Silver Prices and the Dow Jones in a Bear Market
I see a very bearish situation developing in the stock market. The coming “fiscal cliff” and pending punitive-income & Obama Health-Care taxes ARE affecting investor sentiment. Starting on the day after the election, last Wednesday November 7th, the stock market dropped below 13,000. And the last five days for the NYSE’s 52Wk High-Low Ratio were net negative. We haven’t seen five negative days in a row since the first of June last summer.
Ordinarily this is no big thing, and so far the 52Wk H-L Ratio is far from the extremes seen in bear markets. But considering what’s happening in the world today, it’s reasonable to assume that the smart money recognizes that waiting for higher prices in the stock market isn’t the smartest thing to do right now. No doubt about it, many people have lowered their price targets, selling their stocks at lower prices that they were asking for just early last week. Believing that more 52Wk Lows than Highs are likely in the foreseeable future isn’t an unreasonable opinion to have today. After all, Wave #4 is now five months long, and its NYSE’s 52Wk Highs began decaying in early October. This is a very rational reason to reduce one’s exposure to the stock market. You know, you don’t always have to be in the market, sometimes it’s best to take your profits, pay your taxes (before they rise in January) and wait for a while.
The question I have is what is going to happen with the money now being pulled out of the stock market? Are people going to let their profits sit in their sweep accounts, waiting for better prices in the stock market, or is this the beginning of the flood of money that will eventually exit the financial markets, destined to flow into gold and silver? This will all depend on what happens in the next six months.
I personally believe that six months from now, the Dow Jones will be in a major bear market as gold and silver begin their assent to levels few could believe are possible today. Let’s say plus $3000 gold and $100 silver, with more to come as the financial markets continue to deflate.
Looking at the chart for the NYSE 52Wk H-L Ratio, it looks like wave #4 is about to terminate after a nice six month run. This chart isn’t bull market friendly for the Dow Jones and NASDAQ!
Note for the data below; I started the current Dow’s BEV series at the March 2009 bottom. So the last high of the move was October 05 2012, not October 2007.
How do market crashes appear from their last all-time high (or their Terminal Zero; TZ) of a bull market or significant bull-run, to the point where everyone is running from the market for their lives? Big market crashes take their time before anyone notices, as seen in the chart below. I took the Dow Jones crashes of 1929 and 1987, and aligned their TZs together at day Zero in the chart, along with the silver crash of late April 2011, with our current Dow Jones downturn. Day 1 is the first daily decline after the TZ (last all-time high, or high of the move). The Green Plot for our Dow Jones is a bit hard to see, but it’s there by the BEV -5% line.
This chart is good, but the table below is a better graphic to understand the mechanics of market declines. The figures listed in table are Bear Eye View values seen in the chart above; percentage declines from their TZs.
I can’t say that the Dow Jones’ current decline (blue and grey column) is the beginning of a new market panic, or the start of a Dow Jones -40% bear market. But day 27 for the crashes of 1929-32 or 1987, didn’t look so bad either. Day 27 for the Dow Jones’ 1929 crash had just crossed its BEV -10% line, and few, if anyone felt concern that the Dow Jones had declined 14%.
I included the two steep silver sell offs of 2011 in the table above, because silver’s declines are just so weird. The April 2011 crash took only five trading days to decline over 27% (wow!). Both silver declines broke below 30% from their highs in less than 20 trading days. Note how day 20 for the 1929 & 87 Dow Jones crashes saw declines of well under 10%.
My silver step-sum chart shows these two crashes in silver within the dark orange box. This market manipulation in the silver market is so obvious; but this too shall pass. I’ll tell you something else that too shall pass, or maybe is now in the process of passing – the Dow Jones going up 100% as its trading volume crashes 60% from 2009 to 2012.
This 60% collapse in trading volume tells us that natural demand for stocks trading on the NYSE is now gone. And the spectacle of seeing the Dow Jones rise up 100%, as NYSE trading volume declined 60% in the past 3.5 years just drives me batty as it is unnatural! WARNING: The only thing currently supporting the Dow Jones is an air-pocket inflated underneath it by Doctor Bernanke, who I admit is not only a brilliant-economic quack, but a very dangerous one too. I fear that a historic stock market crash is pending, and maybe it’s just around the corner. This is a good time to reduce one’s exposure to the stock market, and maybe increase one position in the gold and silver market.
Heffernan Capital Management
Business Development Director – Private Client Group,
3 Raffles Place #07-01
Bharat Building Singapore 048617
Tel: +65 6329 6408
Fax: +65 6329 9699
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