The week ended with the Dow Jones closing down on Thursday and Friday. Still the week closed with the Dow Jones only 0.60% below its last all-time high made on Wednesday, far from its BEV -5% line seen in the BEV chart below. Seventeen months have passed since June 2016, when the Dow Jones last found itself correcting more than 5% from an all-time high. To my way of thinking, there is something odd about that, something fundamentally wrong about how this market refuses to make normal, periodic corrections.
My concern is when the day comes where the Dow Jones does see a 5% correction, it will continue going down to levels that will shock market watchers. A remarkable dead-cat bounce will follow to once again lure the bulls into Mr. Bear’s meat grinder, before it goes down yet again in a really nasty market decline.
But when is all this going to happen? When we once again see extreme market events occurring regularly in the market. Days of extreme market volatility or Dow Jones 2% days have always been a harbinger of coming of bad times for the bulls in the stock market
Volatility, as I measure it with the number of 2% days the Dow Jones sees within a running 200 day count, has been at zero since August 23, which for the bulls has been a real blessing. Historically, low volatility has been a bull market phenomenon since forever. It’s the old “don’t short a boring market”, and this is one boring market. The chart below plotting the Dow Jones (Blue Plot) with its 200 count (Red Plot) going back to 1990 makes the point.
How much longer the stock market, as measured by the Dow Jones, can continue advancing is a mystery. But market history strongly suggests that until the Dow Jones’ 200 count begins rising above its current zero line, the stock market will continue going up. One thing is certain; a negative 2% day, a 471, or more point down day in the Dow Jones, will be clearly seen in its BEV chart above, and create a shock wave in the market’s commentary. It’s only a matter of time before it happens, and don’t you be shocked when it does.
Until it does, and if what you’re doing is making you money in the stock market, keep playing the game. Just understand that when the Dow Jones once again begins seeing +/- 2% daily moves, it’s because Mr. Bear is changing the rules the bulls are now playing by.
Nothing new or exciting is happening with NYSE’s market breadth or 52Wk Highs and Lows, or anything else with the market. I don’t want to become boring to my readers, so let’s just move on to gold.
Gold’s BEV chart below is encouraging. Closing the week at 32.47% below its last all-time highs of August 2011, places the BEV plot at the bottom of its current down trend, but comfortably above the black trend line I placed on the chart. Just looking at the chart, it seems the current correction in the price of gold is resting on its end point. Hopefully the next thing we see below is gold advancing, and taking out its highs of the summer of 2016, above its -27.5% line.
Gold’s step sum chart below is also encouraging. After the huge collapse in market sentiment (as measured by gold’s step sum / Red Plot) from April 2014 to December 2015, gold is now behaving as if it’s in the early stages of its next big advance.
