Gold Is Now Very Oversold

The Dow Jones (DIA) saw a little selling pressure this week; down on Tuesday, Wednesday and Thursday, but up on Monday and Friday.  For the Dow Jones and most of the stock market (if not the Nasdaq Composite) I’d say this week was a net neutral (COMP).  

But last week the Dow Jones’ 15 count increased to a +9, or in a fifteen day sample it saw three down days and twelve advances.  A +9 for the Dow Jones is a very overbought market condition that usually signals a pullback in the advance is due.  Let’s see what happens in the weeks to come.

Are new all-time highs for the Dow Jones finished for a while, as Mr Bear claws back some of the double-digit percentage gains the bulls have been enjoying?  Too early to say, but I wouldn’t be shocked seeing this March finish as a downer for the stock market.

C:\Users\Owner\Documents\Financial Data Excel\Archive\DJ BEV 2007 to 2021.gif

Let’s take a look at the Nasdaq Composite BEV chart next.  The Nasdaq Composite last saw its last BEV Zero on February 12th, and closed the week with a BEV of -8.34%, or down by 8.34% from its last all-time high of Feb 12th.  Looking at the Dow Jones I can feel optimistic about the coming weeks.  But the Nasdaq appears to be leaking “liquidity”; can that be good?

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 695\Chart #2   NASDAQ BEV.gif

Moving to my table of Major Market Indexes’ BEV Values below, there was only one new BEV Zero this week; the Nasdaq Banks on Friday, but there were many other indexes closing the week in good scoring position.  I’d say the two big losers for the week were the Nasdaq Composite and 100 indexes.  Unlike #18 to 20 in the list, both these important Nasdaq indexes have seen new all-time highs in the past month, and then this week they almost sank below their BEV -10% lines on Thursday.

Note on gold (GLD) and silver (SLV) in the commodity table (right-side table).  These are based on weekly closing data (not daily), and on futures prices (not spot).

As it has been for a long time now, my concern for the market is this is a very expensive market, as seen in the gains from last March 23rd’s lows (table above left side).  What I find disturbing is for the past year, many commodity markets have also enjoyed big double-digit advances (table above right side).  The source for this inflation in the commodity market is the same as for the stock market; the Federal Reserve’s FOMC flooding the financial system with “liquidity” as seen below.

But in the past this flood of inflationary funding flowed towards, and was contained within the financial markets.  Until last year there was no overflow into basic foodstuffs and other commodities.  Should this continue, this will be a real game changer.

Also, Presidential-Usurper Biden has shut down much of America’s energy industry, as his former boss before him did with the coal industry.  Biden has also committed the United States to the Paris Climate Agreement – woe unto you and me!

Shipmates: it’s BOHICA time once again.  What’s BOHICA?  It’s a salty acronym for “Bend Over, Here It Comes Again.”

Expect energy costs to increase greatly over the next four years, and these rising energy expenses will impact the price of everything as they work through the economy.   Rising consumer prices will prove to be a huge headwind to the financial markets, currently priced for a sugar and spice, and everything nice future.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 695\Chart #3   Wk Cng Fed Holdings.gif

Rising CPI inflation will also drive interest rates and bond yields up until the debt markets overwhelm the bulls in the stock market.  And rising commodity prices are already having their effects felt in the Treasury Bond Market, as seen below.

This is a 30 year T-bond whose price (Blue Plot) and yield (Red Plot) I’ve tracked weekly since it was issued in February 2011.  It was issued with a valuation of 100, and early last August, its valuation peaked at 170.  It was also issued with a coupon of 4.75%, but when it peaked last August, it was yielding a pathetic 0.95%.

Now imagine you were one of the unlucky souls who last August bought this turkey of a bond.  Not only did you * LOCK IN * an annual return of 0.95% for the next 20 years, but Mr Bear has also clawed back 15% of your initial investment in the past seven months.  It’s only going to get worse in the weeks, months and years ahead of us as commodity-price inflation continues pulling bond yields up, and bond prices down throughout the debt markets.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 695\Chart #4   T-Bond Feb 2041.gif

So, the stock market closed this week not far from its recent all-time highs.  That’s not promising to me when I look at price inflation in the commodity markets and bond yields in the Treasury and corporate bond markets rise significantly since last August.

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Disclosure: None.

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