OTC Interest-Rate Derivative Contracts

I’m back from my three week vacation, three weeks where the market began feeling Mr. Bear’s hot breath on the back of its neck in late December, to now where people can once again anticipate new all-time highs in the Dow Jones.

The Dow Jones bottomed on Christmas Eve (December 24), 18.77% in the BEV chart below, and at the close of this week the Dow has taken back over half of those losses in less than a month.

This BEV chart begins on 09 March 2009, the absolute bottom of the sub-prime mortgage bear market. Since then the Dow Jones’ largest correction was our current market correction, whose recovery from its December 24th low is a bit out of characteristic with the other post March 2009 correction lows.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 584\Chart #1   DJ BEV 09 Mar 09.gif

Most notably is the aggressive recovery from its -18.77% bottom.  With the other three 10% corrections since March 2009, the Dow Jones took its time at the bottom as if wondering what to do next before advancing to new BEV Zeros.  Not so with the latest recovery, where the Dow Jones bounced off the bottom and hasn’t looked back since.

But then the Dow Jones has friends in high places.  Below we see once again how volume for the Dow Jones became inverted during its current decline: increasing on a market decline, and declining after the market resumed an advance.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 584\Chart #2   Dow Jones & Volume 2007-2019.gif

Moving to the Dow Jones in daily bars below, the Dow has once again returned to its pre-October 3rd volatility; the daily moves for the past two weeks has been greatly reduced. I would say that should daily volatility remain low, the likelihood for Dow Jones seeing new all-time highs in the months to come is very high.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 584\Chart #3   DJIA OHLC.gif

But daily volatility, as measured by the Dow’s 200 count, remains bearish. Keep in mind when the Dow Jones sees rising volatility, and producing 2% daily moves from a previous day’s closing price becomes a regular routine, it’s always bearish. Since the October 3rd top in the Dow Jones it has seen sixteen 2% days, with the last on January 4th (see table in chart above).

The Dow Jones’ 200 count (Red Plot below) was at zero a year ago, but this week closed at 17. The Dow Jones (Blue Plot below) hasn’t done all the bulls would have liked it to in the past year as the count increased to 17.  

But two weeks ago it’s as if someone turned off a switch and daily volatility was greatly reduced. Should market volatility continue low in the months to come, as it has these past two weeks, we could once again see the Dow Jones in record territory.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 584\Chart #4   DJ 200 Day Count 1990-2019.gif

The red plot above is daily volatility measured in 2% days in a running 200 day sample; below I have it in daily percentage moves (percentage move from a previous day’s closing price) in a 200 day moving average. The plots from measuring volatility by these two very different methods are remarkably similar.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 584\Chart #5   Dow Jones Volatilty 200 Day M_A.gif

So far the plot above hasn’t moved above the critical 1.00% line, which it certainly will if the market begins to deflate again. However, if the current recovery has legs to it, we’ll soon see this plot reverse to the downside. What will it be? Heck if I know. But right now the Dow Jones is going up, so I’ll say that I’m short term bullish while long term bearish.

But if I had to take a position and hold it for a few years, I’d be very bearish as the stock and bond markets are grotesquely overvalued, and the companies whose stocks and bonds trade in the financial markets have taken on more debt than they can service should the economy turn down – which someday it will.  As it is I see a historic bear market pending, and the post-December 24th advance has done nothing to correct this situation.

Looking at NYSE 52Wk Highs and Lows below, in late December as the Dow Jones hit its -18.77% bottom, the NYSE saw a few days where 40% of its issues made new 52Wk Lows (December 20th & 24th).  After such a decline it’s not unusual to see Mr. Bear take a break. In the past month these listings have recovered and we are now seeing 52Wk Highs increasing.

It takes time for an asset to move from one 52Wk extreme to the other. And it takes lots of money to produce a few hundred 52Wk Highs as was common last January as the Dow Jones made new all-time highs (BEV Zeros) in the table below.  If the Dow Jones’ current advance is successful in producing new all-time highs, it will be very interesting to see how many issues trading on the NYSE make new 52Wk Highs as it does.

Let’s move on to gold and silver.  Below are my plots of gold and silver indexed to 1.00 = 20 August 2015.  Both are advancing, though silver appears to have turned down, but that could change this week.

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Gary Anderson 3 months ago Contributor's comment

We could all be six feet under before the collateral is wrecked by rising bond yields. Otherwise, interesting article.