Dow Jones 2008 Crash: Dow Utilities Holding Up Nicely
Dow Jones 2008 Crash: Dow Utilities Holding Up Nicely

Dow Jones 2008 Crash: Dow Utilities Holding Up Nicely

Dow Jones 2008 Crash: focus on the trend and not the noise factor 

Dow Jones 2008 Crash

Dow Jones 2008 Crash

Dow Transports & Utilities; Until they break Down Dow unlikely to break down

It appears the comments we made last week became a reality. The new is terrible, the outlook is gloomy, and the doomsayers are having a field day. Once again the financial world is about to end at least as far as they are concerned, and the masses are slowly starting to stampede for the exit which always happens to lead to the edge of a steep cliff. Market update Nov 6, 2007

Fear is a very destructive and negative emotion

Fear is a very destructive and negative emotion

If left uncontrolled and most individuals never master control of this useless emotion; there are slaves to this emotion till the very end. In order for one to develop one’s skills in the arena of mass psychology, one needs to overcome fear, failure to over fear results in destruction. There are only two states of mind in the markets‘peace or pieces‘. If you want to be among the few who have peace of mind you need to learn to conquer the emotion of fear.

While we focus on Mass psychology we also pay attention to the Technical picture.  From a technical point of view, the Dow transports are holding up well as are the Dow utilities so we expect the markets to continue trading in a wide upward range. When the Dow transports or Utilities breaks down then we will take on defensive measures. We tend to give more credence to Dow utilities (alternative Dow Theory) as they are a better indicator of what one should expect from the markets.

Dow Jones 2008 Crash: Dow Utilities Holding Up  Nicely

Unless the Dow transports close below the Main uptrend line on a monthly basis, the outlook for the markets will remain positive. However, if they do, we can expect a series of new lows.  In the short term, this will prove to be painful for investors that are fully invested in the markets, but it will pave the way for the birth of a new super bull market.

When Masses Panic its time to be happy

Dow Jones 2008 Crash  equates to opportunity

It’s a lovely sight indeed for the advanced student of mass psychology. Everyone started to panic when the Dow nose dived last week and as predicted the masses fled for the exits and down the very steep ledge that was waiting to so happily greet them.  This same action repeats itself again and again and indeed one could actually simply blank out the times, dates and look at the same picture 10 or even 100 years from now and nothing would have changed.

The mass mindset is doomed, no more like destined for failure; instead of seeking light, it seeks darkness, instead of seeing the opportunity it sees disaster and instead of analysing the action logically it does so in a frenzied and fearful state.  And when its time to start preparing for a disaster the mass mindset is busy celebrating and proclaiming that the good times will never end.  From the time of the tulip mania to the very recent housing bubble man has only managed to sharpen his skills and exceed in one field only and that is the field of stupidity.  Dow Jones 2008 Crash, if it comes to pass, will prove to be a monumental buying opportunity.

Stupidity is in a Super Bull Market

If one could plot a chart of stupidity one would be stunned at the result; one would find that it has been in a perpetual bull market since its inception and has yet to experience even one major correction.  In this area man has no equal; he is the most stupid of all animals when one truly looks at the situation with open eyes. Yes he can design some of the best machines in the world, harness energy from sources that no other animal or creature could dream off and dream of grandiose plans and on many occasions bring them to fruition but in the end man uses all his talent to destroy himself and as many others as he can in the process.

The commandment of love thy neighbour as thyself has never been taken seriously

In fact, the only thing most chaps are good at is destroying their neighbours as fast as they destroy themselves if not faster.  What creature out there so fanatically and desperately tries to chase money and make more even though it has enough to feed and clothe itself adequately for decades? The answer, of course, is a man only. If an alien race had to look down upon us what would they see? They would see a bunch of crazed individuals following strange charts, glued to tubes that flash strange images, trying so desperately to figure out the direction of the next move.

These aliens would then wonder why is it with all the beautiful things around in this world do these strange creatures spend so much time trying to own as many green pieces of paper as possible.  Indeed if we were ever to run into another intelligent life form, we would be hard-pressed to come up with a sensible answer.

Now don’t get us wrong we are not advocating that individuals should live on love and fresh air nor are we going to come out with that mumbo jumbo that states living in poverty or with very little is what brings one true happiness; no far from it only fools make such assertions. What we are stating is that after a certain point is reached, money brings very little happiness, therefore after you reach a stage where your basic needs are taken care of and you are able to save a bit every month, stop chasing money and start to seek it.

Those that seek riches find it those that chase it instead end up with rags

Why won’t this cursed Stock market bull market crash? Because misery loves company

The market cares about no one and no matter how much you cry, or try or scream or dream you cannot tell the markets what to do.  What you can do is position yourself, but do not wait for something terrible to happen and then chastise yourself for not positioning yourself in advance.  Also, do not try to wait for the perfect top or bottom before you position yourself for the next move. Understand that you are human and as such, you can and will make mistakes but what one should do is learn from their mistakes and not repeat them over and over again.

If one does not learn from their mistakes then what’s one’s purpose in life; would it not be like watching a re-run of the same TV show a 1000 times. All of us would lose our minds after seeing the same show  say a dozen times let alone a 1000 times; yet when it comes to behavioural patterns there is surprisingly very little difference between those of the uneducated, less developed, mentally deficient caveman that existed thousands of years ago and the so-called sophisticated beings of today. Take away the clothes, the razors or electric shavers, throw in a loincloth and leave these chaps for some time in the wilderness and you will have a perfect caveman.

Nothing has changed: Fear Still Dominates

Dow transports intact and fear dominates the Markets

The point of this lengthy discourse is that from the times of the first observers of mass psychology such as Gabriel Tarde, Montaigne, Gustave Le Bon, Charles MacKay etc. nothing much has changed. Fear still controls man and put several dozen individuals in a room and subject them to fear and the results multiply astronomically. Today this big room has a new name; it’s called the internet and it has enabled the emotion of fear and its silly brother joy to spread like fire on a moments notice.

As stated last week the markets experienced their first selling climax and 75% of the time this usually produces some sort of relief rally within 3-9 days. It appears that today’s move up could be viewed as that relief rally. If we look at the volume, it was not that impressive. The markets closed lower both on Friday and Monday and on both days the volume was higher than today’s volume. On Friday it came in at 4.587 billion shares, on Monday it came in at 4.192 billion shares and today after the massive move up it came in at only 4.14 billion shares.

One would have expected at least 5 billion shares given the intensity of this move up.  Another thing that makes this rally suspect is that all the moving averages of new lows we keep trounced the moving averages of new highs; this usually does not occur when the markets are ready to take off.  What this means is that there could be one or two pullbacks and we could still end up testing the lows (12500 ranges) before its all said and done.

A Silver lining

There is a silver lining as there always is; the problem is most don’t look they just react.  Last Thursday the SP 500 ended the day slightly higher than its previous close but what stood out was that the volume spiked up; 5.48 billion shares traded as opposed to 4.35 billion on Wednesday. This is a sign of accumulation and it appears that the smart money was positioning itself for the next leg up.

As these guys have massive purses they need to do this slowly as taking a huge bite could move the markets tremendously and cost them several billion in lost profit. If this pattern is true, then they are most likely going to continue buying on the dip.  In addition, our smart money indicator is incredibly close to flashing a rather large positive divergence signal on the daily charts. If it does this, (focus on the word “if”) it will be the first time in years it has done so and we will have to respond by advising all risk-takers to seriously load up on call options as the possibility of the Dow going to put in a new all-time true high would go up by a factor of 10.

A positive development on the Nasdaq

We also have another very positive development. The NASDAQ’s SD bands have put in another new all-time high and the Dow is just 148 points from putting in another new one too. In one week the NASDAQ’s bands expanded a whopping 242 points; on a percentage basis, this amounts to a 126% increase.  Huge massive spikes such as these are very rare developments indeed and combined with the other bullish factors ( such as strength in the Dow transports) it could truly provide the grounds for a spectacular rally that will most definitely catch most traders with their pants down.

 

Conclusion

The Dow transports are strong for now and the  Smart money continues to lighten up on its short selling (and it’s doing very little these days) and the smart money is still holding onto the smallest short positions on record. NYSE short interest is still more or less trading in record territory and the dumbest of the dumb money represented by the chaps that short odd lots of shares are busy increasing their short positions.

The NASDAQ SD bands have put in a new record high and as the NASDAQ is the more speculative of the two indices, it indicates that there is a very good chance that the markets are preparing themselves for a rather spectacular move up. Our smart money indicator is on the cusp of putting in what could amount to a historic positive divergence signal; it has not issued a positive divergence signal on the daily charts for almost two years.

Possible Historic market divergence

Thus if one were to be issued now it would be a truly spectacular development and combined with the other bullish developments we would be forced to pound the table and advise all risk-takers to aggressively start to load up on call options and or go long Dow futures.  Our smart money indicator did, however, flash several positive divergence signals on the hourly charts towards the end of last week and that could perhaps account for the big move up on Tuesday. However hourly charts are only good for very short term moves, what we are waiting for is either an outright buy or massive positive divergence on the daily charts.

Now, most are tired of this volatility but ideally believe it or not it would be great if the market plunged another 300 to 500 points in one day and in doing so destroyed all the weak hands in one shot.  There is still a decent chance that the Dow could trade all the way down and test its lows once again (12550-12600).

This is now more likely now given the fact that the massive 300 points move up on Tuesday took place on low volume; to make matters worse, all 3 of our moving averages of new lows trounced the 3 moving averages of new highs. This usually indicates that the markets are not ready to rally yet and that another 1-2 selling waves are needed to knock the weak hands out. So a Dow Jones 2008 Crash could come to pass, but we would not view it as a crash but more in the line of a once in a lifetime buying opportunity type event.  However, until we have full confirmation, conservative players are advised to sit on the sidelines.

No matter what the spin doctors proclaim in the long-run stock market crashes make for great buying opportunities.  Sol Palha 

New comments Nov 23, 2007, on Dow Jones 2008 Crash

The markets rocketed up yesterday but the volume was very light and we would need a follow-through to confirm that a possible new uptrend has taken hold. We personally suspect that if there is a follow-through rally it will not last and we will pull back one more time to test the intraday lows put back in August (12550-12600).

We are still bullish from the intermediate time frame perspective and still feel that all massive pullbacks are nothing but buying opportunities.   Right now subscribers willing to take on a bit of extra risk should divide their money into 3 lots and deploy them in the ranges previously stated. Buy call options on the DIA or QQQQ’s and make sure they have at least 6 months of time on them. However, pay close attention to the Dow transports and utilities if they start to break down then it’s time to play defensive. Conservative player should sit on the sidelines waiting for a clear signal before jumping into the markets again as Dow Jones 2008 Crash type event is still a possibility.  If this comes to pass, do not think twice but go out and buy all the quality stocks you can. In the long run, every crash or back-breaking correction has proven to be a buying opportunity.

Random musings

Mortgage woes

Realty Trac is a company that tracks foreclosure rates and their 3rd qtr statistics were quite stunning to say the least.  They reported that more than half of the States in the U.S reported an increase of over 50% in foreclosure rates compared to a year ago.  We have listed a small sample below

Connecticut + 920%

Delaware +389%

Florida +130%

Maryland +490%

Massachusetts +1,127%

Minnesota +124%

Nevada +212%

Vermont +400%

Virginia +516%

Wisconsin +155%

Massachusetts takes the number one slot with a whopping 1,127% increase from last years figures and Connecticut is not far behind.  Market update subscribers were warned 2 years in advance of this upcoming carnage and believe it or not the situation is going to get worse. The funny part is that the US is trying to restrict foreigners into this country but in the end, it’s the foreigners who will end up owning this country for their currencies are rising while the value of the dollar has been falling. Worse still their incomes have been rising at a stupendous rate and thus one day which is not too far away a plethora of foreigners will race to buy up chunks of America in what will be one of the biggest sales of the century.  This, of course, will have a positive effect on the economy and in turn, will boost the value of the dollar but that is something we will explore at a later date.  Bottom line; avoid the real estate market as you would avoid a rabid dog.

Job growth

 The commerce dept announced that over 166,000 new jobs were created last month. Now we stated in the past if you believe any government static you are in sore need of a reality check. Usually, they lie but sometimes they just outdo themselves and the lie goes from outrageous to insane. For example, in Oct this very same institute reported that 14,000 new jobs were created in the construction sector. Give us a break. What kind of drug-induced figure is this; the whole housing sector is falling to pieces, banks are firing their staff, mortgage companies are closing shop and they expect us to believe now that this dying industry has produced 14,000 new jobs. We would like to ask them two questions? Who is hiring these individuals and in what solar system are they building these houses in?

In the future do not place too much emphasis on government statistics, for at best they are a joke and at worst they are the chatter of an insane mind.

I cannot help fearing that men may reach a point where they look on every new theory as a danger, every innovation as a toilsome trouble, every social advance as a first step toward revolution and that they may absolutely refuse to move at all for fear of being carried off their feet. The prospect really does frighten me that they may finally become so engrossed in a cowardly love of immediate pleasures that their interest in their own future and in that of their descendants may vanish and that they will prefer tamely to follow the course of their destiny rather than make a sudden energetic effort necessary to set things right.

Alexis De Tocqueville 1805-1859, French Social Philosopher

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Dow Jones 2008 Crash: If it comes to pass back up the truck and buy