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Quote of the Day

Tuesday, May 15, 2012

May 15, 2012 -- "I have always found it profitable to study my mistakes." Edwin Lefevre

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On yesterday's site I stated that the stock market was moving into the second half or the remainder of the bear market that began on October 9, 2007 with the Dow at 14,164.53. The bear market was interrupted and temporarily halted by the Fed's quantitative easing. The bear was held back or "bottled up" for many months, until recently the bear could be held back no longer.

 

Even as the Dow continued to creep higher, the internals of the market started to deteriorate. Finally the internal deterioration caught up with the generals and the Dow was caught in the weakening. Up until now, the rising Dow masked the deterioration that was occurring under the surface. Recently the Dow declined on 9 out of 10 trading sessions, the longest losing streak since February 1978. This has rendered the Dow chronically oversold, and almost guaranteed to produce a higher Dow today.

 

I would allow the Dow to bounce around for a few days before embarking on its downward path again.

 

Below I show a daily chart of the Dow Jones world index. What we see here is a clear head & shoulders formation that has broken down. It would not surprise me to see the Dow pull back to the support line before heading down again. Remember, after declining 9 out of 10 days, the Dow is entitled to rally.

 

 

  

 

Question -- Russell, the stock market has been hit by every kind of bad news, and the Dow is still holding well above 10,000. Doesn't this suggest a rock solid strong market?

 

Answer -- Yes, it does. But the bear arguments still make sense, and I prefer to play it safe. It seems to me that the momentum of the stock market has turned down. We just don't get any impressive days on the upside any more. I'm waiting to see whether we get any hint of impressive bullish action, such as a rising market on increasing volume. In the meantime, I favor the sidelines.

 

TODAY'S MARKET ACTION:

 

My PTI was down 5 at 6373. The moving average is 6376, so my PTI is bearish by 3.

 

The Dow was down 63.36 to 12632.00.

 

Transports were up 6.66 to 5106.99.

 

Utilities were down 2.29 to 467.94.

 

NASDAQ was down 8.82 to 2893.76.

 

S&P 500 was down 7.69 to 1330.66.

 

There were 1,076 advances and 1,974 declines on the NYSE.

 

There were 42 new highs and 127 new lows.

 

Total Volume on the NYSE and associated exchanges was 4.08 billion.

 

Bonds: Yield on the 10 year T-note was 1.777. Yield on the long T-bond was 2.924.. Yield of the 91 day T-bill was 0.096.

 

Dollar Index was up 0.646 at 81.25. Euro was down 1.09 at 127.36. Yen was down .66 at 124.59. Currency Prices as of 1 PM Pacific Time.

 

June gold was down 3.9 to 1557.1. July silver was down 0.273 to 28.08.

 

June light crude was down .80 to 93.98.

 

My Most Active Stocks Index was down 13 at 232.

 

The Big Money Breadth Index was down 8 at 994.

 

GDX was down 1.63 at 39.34.

 

HUI was down 14.96 at 375.77.

 

CRB Commodity Index was up 0.69 at 289.14.

 

The VIX was up 0.10 at 21.97.

 

Permanent Portfolio Fund (PRPFX) was down 0.40 at 46.86 (previous day closing). YTD Return: 5.47%

 

Late notes -- Dow closed down 10 out of 11 sesions. All the odds say that tomorrow should be an up-day for the Dow.