Taylor On US Markets & Gold
Financial Markets
What does Dow Theory currently say about the equity markets? At present it is suggesting a neutral position regarding U.S. equities. One Dow Theory
concept Mr. Russell passes along to his readers is that in order for a
sustained move either up or down to occur, the Dow and the Transport
averages need to confirm the move of the other. With confirmation, a
sustained move, either up or down becomes more likely.
For Now, Watch 8521.97 on the Dow!
On March 21st of this year, the Dow hit a 8521.97 and the Transports hit a
peak of 2263.49. Since then, I believe it was last Wednesday or so, the
Transports bettered that peak. In fact it closed this week at 2326.19, or
slightly ahead of its March 21st high. However, the Dow has so far failed
to better its March 21st peak of 8521.97. This week it closed at 8337.65.
If the Dow can also rise above its March 21st peak while the Transports
holds above its March 21st peak, a sustained move upward in the averages
would be likely. How far might they go is another question for another day.
Russell also points out that the closer together in time the two averages
confirm a move, the more compelling the signal.
If on the other hand, the Dow fails to better its old highs, then we could
be looking at a period of sustained weakness in the Dow such that the
October 2002 lows are likely to be tested on the down side. Which way will
it go? Only God knows. But it may be worth pointing out however, that the
six-month period ending in April is usually the strongest six months during
the year for the stock market. Despite that fact, the major averages are
barely above where they started the year. There is no doubt we are in a
secular bear market, perhaps the mother of all bear markets. So my thinking
is more than likely we could test and fall below the October 2002 lows. At
some point, perhaps soon after the October 2002 highs fail to hold, we
could be looking at the next phase of the bear market, which I think will
be the beginning of a true capitulation phase. When people finally give up
on tocks and order their broker to sell at any price so they at least get
some value, and when they swear they never want to own stocks again, that
will be the time to begin paying more attention to undervalued stocks and
watching their PE ratios. When shares once again sell for PE multiples
below 10 and pay 5% to 10% dividends for some of the strongest companies,
we may then have hit bottom. The question then will be whether we have a
short time frame before stocks rise off that bottom or will the recent pain
convince the masses to stay out of stocks because of their most recent
experience such that we have a long, long bottom forming period, not unlike
the market of the 1930's or that of Japan now or like the gold market over
the past decade following the major decline from $850 in January 1980.
Looking at the chart of the Dow above, it seems we are at a very crucial
point. A breakout above the declining wedge area would be intermediate term bullish, while a decline to the downside of the wedge would be bearish. In combination with the Dow Theory Confirmation, we might get a much more
clear picture of where equities are heading in the next few days. If this
resolves itself in a positive manner, you might want to play the upside by
way of the QQQ's or the Spiders or the Dow Indexes. But don't forget we
are in a very long-term bear market so if you are fortunate to make profits
from the long side of the market, don't be shy in quickly taking profits.
As for me, I'm staying out of these shorter term trading games. I'll just
try to focus on the primary trend so I'm sure to be ready to take advantage
of the major moves in the primary trend.
I cant help but think back to Alan Greenspan's infamous "irrational
exuberance" remark back in 1996 (when the Dow was 6300). Until recently, P/E ratios in America that exceeded 20 were generally considered overvalued, and for good reason. Realize that a P/E ratio translates into a "Earnings Yield" of 5%. Why should you accept less than 5% for stocks when they are extremely risky, especially if you can get 6% or 7% in "risk free" U.S. Treasuries? So we think Mr. Greenspan was being very responsible and honest when he made his irrational exuberance remark.
But with that remark, all hell broke loose in Washington and on Wall
Street. So Alan, who Ayn Rand once described as a "social climber" caved
in. He went along with concocted stories about a new paradigm, a new
economy, etc. to justify a bubble and then he went out of his way to
acknowledge a bubble even existed even as our financial markets were being
inflated to the most extreme levels in history.
But it is not fair to only blame Alan Greenspan. Americans loved the lie.
They wanted to feel good. They did not want the truth. They wanted to
believe in a 30,000 Dow on the way to 100,000. So the entertainers on
Squawk Box on CNBC ridiculed David Tice and the one or two other truthful
market professionals with the courage to speak out like modern day truth
profits. Mark and Joe and "The Brain" all did their very best to destroy
the truth on Squawk Box so their viewers and their advertisers could feel
good. Americans were intoxicated with one lie after another and they loved
it! We had the dollar lie. The gold lie. The clicks per minute and eyeball
per minute ratio lies used to justify $200 stock prices without any sales
and profits. We had the Abby Joseph Cohen S&P 500 earnings lies. The new
paradigm lie. The Mexico bail out lie. The Asian bail out lie. The Russian
bail out lie. The LTCM bail out lie. The Monica Lewinsky lie, the aspirin
factory bombing lie. On and on and on our delusional thinking went during
the 1990's. And still our delusional mindset has not yet been broken. It
will be, I suspect when the next phase of the bear market unfolds, and when
the real capitulation phase of this decline gets underway. So far,
Americans are holding on to the hope that this market will come back from
current levels in spite of the fact that stocks remain historically
overvalued.
Last week we saw more evidence of a declining labor market with job losses
exceeding by quite a margin market expectations. We saw more evidence of
manufacturing declines. And there is reason to believe we may be seeing a
top in the housing market. All this is taking place of course against rapidly rising debt levels that are being implemented in an effort to inflate us out of deflation. In the end, current policy measures are only serving us to dig ourselves deeper into the quick sand of a deflationary depression. In failing to stand up for a legitimate view of irrational exuberance in 1996, Mr. Greenspan proceeded with policies that have set us up ultimately to decline over the abyss in to a state of irrational depression. And according to Ayn Rand, all for the sake of some adoration and favorable press clippings.
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GOLD
Blanchard Deserves 110% of our Support!
I must admit that I was more than a little ticked off when a couple of
years ago, Blanchard and Company was laughing at Bill Murphy and GATA about their conspiracy theories. At that time, Blanchard & Company took the
position that we had a free and unfettered gold market and that the
fundamentals for the metal were simply very, very bad.
Given that prior posture with respect to my strongly held view that the
ruling elite have been rigging the gold price, I must confess that I gave
little more than a lukewarm response to a caller from Blanchard when he
advised me that Blanchard and Company were launching a law suit against
Barrick Gold Corporation and J.P. Morgan Chase for rigging the gold price.
I was wrong not to more actively support that effort. After all, they are
now fighting the good fight against deceit and theft by some of the same
ruling elite who GATA has been talking about and whom Reginald Howe
launched his anti-price rigging law suit.
I received the following letter from Danilo Rouquette, and Account
Executive at Blanchard & Company dated April 16, 2003, in today's mail. It
is a fascinating account of but one aspect of corruption that is seemingly
rampant on the part of our ruling elite. The letter of course deals with
the collusion between Barrick Gold Corporation and J.P. Morgan in their
efforts to drive the gold price lower and lower and as such reap windfall
profits at the expense of the shareholders of major mining companies that
did not take short positions. The Blanchard allegations of course are very
much in line with what those of us experienced GATA observers have believed all along. Non the less, the allegations are an eye opener and the charges dove tail very well with the bigger picture with the ESF ensuring major amounts of gold are available from the U.S. Treasury and elsewhere to
ensure a scam against the hard working, honest mining community is
perpetrated for the benefit of Wall Street.
April 21, 2003
Jay Taylor, Editor of J Taylor's Gold & Technology Stocks
www.miningstocks.com
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