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Quote of the Day

Monday, February 27, 2012

February 27, 2012 -- "Some day my boat will come in, and with my luck I will be at the airport." --Graffiti

 

What we're seeing now is flagrant divergence in the D-J Averages with volume sinking precipitously. This is a dangerous situation -- acute divergence in the Averages on sinking volume -- not good, not good at all. I feel that low volume in this case is highly significant. It's as though the very heart of the market is whispering "caution," as the smart money pulls back on its buying. It's notable that volume picks up on days when the market is down (a sign of institutional selling).

 

I've been reading two issues of my favorite magazine -- The Economist. They read like doomsday editions. Car makers in Europe (Germany is an exception) are doing poorly. The electronics business in Japan is lousy. Taxis in NYC are having a hard time -- a medallion in the City cost over a million bucks! The pharmaceutical industry is seeing hard times. Britain is nearly in depression. The Greek mess is still far from settled.

 

It seems to me, after reading the Economist, that the world is definitely being affected by deflation. Yet the strange thing is that the price of art and jewelry is going through the roof. Why? It's obvious (at least to me) that multi-millionaires and billionaires are placing huge amounts of money in tangibles and auctioneers can't believe the prices some of their top items are bringing in.

 

All of which reminds me of why I find my business, and economics in general, so fascinating. Here we are with the Dow perched on the 13000 level and no one knows whether the Dow will hurdle 13000 or whether the Dow will fail miserably. My good friend Joe Granville states that according to his on-balance-volume figures the "internal" market hit its peak on January 3, and that more than half the stocks on the NYSE are well below their highs. Joe believes the "external" market (the Dow) will soon follow.

 

Lowry's Selling Pressure Index (supply) is still above their Buying Power Index (demand), which, at least, allows for a sudden drop in the market.

 

All of which I find fascinating. Here we are, edging in on a presidential election, and the stock market may be predicting the winner. If the Dow breaks above 13000 and keeps on going, Obama will almost surely be with us for another four (ugh) years. But if the Dow breaks down from here, almost any GOP character will be our next Prez.

 

Yet with trillions of dollars on the line, nobody knows with any certainty which way the market is heading. We can only guess about the results -- once the true direction of the Dow is finally known.

 

And here I am, 87 years old, and still (like a three year old) learning or re-learning how to walk after a busted hip. One thing I've learned for dang sure, be careful when I take a shower (that's where I slipped and broke my hip). And I'm getting tired of people telling me to "be careful." Of course I'll be careful, I don't want to go through this again.

 

I understand that there are 275,000 hip replacement operations every year in the good ol' USA. And speaking of statistics, I understand that every day 125,000 head of cattle are slaughtered (much of the poor beasts go to make hamburger). I understand that eating meat is a very expensive way of obtaining your protein. Beans and rice would be far more cost-effective -- and produce way less gas. My gorgeous daughter, Lauren, is a total vegan. Learn from the young, I say.

 

I've posted daily charts of the Dow and the Transports below. Study the Transports, and note their direction over recent weeks. This is dramatic divergence as the Trannies head down while the Dow continues to climb.

 

  

 

  

 

Gold (below) has formed a broad head-and-shoulders bottom with the upside breakout coming in at 1800. April gold has been hammering on the 1700 support level for days, and so far 1700 has held. If 1700 won't give way, then gold should be able to take out 1800. What won't go down -- should go up. At least that's the theory.

 

  

 

TODAY'S MARKET ACTION:

 

My PTI was up 2 at 6386. The moving average at 6344, so my PTI is bullish by 42.

 

The Dow was down 1.44 to 12981.51.

 

Transports were up 31.94 to 5171.08.

 

Utilities were down 0.58 to 452.76.

 

NASDAQ was up 2.41 to 2966.16.

 

S&P 500 was up 1.85 to 1367.59.

 

There were 1515 advances and 1502 declines on the NYSE.

 

There were 137 new highs and 5 new lows.

April light crude was down 1.21 to 108.56.

 

Total Volume on the NYSE and associated exchanges was 3.49 bn.

 

Bonds: Yield on the 10 year T-note was 1.93. Yield on the long T-bond was 3.05. Yield of the 91 day T-bill was 0.10%.

 

Dollar Index was up 0.22 at 78.57. Euro was down 0.62 at 133.98. Yen was up 0.79 at 124.30. Currency Prices as of 1 PM Pacific Time.

April gold was down 1.50 to 1774.90. March silver was up 0.18 to 35.60.

 

My Most Active Stocks Index was up 5 at 300.

 

The Big Money Breadth Index was down 2 at 1016.

 

GDX was down 0.40 at 56.06.

 

HUI was down 5.33 to 536.56.

 

CRB Commodity Index was down 0.82 at 325.09.

 

The VIX was up 0.88 to 18.19.

 

Permanent Portfolio Fund (PRPFX) was up 0.01 at 49.72 (previous day closing). YTD Return: 7.88%.

 

Late Notes -- Looks like the Dow has yet to close above 13000. Not great volume, but like football, we'll take what the defense gives us. The question remains-- Is there enough momentum to close the Dow above 13000? Personally, I don't think there is, but as subscribers know, I've been wrong before.

 

As for April gold, sadly, it's not as strong as silver, and gold just seems unable to close above 1800. Grrrr, I'm just going to wait it out.

 

My theory -- the economy turns unexpectedly weak, and the Fed (remember the coming presidential election) goes all out in creating tons of more money. This hurts the dollar and gold goes higher and higher.

 

It's all based on the thesis that global deflation will hurt business, including US business. Today every nation wants to export, which means that every nation wants a "cheap" currency. Beggar thy neighbor is the trend.