Quantitative Tightening Continues

The Dow Jones continues correcting, closing this week below its -5%BEV line in the BEV chart below.Time to panic? Well, in a bear market the first loss is always the best loss; meaning it’s best to panic early and sell everything before everyone else does – at much greater losses. But I’m looking at the Dow Jones’ advance since the December 24th bottom in the BEV chart, an advance from below its -18% BEV level to almost its -2.50% BEV line on February 25th; that’s a big two month, 20% move with no significant correction.

So I’m not ready to toss in the towel on the bulls just yet. Like all moves in the market, this downward move in the Dow Jones will someday bottom and once again advance. On this coming advance should it break above the -2.5%BEV line, I’m expecting more new BEV Zeros for the Dow Jones to come. But failing that, my advice is to get the heck out of the stock market.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 591\Chart #1   DJ BEV 2013_2019.gif

Understand that predicting market moves today is tricky, as today central banks have a personal and well known investment in them. And as central banks have unlimited funding via the monetary inflation they produce, if they want a market to advance, they can make that happen. Or can make that happen until the debt these central banks have created in government, corporate and individuals’ balance sheets overwhelms the economy’s ability to service it.

A big problem for the FOMC is since Paul Volcker was Chairman of the Federal Reserve (August 1979 to August 1987), everyone became very aware of the power over the markets the Fed possesses. But before Volcker’s congressional testimony on double-digit CPI inflation in the late 1970's and early 1980's, congressional testimony which the network news outlets, (which were the only news outlets at the time) gave extensive coverage, most Americans were ignorant of the existence of the Federal Reserve, and that was how central bankers liked it.

Alan Greenspan followed Volcker as Fed Chairman, and Greenspan loved the fawning coverage the media gave him. I was in the Navy at the time, and I saw how Greenspan, and his ever inflating NASDAQ bubble made him famous in Asia and the Middle-East. I believe he was the most well-known and beloved American in the 1990's, until the high-tech bubble popped in 2000.

But before Greenspan and Volcker, bull and bear markets were once understood by most investors as manifestations of “market forces” and not the manipulation of interest rates and “injections of liquidity” by the Fed into the market. 

The mainstream financial media can write about bull markets as if they are a thing unto themselves; no need to credit the FOMC for a rising market. But come a bear market and all eyes become focused on the Federal Reserve, with the expectation of tens-of-millions of voters for the Fed Chairman to do something to stop the pain.

This is not a healthy situation for the financial markets to be in. Overvalued assets are never allowed to find their fair-market value, insolvent assets are never written off, and the debt load weighing down the economy is encouraged to expand towards a breaking point.

But we’re not at that breaking point as of today. So, I still expect the Federal Reserve will continue to support the stock market, and wouldn’t mind if the Dow Jones made a few new all-time highs in the coming year.

Looking at the NYSE 52Wk Highs and Lows below, 52Wk highs for the current advance (lower table) have been light, but for the last month we’ve seen more daily 52Wk Highs than Lows until Friday, March 8. You can compare that to the 52Wk High –Low action from last year (top section of table) when the Dow Jones was making new all-time highs on almost a daily basis as NYSE 52Wk Highs dominated 52Wk Lows.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 591\Table #1  NYSE 52Wk Highs and Lows.gif

The daily bar chart for the Dow Jones became interesting this week, with it closing down every day. But unlike the down days of last week, Mr. Bear clawed back some market value this week. Let’s see if he can take the Dow Jones below the line of support in the chart. 

Personally, I’m thinking that’s not going to happen. However I’ve been wrong before, and I promise you I’ll be wrong again in the future. But until we see the Dow Jones once again seeing those dreaded days of extreme volatility – Dow Jones 2% daily moves, I’ll remain short term bullish.

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