Looking At Market Capitalization: 1975 And 2019

 

But Chairman Powell’s fear of Mr Bear may be doubted by the continuation of his program of quantitative tightening (QT) seen in the chart below. These are the monthly changes to the Federal Reserve’s holdings of US Treasury debt held as monetary reserves. Since March 2018 the FOMC has contracted its holdings of T-debt by double-digit billion dollar reductions.

The market can’t maintain its current inflated market valuations if the FOMC continues deflating its balance sheet.

Like the stock market, current market action in the gold and silver market is tedious.  In the chart below; whether the next big move for gold will be to break below my trend line, or break above it BEV -27.5 line, should current market conditions continue, it will do so with as few people watching as possible as gold is such a boring market.

I’m not making any predictions here, but as old subscribers to Richard Russell’s market letter will remember, bull markets typically begin with few people paying any attention to its advancement. I know the bull market for gold began in 2001, but the current lull in market excitement for gold may be the springboard to its next big move up.

Not that many “market experts” care, but currently in gold’s step sum chart market reality (price) and market sentiment (the step sum) are both trending up. But we should care as the most bullish thing any market can do is advance in price.  Should these plots continue advancing, a day will come when everyone will care, but at much higher prices, which is exactly what happened when the late 1990s’ bull box closed. 

A step sum plot is only a single item A-D line using the daily closing prices of a market series for its inputs. So, with the decline of the step sum in the late 1990s we see down days overwhelming the gold market, creating a foul market sentiment. 

And what were the consequences of the multi-year declining step sum (market sentiment) on the price of gold (market reality)? Not much at all as the price of gold oscillated between $250 and $300. When the bull box closed in 2001, and gold’s price and step sum plots reversed to the upside, the second post-Bretton Woods gold bull market began. A bull market that I believe continues today, though it may not feel like it.

We see a little four month bear box in 2008.  Then after gold saw its last all-time high in August 2001, athirty month bear box developed.  For the next two and a half years the price of gold did little but decline, while gold’s step sum (market sentiment) refused to follow. This was because the bulls in the gold market saw every daily decline as a buying opportunity, and bid up the price of gold the following day. This bullish market sentiment during a major market decline resulted in about as many up days as down, creating the bear box in the gold step sum chart.

This bear box closed as market sentiment (the step sum plot) once again recoupled to the bearish price trend gold found itself in for over two years.  Typically, at the closing of this bear box most of the decline in the price of gold had already occurred. That didn’t matter to the bulls, who now only wanting out. The step sum’s decline signals the change in market psychology where the bulls now saw every daily advance as an opportunity to sell.

Note the near vertical collapse in the step sum from November to December 2015. This marks the capitulation stage of the August 2011 to December 2015 bear market in gold, making the close of 02 December 2015 ($1053.16) a very hard bottom for our current advance in the gold market.

How hard a bottom? The November 17th 2015 gold step sum was a -13, and silver’s step sum was a historic -15 a day later on the 18th.  The following table displaying the 15 count shows this historic market action; with gold seeing only one up day in fifteen, and silver seeing fifteen consecutive daily declines. It’s from bear-market extremes such as these that historic advances come from.

Here are two charts showing the history of gold and silver’s 15 count extremes. Seeing a (+/-) double-digit 15 count is rare market event, but the extreme lows gold and silver hit in November 2015 were historic.

Here’s the step sum chart for the Dow Jones. As I said at the beginning of this article, I’d like to declare our current bear box as a failure.  But I’m not going to do it until the Dow Jones clears the line of resistance in its daily bar chart seen above.

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