Our research team has been all over this longer-term Pennant/Flag setup and the potential for the breakdown in the US/Global markets. The US manufacturing data released today confirmed what we believed would be the outcome of the extended trade issues between the US and China – a moderate slowdown in US manufacturing. Couple that with a US Fed that is attempting to navigate very difficult economic developments, consumers headed into the Christmas season unsure of what lies ahead, the US political environment (almost complete chaos) and uncertainties with foreign markets and we have a perfect setup for “investor malaise”.
The Dow Jones Index closed the week down 5.38% from its last all-time high of July 15th, a month ago. But looking at the Dow Jones as Mr Bear does in the BEV chart below, with every new all-time high registered as a 0.0%, or BEV Zero, and all other daily closings as a percentage decline from their last all-time high, comes short of displaying what has happened in the stock market since July 15th.
It’s time to turn around and see the darkness that the Fed sees looming over you. Earnings season is already extending signs of recession with the first corporate reports coming in far darker than expectations that were already twilight dim in FactSet’s estimations, which pegged earnings as likely to show a 2% contraction.
Even the Fed sees problems ahead. Jerome Powell’s speech to congress has been called “one of the most dovish Fed speeches ever!” While that quickened the heart of a sugar-hungry stock market, what does it really tell you about how soon or likely the Fed sees recession looming for the economy or sees trouble for the stock market? Why else would Father Fed suddenly become the “most dovish … ever?” Does the Fed become its “most dovish … ever” when the economy and the stock market are doing great?
The Dow Jones Index in the BEV chart below closed this week a bit below last week’s close; 1.06% instead of last week’s 1.00%, down six cents on the dollar, or basically unchanged from last week. As I said last week the bulls aren’t in a hurry, but I’m sure the bulls remain optimistic that the Dow Jones will make history sometime in the weeks and months to come.
What happens after that is the question. Last October the Dow Jones made a handful of BEV Zero’s, and then began a three month 18% correction, as seen in the BEV chart below.
Are these guys good, or what! On Wednesday, with Boeing shares getting clobbered, DaBoyz somehow managed to close the Dow six points higher on the day. That may not sound impressive, but considering that Boeing is by far the most heavily weighted stock in the Industrial Average, the feat was akin to getting a 747 Dreamlifter airborne with two engines out and a half-dozen Abrams battle tanks in its belly. The effort was rewarded with exactly the kind of headline Wall Street needed to distract the herd from the urgent distribution that has been occurring daily: Dow Tacks on a Modest Gain in Quiet Trading. This innocuous report belies the increasing likelihood that the steep recovery begun on December 26 is about to breathe its last.
This was a constructive week for the Dow Jones, up 1.49% in the BEV chart below. That doesn’t sound like much; but remember low volatility in the stock market is when the Dow Jones does the thing the bulls like most – advance towards new all-time highs.
A few more weeks of this and we’ll see the Dow Jones once again at the red BEV Zero line. But don’t be surprised if it doesn’t happen until later in the year. I don’t expect the Federal Reserve wants to ignite another feeding frenzy in the stock market; they have problems enough to cope with as it is.
By Daniel Amerman – Re-Blogged From http://www.Gold-Eagle.com
In a recent speech, Warren Buffett came down boldly on the side of optimism when it comes to both the economy and financial markets. What he said was “being short America has been a loser’s game… And it will continue to be a loser’s game.”
And to throw down the gauntlet against some the current negative talk in the markets, Mr. Buffett boldly predicted something quite extraordinary – which was that in 100 years “the Dow will be over a million.”
Is that even remotely believable, or is Mr. Buffett getting carried away by his own optimism?