Review Of The Week - Plus A Look At The BGMI

In BEV terms, last week found the Dow Jones closing 3.72% from its last all-time high of January 17, or down 1,092 points. In my mind the stock market had the makings of a new correction, or at least a period of rest for the bulls. This was not to be, as by Thursday of this week the bulls took the Dow Jones up by 1,124 points from last Friday’s closing, making a new BEV Zero as they did. Following a surge of upward momentum like that I’m not surprised that on Friday the Dow Jones was down by almost a percentage point. 

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 638\Chart #1   DJ BEV 2013_20.gif

Below is the Dow Jones in daily bars, in which I’ve circled last week’s trading days. The market action seen from Monday to Thursday is something seldom, if ever before seen; very peculiar. If I had to explain what enabled thirty of the largest blue-chip stocks trading on Wall Street to leap into the air like a flock of sparrows, what would I say? Could it be the Tooth Fairy? Possibly.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 638\Chart #2   DJIA OHLC.gif

But more likely this week’s amazing performance for the Dow Jones came from the usual suspect, “injecting liquidity” into the financial system yet again. So I looked to see how much of the US national debt the FOMC had “monetized” this week, and found they had increased the Federal Reserve’s balance sheet by an additional $11.99 billion (see chart below). They’ve been monetizing the national debt in a big way since the end of last September.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 638\Chart #3   Wk Cng Fed Holdings.gif

Fed Chairman Powell this week said the FOMC will continue growing its balance sheet through April of this year, which isn’t the same thing as saying he intends to stop at the end of April. Still, he assures us that this series of purchases of T-debt in the open market isn’t a new round, a fourth round of quantitative easing. Heavens no; they just want to make sure the financial system’s supply of reserves remains “ample.”

“Ample supply of reserves?” The market’s supply of “reserves” have been “ample” since these same people decoupled the dollar from the Bretton Woods $35 gold peg in August 1971. You think not? Look at the following chart – the Red Star marks when they started the clock’s countdown on the dollar’s demise.  

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 638\Chart #4   Dow Jones 1900 to 2020.gif

It takes a lot of “liquidity injections” to drive the Dow Jones from below 1,000 five decades ago to just under 30,000 at the close of this week. In a market that saw the Dow Jones this week advance 1,124 points in just four trading sessions at the NYSE, I wouldn’t be shocked seeing it break above 35,000 sometime in 2020. But then I wouldn’t be shocked seeing the Dow Jones break below 20,000 either.

I’m not making a prediction here. I’m just following the market on a day by day basis. But like Roger, my silver-trading friend always reminds me – the trend is your friend. Right now the stock market’s trend is trending upward, so I’m bullish. And it’s best assuming this will continue to be the case until Mr. Bear begins clawing back valuations from the Dow Jones. Let’s give this percentage clawback a threshold value; say should Mr. Bear claw back the Dow Jones in the BEV chart above down below its -10% BEV line, difficulties sustaining market valuations are becoming problematic for the FOMC.  

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