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Quote of the Day

Monday, May 21, 2012

May 21, 2012 -- "Nearly all men can stand adversity, but if you want to test a man's character, give him power." Abraham Lincoln



There it is on the Point & Figure chart of my PTI as seen below. The most recent column of Os has broken below the preceding column of Xs and in doing so has given us a sell signal on my PTI. A second and even more critical sell signal would be given if the latest column of Os continues down and hits the area where the arrow is pointed.





The Dow has been down 12 out of the last 13 sessions, and that doesn't seem to have elicited much in the way of negative sentiment. The past masters of the Dow Theory always gave credence to the sentiment of the times matched with the action of the stock market. I've been around markets for over 60 years, and I must say, the sentiment accompanying this bear market with its long string of Dow declines is most unusual. The Dow has been down 12 out of 13 sessions, and people still seem to be optimistic or I should say that people seem oblivious to what's happening in the markets. Even the pros seem to have forgotten that the market's function is to forecast -- to tell us what lies ahead.


Strange but the miserable performance of the Facebook IPO last Friday didn't seem to dampen spirits. A friend down from LA over the weekend told me that the restaurants in LA are packed. Am I on a foreign planet? I see the Dow sinking relentlessly lower day after day, and the general sentiment seems to be, "All's right with the world and fill up the punch bowl."


Friday's close saw the market ending flat, meaning that traders went home for the weekend with few if any inventory of stocks. I noted over the weekend that the Dow futures were down 75 points, and "if" that holds it would mean that Monday's (today's) opening would be down for the Dow (although the market is fantastically oversold).


A few analysts insist that the Dow is "only 30 blue chip stocks" and therefore the Dow is NOT the market. That may be true, but if the Dow continues steadily on a rally or a decline, then in due time the rest of the market will follow.


But even this observation is subject to reservations. Joe Granville uses new highs and new lows as his guide to bull tops or bear bottoms. For instance on April 26 we saw a total of 674 new highs on the NYSEs, and Joe called THE TOP on that day. And Joe was right. No doubt Joe will be looking for a climactic number of new lows (probably well over 1,000) to identify the next secondary or primary bottom.


In a true primary bear market, I use values to identify the bottom -- values often combined with a non-confirmation -- as was the case at the 1974 bottom. If we are now in a true bear market, I expect the final bottom to be accompanied by extraordinary values, with the yield on the Dow as high as 6% or more. Yes dear subscribers, it can happen.


But what about America's consumers? Are they buying (and they always buy on credit) in which case Visa and MasterCard should be showing signs of better times. I show charts of MasterCard and Visa below, and this should hardly gladden the hearts of the bulls. First MasterCard and then Visa.






According to what I see on my stock charts and on my PTI chart, then by late-summer or fall this country should be in recession. The only hope is for more quantitative easing or QE3. But if Bernanke pulls the QE3 trigger and nothing happens, well that could be the most bearish signal of all.


Let's take a look at Morgan Stanley's World Index minus the US. Frankly, it looks worse than the last time I showed this index. Head and shoulders formation and down, down, down. Oversold and still down.





When people want to cut down on expenses, the first thing they do is cut out restaurant chow and eat at home. It's not a bargain these days to go to a fast food joint, such as McDonalds. Go out and buy a few Big Macs for the family, and see what it costs you. And speaking of Big Mac, look what the stock is doing. So what's this, are people deserting McDonalds? Is MCD giving us a glimpse of the fast food future? I hope not.




The whole point of today's and my recent studies is this -- get into cash and send your stocks back to Wall Street. Speaking of Wall Street, I present below a chart of Morgan Stanley, an outfit which in the past has thrived on its retail trade. Same bearish story, everywhere I look.




They say that employment won't increase until home builders get moving. Maybe so, but here's a chart showing home builders breaking down. I mean, everywhere I look it's charts breaking their 50 day moving averages.