A Grotesque And Nasty Chart


C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 691\Chart #1   DJ BEV 2007 to 2021.gif

Last week the Dow Jones closed down almost 4%, and I was seriously thinking of purchasing a few Russell 2K puts to profit from the coming double-digit percentage correction. This week closed with the Dow Jones just short of making its twelfth Post March BEV Zero, another new all-time high. 

Note: a good friend of mine and true man-of-action in the markets, Roger, liked this idea of puts on the Russell 2K, and informed me that though they exist, they are a thinly traded and illiquid market. Roger told me options on the big NASDAQ indexes were better indexes for buying puts.  

This week’s two week round trip (Black Circle below) isn’t the first time this has happened in the past year; a serious one week decline followed up by a full recuperation one week later. The same thing happened just after Halloween this year, as seen below (Red Circle) in the daily bar chart for the Dow Jones.  This is really weird market action; one big down week followed by one big up week, which in both cases has the feel of bear-market interruptus by the powers-that-be, but who knows. Yes, the “policy makers” hands in action are seen in the two circles below, successfully preventing a market decline such as we saw last March.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 691\Chart #2   DJIA OHLC.gif

Anyway, by the end of the week the major market indexes I follow were once again making new all-time highs, or BEV Zeros as noted in red below. On Friday’s close there were nine BEV Zeros, with seven more indexes within scoring position, or within 5% of making a new all-time high. It’s last week’s bearish market action cancelled by command.

Am I still thinking about buying some puts in the market?  They are certainly cheaper at the end of this week than they were last Friday.  I also believe that if one were to purchase out-of-money puts that expire next August, there is a good chance they’d expire in-the-money within the next six months. But doing so now would be no better than placing a sucker’s bet at a craps table in Vegas.

But look at how overvalued the stock market is in February 2021 in the table at the lower portion of the graphic above. This is how 2021 came in, with these major market indexes up 60%, and much more from their lows of last March. These are not normal advances, but the lingering consequences of last year’s massive reflation efforts of the FOMC with their Not-QE#4, and as such these gains are vulnerable to market gravity in the coming weeks and months.

Is Mr. Bear going to allow this to continue for the entire year of 2021?  I have to say no way, which reclassifies the list above as low hanging fruit in the next market correction, or even coming bear market. I’m keeping Roger’s idea of purchasing a put or two on the NASDAQ Composite Index (#2 in the list above) close to heart as 2021 progresses.

As seen in the NASDAQ Composite BEV chart below, powerful market declines are not rare-market events for this index. If one gets the timing correct, lots of money can be made speculating on the NASDAQ Composite with puts. But getting the timing right is not that simple, as I, and many others have discovered in the past.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 691\Chart #3   NASDAQ Comp BEV.gif

Here’s the Dow Jones with its 52Wk High and Low lines, along with the four Quantitative Easings the FOMC has “injected” into the markets. Last March’s 37% market decline, as well as its recovery to new all-time high in a little more than seven months are the stand out features in the chart below.

From a Dow Jones all-time high on February 12 to a -37% market correction in only twenty-eight NYSE trading sessions later is a market first. Then from the Dow Jones’ March 23 market low to its next all-time high on November 16, a full recovery from such a deep market decline so quickly is odd too!  Don’t take my word for it; look at the chart below.

What is the FOMC’s next trick? I don’t know, but should the financial markets be left to their own resources, without the assistance of the “policy makers” and their minions’ massive efforts to “ensure market stability”, I wouldn’t be shocked seeing an even deeper Dow Jones decline than -37% in twenty-eight NYSE trading sessions time frame sometime before 2021 comes to an end.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 691\Chart #4   DJ & 52Wk Lines.gif

I like publishing a chart of the Federal Reserve’s balance sheet every few months, so here it is below, and what a grotesque and nasty chart it is too.  

The Quantitative Easings; QE #1&2 reflated the financial system brought down low by Wall Street’s sub-prime mortgage fiasco. QE #3 seems a bit gratuitous, done only to further inflate market valuations. I say that because by January 2011 (two years prior to QE #3) Doctor Bernanke’s “policy” had already moved past the crisis and on to “economic growth” as seen in the CNBC quote below.

“Policies have contributed to a stronger stock market just as they did in March 2009 [March 2009 was the Dow Jones’ 54% bear market bottom], when we did the last iteration of this. The S&P 500 is up 20% plus and the Russell 2000, which is about small cap stocks, is up 30% plus.” Doctor Benjamin Bernanke, CNBC Interview with Steve Liesman 13 Jan 2011 (1:40 PM).

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