Valuing The Stock Market With Dividends

What a week for Mr. Bear!  The Dow Jones closed 9.09% from its last all-time high of October 3.  That by itself isn’t a concern of mine.  As seen below, since last January the Dow Jones has seen lower levels in the BEV chart.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 578\Chart #1   DJIA BEV 1982_18.gif

It’s the market’s internals that has me concerned; look at all the days of extreme volatility (Dow Jones 2% days) in the table below.  Last January when the Dow Jones came just short of breaking below its BEV -15% line above, it did so on six of these extreme days. These days of extreme volatility stopped after March 26th; the market then recovered and went on to four new all-time highs for the Dow Jones in late September and early October.

This time seems to be different; we’ve seen ten Dow Jones 2% days since October 10th, with the last two just this week. During prolonged market advances, we can go for years without seeing a single one of these. However in the last year we’ve seen sixteen of them, closing this week with a Dow Jones 200 count of 13.

Here’s a chart for the Dow Jones (Blue Plot) and its 200 count (Red Plot: the number of Dow Jones 2% days in a running 200 day sample).  We’re only looking at the high-tech, sub-prime mortgage, and our current market bubbles. But the following has been true for all the 20th century bear and bull markets:

  • Bear markets begin on increases in the Dow Jones 200 count

  • Recoveries from bear market bottoms begin on decreases in the Dow Jones 200 count.

Currently the count is at 13 as the Dow Jones has declined by 9% from its last all-time high of October 3 (26,838), which on the face of it is no reason to panic. What leads me to want to panic before everybody else is looking at the rise in the Dow Jones from its March 2009 bottom.  

During a nine and a half year period, the monetary maniacs at the FOMC inflated the valuation of the Dow Jones from 6,547 to 26,828. That’s an advance of 20,828 points in the Dow Jones or 310%. As this bubble inflated, everyone loved the Federal Reserve and its “monetary policy.” But inflationary bubbles in the market have never been a source of permanent prosperity; the post March 2009 bubble seen below won’t be an exception.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 578\Chart #2   DJ 200 Day Count 1990-2019.gif

NYSE 52Wk Lows have dominated the market since September 14. On Thursday this week the NYSE 52Wk H-L Net was -613, the deepest decline seen by this indicator since the Dow Jones peaked on October 3. The NYSE can’t have a bull market if a rising number of its issues continue deflating to their 52Wk lows, which seems to be the case in early December 2018.

Here’s the Dow Jones in daily bars. What’s there to say except volatility just keeps rolling in? Since October 3 it’s like the surf crashing on a sunny beach when a big storm is raging somewhere over the horizon.  

Since October 10 there have been ten NYSE trading sessions where the Dow Jones has moved >+/-2% from a previous day’s closing price, or ten Dow Jones 2% days.  And Post October 3rd, even the days that didn’t move 2%, most saw oversized daily volatility when compared to the market pre-October 3rd.  Something has changed since early October, and I believe that change is Mr. Bear has returned to see what mischief he can do to investors’ portfolios.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 578\Chart #A   DJIA OHLC.gif

Last week I noted:

“I last wrote an article on Friday November 9th as the Dow Jones closed with a value of -3.13% in the BEV chart below.  Three Fridays later and the Dow Jones closed today with a value of -4.81%.  Not much of a difference, until we note between these two Fridays the Dow Jones almost broke below its BEV -10% line only six NYSE trading sessions ago; last Friday November 23rd.  Then, beginning Monday this week the Dow Jones recovered 1252 points, a full five BEV points in only * FIVE trading sessions *: very impressive.”

Not to be outdone, Mr. Bear this week from Monday’s to Friday’s close (Market was closed Wednesday for George HW Bush’s memorial) declined by 1437 points in only FOUR trading sessions, even more impressive.

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