I'm not the greatest writer. I know I put out excellent material; my graphics are unique as they frequently span from January 1900 to the present. Who else offers that? I'm an old Retired Navy Chief Electrician, addicted to old data from Barron's, who at the tender age of 55, struggles with his keyboard, grammar, spelling and composition. It's a hell of a situation! And if I didn't get, not one but two edits on my weekly report, from "The Bunny" and the other from a great guy, Tedd P., who lives a bit down the Mississippi from me, I'd lose half my readers.
I start my weekly report on Sunday night. What am I going to write about? I really don't know! So I go over my Excel data files searching for something, anything for just one more week in my series of Bear Market Reports. I eventually find something, and somehow manage to finish about 3000 words and 15 to 20 Graphics by Thursday night. Then on Friday night I add an additional 500 to 1000 words to sum up the week before I then send my stuff down the line, amazed I finished another Bear Market Report.
So, I don't care if on Friday a fleet of UFO's came down Wall Street and closed the NYSE; what I have on Thursday night is pretty much what you are going to read over the weekend. I'll write about the UFOs next week!
I'm saying this because when I started the week, the market was in a low volatility state, a market that moved in little baby-steps. But by Friday, things were a little crazy over there at CNBC. We get a couple of 2% days, and "The Experts" are ready to take cover in the high grass. Oh they didn't say "SELL." They never use bad four letters words on the air. But I could see fear in their eyes. What a bunch of Poltroons.
I'm not going to do a bottom blow on 4 days of work just because we see a couple of interesting days in the stock market late in the week. I'm about long-term market trends. I personally think the DJIA still has a lot of upside to it. But as I've said before, it will go up without me.
Look at the BEV Chart above, and the Weekly Charts below. They are not bad at the end of Wk107. Until I see what happens in the next few weeks, I'll just assume the market is shaking out the poltroons. And don't ever forget "The Policy Makers." This market doesn't go down until they say it does.
The Bear's pickup truck may not be parked in front of the NYSE just yet, but my NY Agents report he departed the Dunkin Donuts where he was last seen. We can see his departure in the DJIA's Volatility's 5 Day M/A chart below.
Only last week I kicked out my weekly 8-Count Chart because it was like watching paint dry, this week it registers a big 2!
Of all my weekly featured charts, this chart of my 8-Count really shows that whatever the market's problems were in 2007, the market is still struggling with them as we come into 2010. The 2% days are like a chronic smoker's cough, and yes we will experience another hacking spell in the 8-Count before this is all over. The markets Whooping Cough is not going to clear up until the "Policy Makers" get out of the way, and let the Bear start cleaning up the disgusting mess the Bull's made at their Bacchanal.
Let me sum up what I think is going to happen, based upon my technical indicators.
During the middle part of a bullish rise, we see Baby-Stepping low-volatility daily gains and losses. This market is not exciting, but can be very profitable none the less. When volatility, as measured the 8-Count & NYSE 70% A-D Days start to make life interesting, as it was late this week, the pickup in volatility signals the start of the terminal phase of the Bull Run * not * the start of the Bear Market. The three links below would be useful to explain my position.
So based upon 110 years of market history, I'm saying we have way better than house odds that the DJIA, and the Stock Market having some really excellent gains in the near future. Volatility typically increases at the top of a Bullish run-up. I'm expecting to see big 2% & 3% daily gains in the DJIA before the Bear starts to Oxy-Clean Wall Street.
But then volatility may calm down next week too, and we would see the Bull return to its baby-stepping ways. In any case, my work strongly suggests that the Bull Market Correction within the Larger Bear Market is still intact.
Volatility seems to be picking up. We haven't seen a NYSE 70% A-D day since 17 Aug, and we had 2, DJIA 2% day this week too. The DJIA has benefited greatly from the reduction in market volatility since last March. If the DJIA is approaching its final high in its correction from its BEV -50% lows of eight months ago, Market Volatility and Breadth will start to increase with the DJIA. At the top of the DJIA's move, their paths will split as the DJIA turns down on increasing Market Volatility and Breadth. We can track this as it happens with our BEV, 8-Count and NYSE 70% A-D Charts. But here in Wk107, it's a bit too early to say with certainty that the DJIA's Bull Run is entering its Terminal Phase. But as a serious student of the market, I follow Market Volatility and Breadth closely.
A little review of the NYSE 70% Advancing Shares - Declining Shares (A-D) Days is in order here. I compute my NYSE 70% A-D Days as follows.
As the numbers of shares listed on the NYSE has greatly increased over the past seven decades, I use the above ratio to give equal weight to each trading day in the chart below.
First thing; NYSE (+ or -) 70% A-D Days are rare, and + 70% A-D Days are * very * rare. Sorry for the hole for the 1940s, but with the data I do have, since 1933 there have been only 221, 70% A-D days in the 16,919 NYSE trading days seen in the chart below. Of those 221, 70% Days, only 53 have been positive days. That's not many. On those rare occasions when we see thick clusters of 70% A-D days in the chart below, it hasn't been a blessing for the Bulls, except for the DJIA Rebound from its 1932 lows.
The 1930s were a difficult time to make profits in the stock market. So it's not surprising seeing frequent NYSE 70% Days from 1933 to 1939. What is odd about the 1930s, is the gap of positive NYSE 70% Days from 1934-37. This gap in +70% A-D Days occurred during the only good period from 1929 to 1942, that being from July 1932 to March 1937. One would think a nice little Bull Market would see many positive 70% A-D Days, but it's not so. Positive NYSE 70% A-D Days are typically Bear Market events.
Look at the 1990s, a similar dry spell of +70% A-D Day occurred during the entire Greenspan bubble market from 1987 to 2000. From January 1988 to August 2007 (19 years, 7 months), the NYSE didn't see a single +70% A-D Day!
But as we can see above, when they did come, they heralded hard times for the Stock Market, as Mr Bear went to work on the investing public's net worth.
So what do I make of this? Well, the Bear gave us a -70% A-D Day this week just to let us know he's still thinking of us. If he was gone, these extremes in market breadth would only occur once every few years, not every few months.
Going back to my metaphor of Horror Movies and Bear Markets I think the Bear is writing his next scene in his horror movie, starring the Bulls. It should go something like this.
Market Volatility will increase, as will the frequency of NYSE 70% A-D Days, as the DJIA's Bear-Market's-Bullish Correction comes into its terminal phase. So I'm expecting market volatility to increase during the final part of the Bull's Run-up. There is an excellent chance the DJIA will have a blow-off top, if Market Volume increases significantly. The increase in Volume would indicate retail investors are entering the Stock Market in a big way as they typically do at market tops, or in BEV lingo, the market's Terminal Zero.
I have no idea when all this will occur, but from the market studies I've made public over the past year, we have a better than house odds chance of seeing excellent gains in the stock market before the Bear takes it all down again.
Wk107 didn't really have much of an impact on the chart above. We need more time and data to have an informed opinion whether or not the Bull's Run has seen his last. I suspect it has not.
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.
The past year has been historic. We saw the credit crunch last October, accompanied by a DJIA BEV -40.28% bottom. In 123 years, this was only the 9th time the DJIA Fell by -40% from an all-time high. Then on 09 March, we saw the DJIA reach an amazing BEV -53.78% decline from its all-high of 14,164.53. Since 1885, only the Great Depression saw greater declines in the DJIA. But the two DJIA bottoms were not identical to each other. Metals and mining shares hit their yearly lows last October to December, and were actually recovering as the rest of the market bottomed in March. Since March, the bounce in the Stock Market has been amazing, if not historic.
In Wk107, I thought it would be worthwhile to examine the Dow Jones Total Market Groups (DJTMG), as well as other indexes and metals prices to see how they have advanced from their lows of the past year. The Table below gives the specifics.
As the metals and mining shares bottomed months before the rest of the market, I used data published in Barron's from last October's DJIA's lows in calculating their gains in the table. * All * other gains are based upon data published in Barron's when the DJIA reached its lows of March.
The above gains are phenomenal. All groups are up, except for Water Utilities. But, as these gains have occurred without a corresponding increase in market volume, they are also suspicious. Let's take a look at the volume for the Market Sectors the Obama Administration has Nationalized in the past year: Financial and Auto Stocks.
The pattern seen above violates historical patterns of Stock Valuations and Market Volume Trends. This is very suspicious, and suggests, to me anyway, the "Regulators" have become Price Enforcers. With the Federal Government now dictating the income of medical and business professionals, I don't find the thought of the Fed dictating market prices outlandish at all. Bernanke and Geithner have admitted as much in front of Congress many times in the past year.
And what's with the S&P 500's Earnings and Dividend Payouts below? How much longer can the S&P Companies continue to pay out more in dividends than they earn? As long as the guys at the Fed and US Treasury keep feeding these 500 companies inflation from the Fed's Slush Fund! My faith in the integrity of the financial system is so low; I doubt the honesty of the accounting that reports positive earnings for the S&P 500 in the current economy.
In Wk 107 of my Bear Market Report, it really irks me when the "Experts" report how "the earnings season was better than expected." Obviously "Better than Expected" is gallows humor that the S&P's earning hasn't gone negative - yet. Between you and me, I think these companies earnings are not what they are advertised to be. The SEC's handling of the Madoff's Ponzi Scheme is just the first of many government regulatory scandals to come before we hit the final DJIA bottom in our Bear Market.
Personally, I'm not a big believer in following earnings trends. Market history has seen many instances where earnings and valuations trends have become decoupled, to the dismay of investors. What you see above is very similar to what happened to the DJIA in 1932. The 1973-74 Bear Market occurred on rising earnings, with the market recovering in 1975 on falling earnings! If you review my article, and its charts on the DJIA and its Earnings from the 1920s to 2007, you'll see earnings are frequently a very UN-reliable indicator of future price trends in the Stock Market.
Look at what happened above; the Valuation & Earnings trends were in sync for the S&P 500 from the market top in October 2007 to the S&Ps March 09 lows. But as is so often the case in market history, price and earnings trends are seldom bolted together for long. Since March, the S&P rose over 50% as its earnings continued to decay, just like the DJIA and its earnings from 1932-33 in the Great Depression. When I think of it, the only reason I follow earnings is for the pleasure of seeing the "Experts" get it wrong, as they so frequently do as markets go from Bear to Bull, and Bull to Bear.
There are exceptions to what I'm going to say, but Experts" in the main are in the business of motivating retail investors to buy, not sell stocks. That is unless the subject turns to Gold and Silver, which in the opinion of most "Experts" are always in a Bear Market, or overvalued.
Let's look at the top performing group in the table: Full Line Insurance Companies.
The lesson to learn from this chart is, when an index comprised of companies with significant political clout falls from 500 to 5.00 in an 18 month period, it's not hard for it to bounce 493% from its bottom. All it takes is a few hundred billion of inflationary dollars from their "friends" in Congress and the US Treasury.
But considering the big 20-year picture, whatever wealth was poured into the financial sector since last October, the bailout actually accomplished nothing for the people who took the losses from 500 to 5.00. And yes, someone took these losses. If not you, then maybe your pension fund.
Gains and losses on this scale take an Act-of-Congress to effect. Had Congress not eliminated the 1930s Glass Steagall Act in 1999, or passed legislation in 1913 creating the Federal Reserve to manage the money supply, or Fannie Mae and Freddie Mac to promote "homeownership", our financial system would not be in such horrible shape today. Don't blame this fiasco on the Free Market or Capitalism when you don't know what your congressman is does when the sun goes down.
The Banking Stocks losses of the past year were not as bad as the Full Line Insurance Companies experienced, but they should have been. Had Washington's Politicians done the right thing, and refused to pass the Bail Outs and TARP programs, and allowed non performing toxic waste to be written off in 2008, sometime in 2010-11 we would hit bottom. But we had an election year in 2008. Come to think of it, we have another in 2010.
The major problem America's banks had in the past two years were due to unsound, politically motivated, No-Job-No-Credit Mortgages Congress created from 1999 to 2006. As expected, these mortgages went bad. Now hundreds of billions of these nonperforming mortgages are now on the Federal Reserve's balance sheet. And still, Congress continues subsidizing a reckless mortgage program targeted at people with shaky credit for the purchase of over-priced real estate.
But the current problem for American banks is more than just mortgage defaults. American consumers are heavily indebted with consumer loans as unemployment is rising. And then there's the pending commercial real estate bubble, which will become front page news in the next year. The Bank Stocks have not hit their bottoms.
The High Tech Bull Market of the 1990s was an amazing market, but it's over!
The Cotton Gin, Steam Powered Rail Roads, and Six-Shot Revolvers had their High-Tech Bull Market too, in the 19th Century. Don't forget the High-Tech Horseless Carriage, and the Radio and Electrical Utilities Bulls of the early 20th Century. Then there were the High-Tech Nuclear Power bulls with their Uranium Mining Stocks in the late 1940s, and the Space Stocks of the 1960s.
All of these astounding High-Tech Bulls have two things in common:
I don't have a crystal ball. The future is always full of surprises for everyone. I can't in good conscience tell people the Financial and High Tech Stock are going to be money makers in the next 10 years. As the economy deleverages in the coming decade, and bad debt is finally recognized and written off by millions of pending bankrupted companies, pension funds and individuals; Financial & High Tech stocks are not going to outperform much of anything. The world has changed greatly since Microsoft sold it last copy of DOS 1.0. It's time to move on.
Anyone who follows the financial news knows the "Policy Makers" have made it a public policy to "Inject Liquidity" into financial assets. They've been doing this for years. Look at the charts above. After "Injecting" unknown hundreds of billions into the stock market in the past year - is that all they can do? It seems to be!
What happens when Doctor Bernanke and Secretary Geithner convene a "Death Panel" for the Stock & Bond Markets to decide if "Injecting Liquidity" in the financial Markets is worth it any more? This is going to happen, and that's when things will get really nasty for stocks and bonds.
The place to be is in Metals and Mining Shares. Look at these charts below.
I continue hearing from the usual sources, by the usual suspects, how Gold, Silver and Mining Shares are overvalued. Don't you believe it! As paper money worldwide continues to lose purchasing power, demand for hard money assets - and the companies who mine them - will grow.
Currently the Barron's Gold Mining Index is a double from 1989.
Non-Ferrous Mining was not invited to Wall Street's party during the 1980 & 90s. By the standards of the late High-Tech Bull Market, all the metal stocks would have been underperformers. And now the "experts" are warning people about overpriced mining shares?
You should take a few moments and examine the six charts above. When the financial and high-tech groups were on a tear during the 1990s, the mining stocks were going nowhere. This is because financial and real assets are countercyclical to each other. The hot stocks of the past are going to cool down. The dud investments of the 1990s, mining shares and precious metals, will become the hot investments in the next decade.
Weekly, the US Treasury issues new debt by the tens of billions. It's a blight on America's honor that will not be soon forgotten by the world. The high-level public officers in charge of selling these new bonds, and the Congress who spends the money, are all very aware that there is absolutely no way the United States Government can ever pay back this debt with anything other than inflation.
But for the malignant narcissists controlling the Congress and the White House, honor is nothing if it doesn't somehow translate into favorable personal media coverage. After all, next year is an election year.
Let's take a look at the Year over Year gain in the US National Debt since 1938.
Two things are obvious in the chart above:
Let's take a look at this data from 1995 to present.
Remember, this ain't science, so it's acceptable seeing the trends above leading and lagging each other. But the above chart makes clear that big increases in the National Debt weigh down the DJIA.
I've been Bullish on the Stock Market for several months now, and I still am. But I don't trust the market with any of my money. There are still all too many pending trillion-dollar problems coming our way to fall in love with financial assets. And then the old trillion dollar problems that shook the world last year have not gone away. The "Policy Makers" have only swept them under a rug at the Federal Reserve. But they are still there!
The returns in Precious metals and Mining Stocks seen in my table above have been very respectable, and, unlike the Financial and High- Tech Shares, precious metal assets will do very well in times of financial crisis. At least they have always done so before, as during the Great Depression and the 1960s-70s.
So that is how I'm playing this market, as Gold, Silver and Precious Metals Mining Shares offer better-than-house odds for fantastic capital gains during times of financial crisis, and a good night sleep.
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.