitution gave the "power of the purse" to, hates both "hell and high water." So Congress created the Federal Reserve, to convert the US Treasury's Debt (debt created by Congress), into paper dollars.
Dollars are hard to come by, if you have to work for them. But there are people who get dollars without work; these people get dollars just because the US Congress wants their friends to have some money.
These inflationary paper dollars are then given to American voters, or political supporters, who, without any work on their part, can now purchase imported manufactured goods. These inflationary paper dollars finally end up in the foreign Central Banks of the nations that produce goods these Americans purchased with inflationary dollars.
In the old days, before August 1971, these Foreign CBs could ship these unwanted dollars back to the US Treasury in exchange for gold. As the US only had so much gold, it could inflate the US dollar by only that much. That's why Keynes called Gold barbaric; Gold as money limits government spending. Nothing is more barbaric to a socialist than that!
But gold as money is now only a distant memory to the Foreign Central Banks who now buy US T-Debt. But tomorrow, who knows what's going to happen?
I noted last week a news report that oil-producing nations decided to abandon the US dollar, for pricing their oil exports. Many "responsible members" of the "mainstream media" have doubts on the accuracy of that report. Called it a rumor by "Gold Bugs" to make gold go up. But after witnessing the monetary malfeasants charted above, I'm amazed the dollar is taken seriously by anyone, anymore; and only a nincompoop would bad-talk gold in 2009.
The US dollar * is * going to lose its "reserve status", just as soon as our trading partner's CBs can make a graceful exit from it. It might take years, but they are leaving the dollar. You can thank Congress for that too.
Dow Jones -40% Declines From 1885 to 2008 is the article that inspired this race of 1929 & 2007 Bear Markets. You may want to read that article to understand my "BEV Chart."
Dow Jones Industrials Average Market Volatility is the source for my volatility studies.
The Lundeen Bear Box and Step Sum is the source for my Lundeen Bear Box and Step Sum Chart
Note For the Record: Mark Lundeen does not want a devastating bear market in the next two years. However, in full view of Congressional Market Oversight Committees and under the supervision of Government Regulatory Agencies, things were done that I believe will make a historic bear market inevitable. If you have a problem with this bear market, contact Washington, not Mark Lundeen.