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Quote of the Day

Wednesday, May 30, 2012

May 30, 2012 -- "Always do right. It will gratify some people and astonish the rest." Mark Twain

 

The market always does what it's supposed to -- but never when. Well, we got a little-noticed bear market signal -- and now what? The market does not have to fall apart immediately after a bear signal, any more than it has to roar northward right after a bull signal.

 

For now, we sit tight and watch what happens. Yesterday was a "good " day, including that the majority of indices that Dow-Jones posts were up, 17 out of a total of 19.

 

This is a very mixed market, and I expect to see a lot of items that I don't usually see. According to Dow Theory, when the Transports failed to confirm the Industrials at the May 1st high, and when both Averages then turned down and broke below their April lows, a primary bear market was signalled. Events don't always happen in the same way in this business, so we'll see how the bear market acts this time.

 

Strangely, in a bear market the length of time that the market rallies can be equal to the same length of time that the market declines. Obviously then, the declines are more vicious than the advances.

 

One bear victim so far is Facebook, that closed at 28.84 yesterday, down another 9%. The stock has lost 24% from its offering price.

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“About Facebook, It seems to be a clear reflection that there was just too much stock issued, that the valuation was aggressive and that a lot of people who lined up to buy it really had no intention of holding it,” Jack Ablin, chief investment officer of BMO Harris Private Bank in Chicago, said today in a telephone interview. The bank oversees about $60 billion of assets.

"Facebook shares closed at $38.23 on May 18, the first day they began trading, giving Zuckerberg a net worth of $19.4 billion. The , California-based company ended the day with a price-earnings ratio of 83.1, making it more expensive than 99 percent of stocks. The company went public as the equity index was heading for its biggest monthly decline since September.

 

"Zuckerberg is now $800 million behind , who ranks 40th in wealth with a fortune of $15.5 billion on the Bloomberg Billionaires Index, a daily ranking of the world’s wealthiest people." -- David de Jong

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Be ready for a wild week this week with consumer confidence down in the biggest drop since last October. Remember, consumer buying represents 70% of the Gross Domestic Product of the US.

 

The charts I keep looking at are Master Card, Visa, Retail and Consumer Discretionary, all shown below. None suggest an increase in consumer purchases.

 

  

 

 

  

  

 

  

 

If consumers are buying, then why don't these four charts look better? Look at the volume as they rally.

 

The KEY to the coming presidential election will probably be employment. Employment growth, has been slow. The most important figures come from non-farm payrolls. The figures are not encouraging. The April payrolls increased just 115,000, well below the expected 165,000. March's numbers were increased or revised upward showing a fat gain of 154,000 from 120,000 originally reported. Overall, the figures are poor, and employment remains weak at a government-reported rate of 8.1%.

 

In general, the employment figures are about what the government wants them to be, and why anyone takes them seriously is beyond me -- but the public DOES take them seriously, even Wall Street does.

 

John Williams' Shadow Government Statistics revised figures show unemployment nearer 20%, which I imagine is about the correct figure.

 

Watch for the Romney camp to emphasize unemployment as we get nearer to election time. And watch for phoney employment figures to be announced by the government.

 

The Dow chart below shows the Dow forming a little up-pointing flag. Such flags, when they point up usually break in a downward direction. We'll see.

 

  

 

It is important to remember that bear markets don't crash immediately. It may require months and even years before the full damage of a bear market is realized.

 

For instance, a bear market started in 1939. It was very a complex and convoluted affair. Even the great Dow Theorist, Robert Rhea was confused by it. That bear market ended in 1942 at 92 on the Dow. Subscribers who own my chart book of the Averages, might turn back to the 1939-42 pages and study that confusing bear market. It was a stern lesson in how to lose money while hoping all the while.

 

By the way, as I write this, we're three hours into today's session. Of the 19 indices Dow-Jones follows, 17 of them are now lower. Only PHLX Gold/Silver and CBOE Volatility are higher. The VIX has been creeping higher; it is now 23.14. The higher the VIX, the more traders wish to buy insurance against trouble.

 

 

TODAY'S MARKET ACTION:

 

My PTI was down 6 at 6365. The moving average is 6374, so my PTI is bearish by 9.

 

The Dow was down 160.83 to 12419.86.

 

Transports were down 108.97 to 5029.64.

 

Utilities were down 3.61 to 465.85.

 

NASDAQ was down 33.63 to 2837.36.

 

S&P 500 was down 19.10 to 1313.32.

 

There were 424 advances and 2640 declines on the NYSE.

 

There were 27 new highs and 72 new lows.

 

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

 

Bonds: Yield on the 10 year T-note was 1.624. Yield on the long T-bond was 2.717. Yield of the 91 day T-bill was 0.074.

 

Dollar Index was up 0.589 at 83.06. Euro was down 1.08 at 123.81. Yen was up 0.71 at 126.50. Currency Prices as of 1 PM Pacific Time.

 

August gold was up 14.70 to 1565.70. July silver was up 0.192 to 27.98.

 

July light crude was down 2.94 to 87.82.

 

My Most Active Stocks Index was down 11 at 219.

 

The Big Money Breadth Index was down 8 at 975.

 

GDX was up 0.15 at 44.24.

 

HUI was up 1.352 at 420.47.

 

CRB Commodity Index was down 4.69 at 275.05.

 

The VIX was up 3.11 at 24.14.

 

Permanent Portfolio Fund (PRPFX) was up 0.10 at 46.42 (previous day closing). YTD Return: 0.50%.

 

Late Notes -- The Dow closed down 160, Transports down 108.

 

Tragedy, the Zuck is off the list of the 40 wealthiest humans. What's next -- trillionaires? It's getting almost disgusting.

 

Gold appears to be bottoming. The euro is near a two year low against the dollar, and I think a lot of billionaires are buying gold "just in case." Just in case the junk fiat currencies become extinct.

 

I wonder if the Fed is buying the Dow? Don't laugh, it will happen somewhere along this bear market. The Prez, the pols and the Fed do not want the good folks of America to feel pain. Anything to avoid pain, but in the end, the pain will be worse. People in pain vote 'for the other side. Obama does not like this bear market. But can Mitt do any better? Mitt, you old fool, you've lost the women's vote and the gay vote, and you can't win without them. There are too many of them.