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The Dow Jones Probably Peaked Today

November 19, 2013

I recognise that I’m sticking my neck out here, but this post will be short and to the point. It seems to me that, barring significant Fed intervention, the US equity market probably peaked today. Please take the time to read my “Author Comments” that follow the Conclusion.

Below is a weekly chart of the Dow Stock Index (courtesy Bigcharts.com)

Chart #1 – Dow Jones Industrial Index

Note how the index is now hitting the resistance of the upper rising trend line.

Now look at the chart that illustrates investors sentiment as measured by Investors Intelligence, published a few days ago (source: http://www.yardeni.com/pub/stmktbullbear.pdf

Chart #2 Ratio of Bulls to Bears

Bear in mind that Chart #2 above was reaching for an all-time high before the market hit its high today.

Finally, have a look at the Volatility Index below (source stockchart.com)

Chart #3 : Volatility Index

Note how the MACD histograms have been contracting and how today’s histogram bar penetrated above the zero line.

Conclusion

Barring significant interference from the Federal Reserve’s plunge protection team, it is highly probable that the US stock market peaked on November 18th 2013. If so, this is an extraordinarily significant development.

Author Observations

To me, the key issue is “confidence”, and one of the most important drivers of confidence is “credibility of political leaders”. The Obamacare debacle has seriously damaged the US President’s credibility and he is now being seen for what he is: A highly intelligent, brilliantly articulate theoretician who is more at home with giving speeches, networking and negotiating than he is with managing.

Quote: “President Obama has reached his lowest approval rating in any Quinnipiac University national poll since being elected president, with 39 percent of registered voters now approving of his job performance and 54 percent disapproving.”

Read more: http://www.washingtontimes.com/blog/inside-politics/2013/nov/12/obama-hits-lowest-approval-rating-presidency-poll/#ixzz2l239rnEn

Also, to illustrate that Obama is not alone in the world, the following is a quote regarding voter confidence in the French leader. This is relevant because, in my view, we are witnessing the beginning of a serious problem of principle – the principle being ” erosion of confidence in supposedly democratically elected leaders across the planet”:

“The latest data show a continued erosion of France’s industrial base and export share. It risks shattering the credibility of President François Hollande, who has been talking up recovery for months. A YouGov poll showed his approval ratings have dropped to 15pc, the lowest recorded for a French leader in modern times.” http://dollarcollapse.com/currency-war-2/welcome-to-the-currency-war-part-11-a-rising-euro-kills-the-recovery/

The US will too-soon be facing a situation where Congress will have to agree on raising the country’s debt ceiling. Against a background where the Conservatives want to cut spending and where the US president is lacking in credibility, it seems that time has run out. Mrs Yellen’s predisposiion to “want” to continue with QE begs the question regarding how the money the Fed prints is going to find its way into the main street economy, particularly if there are going to be limits set on government expenditure.

So what do we do (you and I and millions of ordinary thinking voters like us)? The question now goes far beyond “how can I make a buck?” The question now is: “How can we hold the system together in an environment where the democratically elected political leaders no longer have the voters’ trust?”

This particular question is what has been occupying my mind for well over a decade, and the answer seems to lie in the phrase: “We manage upwards.” Those of us who are capable of thinking more than superficial thoughts need to discuss amongst ourselves what it is that we want to see. We need to take the decision-making function out of the hands of our political leaders and give them guidance. This is how democracy is supposed to work. In theory, politicians should be following voter instructions. In practice, voters have become so dumbed down that the politicians (and those who they truly represent) have been given a free hand and they have stuffed up badly. The challenge thinking voters have is that we are facing uncharted waters and it’s not easy to come up with a cohesive approach.

********

Brian Bloom

Author, Beyond Neanderthal and The Last Finesse

www.beyondneanderthal.com


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