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Quote of the Day

Wednesday, May 23, 2012

May 23, 2012 -- As of today's closing, Dow down 14 out of 16 sessions! This is one you can tell your kids about.

 

And still no collapse in breadth, and still no crash. The only thing I can make out of it is that a lot of people are "standing their ground". Maybe it's just the Dow that is dying, and the rest of the market is OK. But don't you believe it. The Dow represents the manufacturing capabilities of the United States, and when you see the Dow doing what it's doing, you can be sure that somewhere ahead business is going to take it on the chin.

 

By the way, on May 1st, the Dow recorded a high, but that high was not confirmed by the Transports. The two Averages then plunged below their April lows, delivering a bona fide Dow Theory bear signal. So yes, this is a continuation of the bear market. But it's starting out in a stranger way than any bear market I've ever seen. Maybe the experts are so fascinated with the Dow and Facebook that they're not taking in what's happening.

 

Stay in cash, because I intuit that something BIG is heading our way. After all these years following markets, sometimes I have the feeling that I've seen everything. But not this time. Hey, would you believe the Dow could go down 14 out of 16 sessions, and people would still be complacent? There are so many potentially bearish scenarios in the wind that my head is spinning. Last night, I noted that the Dow futures were down 55 points. I can't remember ever seeing a series like this in my lifetime. As a loyal American, I'd feel better if people were scared out of their wits. What's it going to take to scare people -- the Dow going down to 4000?

 

It looks like a sure thing that Greece will be leaving the EU. Greeks must be pulling out their euros and shipping them to German banks. It must be the same with Spain, which I think will follow Greece out of the Eurozone.

 

Back to the markets. I note that the negative spread between Lowry's Selling Pressure Index (supply) and their Buying Power Index (demand) has widened to 184, the widest on this series. The wider the negative spread, the more bearish the picture.

 

So far, the decline in the market has been fairly orderly; no panic, no hysteria to get out of the market. I wonder how much longer the decline will continue to be orderly. Even the VIX has remained calm with the latest figure being 24.16.

 

My guess is that investors are waiting for the Fed to take action again -- probably in the form of QE3. So why sell before then?

 

Buyers of Facebook are still smarting from their losses, and law suits are starting up with the NASDAQ and Morgan Stanley being the recipient of the suits. Speculators hate to lose money on something that was almost guaranteed to make money, and when that happens -- they do the natural thing -- they sue.

 

Frankly, there's something eerie about what's happening. Bernanke tried to halt the bear. Maybe we should call this the "Grizzly's Revenge." To be honest, what's happening is almost beyond analysis. I have nothing to compare it with.

 

I really have to go on my intuition and instinct at this point. And my instinct is to get in cash. Investors the world over are searching for safe harbors. These seem to boil down to US dollars, Treasuries, German bonds and just maybe gold bullion. Of course, we don't know who owns gold coins since such records are not kept and are secret -- often handed down from generation to generation.

 

How's the world doing? The chart below is Dow Jones' World Index. What I see is a head & shoulders formation that has broken down below both its moving Averages. RSI says it is oversold, so I guess a rally back to its 50-day moving average would be no surprise. The real support comes in at 210 to 215.

 

  

 

The world forces of deflation are still with us as seen on the commodity chart below. They're blaming the commodity collapse on the slowing down of China. When China sneezes, the world catches cold.

 

  

 

Speaking of China, below we see the China 25 Index (comparable to our Dow) going back to June 2010. What do you make of this puzzle? It doesn't look bullish to me. The real support comes in at 28. Note the volume rising as prices sink around last October and November!

 

 

 

 

 

One way of making money in this market is to buy puts with close stop losses. Since the Dow has been the leader on this decline, you might buy way out of the money puts on various Dow stocks and protect yourself with close stop losses.

 

You might buy puts on the Diamonds (DIAs). If it's a bear market, the DIA will go down.

 

But remember, during a bear market cash tends to buy MORE stocks and probably more of everything else when the market goes down. In other words, cash is worth progressively more as the stock market and everything else declines. Thus, those who own cash in a bear market are winners.

 

Why the weakness in gold? Many people are selling their gold to raise cash.

 

TODAY'S MARKET ACTION:

 

My PTI was unchanged at 6361. The moving average is 6374, so my PTI is bearish by 13.

 

The Dow was down 6.66 to 12496.15.

 

Transports were up 59.29 to 5067.25.

 

Utilities were down 2.60 to 465.30.

 

NASDAQ was up 11.04 to 2850.12.

 

S&P 500 was up 2.23 to 1318.86.

 

There were 1851 advances and 1193 declines on the NYSE.

 

There were 17 new highs and 116 new lows.

 

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

 

Bonds: Yield on the 10 year T-note was 1.737. Yield on the long T-bond was 2.817. Yield of the 91 day T-bill was 0.086.

 

Dollar Index was up 0.580 at 82.07. Euro was down 1.46 at 125.74. Yen was up 1.06 at 125.89. Currency Prices as of 1 PM Pacific Time.

 

June gold was down 28.20 to 1548.40. July silver was down 0.660 to 27.519.

 

July light crude was down 1.95 to 89.90.

 

My Most Active Stocks Index was down 3 at 210.

 

The Big Money Breadth Index was down 5 at 981.

 

GDX was up 1.90 at 44.44.

 

HUI was up 16.725 at 421.78.

 

CRB Commodity Index was down 5.06 at 281.44.

 

The VIX was down 0.15 at 22.33.

 

Permanent Portfolio Fund (PRPFX) was down 0.16 at 46.39 (previous day closing). YTD Return: 0.65%

 

Late Notes -- At the low of the day the Dow was down 170 points. But during the last two hours, the Dow started to climb back towards neutrality. I'm writing this one half hour before the close, and the Dow is down only 12 points. We'll see how she closes.

 

Facebook is quoted at 31.95, finally a bit of improvement. Here's a stock with no history of earnings and no history of dividends. I think it's worth maybe 25 at best. But there will be intense competition. It's only a matter of time. Tech changes by the hour, and new geniuses sprout up from all over the US.

 

Apple up 13, Google up 8, July oil down 1.95, June gold down 28 to 1548, PM down 0.73, FXI (China) down 0.38 to 33.25, Goldman up 0.50 to 98.05, NEM up 1.38.

 

Dow spent the last hour rallying with probable short covering (if they didn't cover they were crazy). The Dow ended down 6.66 which means that the Dow has been down an incredible 14 out of 16 sessions. It will be a while until we see that series again.

 

By all the odds, the Dow should rally tomorrow. If it can't, this market is even weaker than I thought. On the NYSE, 17 new highs and 116 new lows. Of the 19 indices that Dow Jones posts daily, 14 were up. Amazing, the VIX closed at 22.33. What, me worry?

 

For me, the whole Facebook thesis is a bore. I'm not going to spend hours looking up who my high school buddies have divorced, or the latest recipes of their wives. I'm happy with my daughter, Daria's cooking (she makes great bean salad, in case you are really interested).