Dow Jones 2008 Crash: Dow Utilities Holding Up Nicely

Dow Jones 2008 Crash

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

It appears the comments we made last week became a reality. The news 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

If left uncontrolled and most individuals never master control of this useless emotion, there are slaves to this emotion till the very end. 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 focusing 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 break down, then we will take on defensive measures. We tend to give more credence to Dow utilities (alternative Dow Theory) as they better indicate what one should expect from the markets.

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 new lows. In the short term, this will prove to be painful for investors 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

It’s a lovely sight indeed for the advanced student of mass psychology. Everyone started to panic when the Dow’s nose-dived last week, and as predicted, the masses fled for the exits and down the very steep ledge that was waiting to greet them so happily. This same action repeats itself repeatedly, and indeed one could simply blank out the times and 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 it’s 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, which is the field of stupidity. Dow Jones 2008 Crash, if it comes to pass, will prove to be an immense 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 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 of, 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.

The only thing most chaps are good at is destroying their neighbours as fast as they kill themselves, if not quicker. 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.

Reevaluating Wealth and Happiness: Beyond the Pursuit of Money

These aliens would then wonder why, with all the beautiful things around in this world, 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. We are saying that after reaching a certain point, money brings very little happiness. Therefore, after you reach a stage where your basic needs are taken care of and you can 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.

The market cares about no one, and no matter how much you cry, try or scream or dream, you cannot tell the needs what to do. You can position yourself but do not wait for something terrible to happen and then chastise yourself for not setting 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 one should learn from their mistakes and not repeat them repeatedly.

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 1000 times? All of us would lose our minds after seeing the same show, say a dozen times let alone 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

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, puts several dozen individuals in a room, and subjects 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 moment’s notice.

Analyzing the Market Rally: Volume and Moving Averages Raise Suspicions

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. 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 on Friday and Monday, and the book was higher than today’s volume on both days. On Friday, it came in at 4.587 billion shares. On Monday, it came in at 4.192 billion shares; today, after the massive move up, it came in at only 4.14 billion shares.

Given the intensity of this move-up, one would have expected at least 5 billion shares. Another thing that makes this rally suspect is that all the moving averages of new lows keep trouncing the moving averages of new highs; this usually does not occur when the markets are ready to take off. This means there could be one or two pullbacks, and we could still test the lows (12500 ranges) before it’s all said and done.

Dow Jones 2008: 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 the smart money positioned itself for the next leg up.

As these guys have massive purses, they need to do this slowly, as taking a big bite could move the markets tremendously and cost them several billion in lost profit. If this pattern is proper, they will most likely continue buying on the dip. In addition, our intelligent money indicator is incredibly close to flashing a relatively large positive divergence signal on the daily charts. If it does this (focus on the word “if”), it will be the first time it has done so in years. We will have to respond by advising all risk-takers to seriously load up on call options, as the possibility of the Dow putting in a new all-time 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; this amounts to a 126% increase on a percentage basis. Huge massive spikes such as these are very rare developments, and combined with the other bullish factors ( such as strength in the Dow transports), it could provide the grounds for a spectacular rally that will most definitely catch most traders with their pants down.

Conclusion

The Dow transports are vital for now, and the Smart money continues to lighten up on its short selling (and it’s doing minimal these days), and the smart money is still holding onto the most minor short positions on record. NYSE short interest is still more or less trading in record territory, and the dumbest of the dumb money is 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 a very good chance that the markets are preparing themselves for a rather spectacular move up. Our intelligent 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.

Dow Jones 2008: 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. However, our intelligent money indicator did flash several positive divergence signals on the hourly charts towards the end of last week, which could account for the big move up on Tuesday. However, hourly charts are only good for very short-term moves; we are waiting for either an outright buy or a 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 destroyed all the weak hands in one shot. There is still a decent chance that the Dow could trade down and test its lows once again (12550-12600).

Market Analysis: Low Volume Rally Raises Concerns for Future Trends

This is more likely now, given 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 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 feel that all massive pullbacks are buying opportunities. Right now, subscribers willing to take on some extra risk should divide their money into 3 lots and deploy them in the previously stated ranges. Buy call options on the DIA or QQQQs and make sure they have at least 6 months 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 players should sit on the sidelines waiting for a clear signal before jumping into the markets again, as the Dow Jones 2008 Crash type event is still possible. 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 3^rd 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%

Surging Real Estate Market in Massachusetts and Connecticut Raises Concerns for the Future

Massachusetts takes the number one slot with a whopping 1,127% increase from last year’s figures, and Connecticut is not far behind. Market update subscribers were warned 2 years of this upcoming carnage, and believe it or not, the situation will get worse. The funny part is that the US is trying to restrict foreigners into this country, but in the end, the foreigners will end up owning this country, for their currencies are rising while the dollar’s value has been falling.

Worse still, their incomes have been growing 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 most significant sales of the century. This, of course, will have a positive effect on the economy and, in turn, will boost the dollar’s value, but that is something we will explore later. Bottom line; avoid the real estate market as you would prevent a rabid dog.

Job growth

The commerce dept announced that over 166,000 new jobs were created last month. We previously stated that you need a reality check if you believe any government static. Usually, they lie, but sometimes they just outdo themselves, and the lie goes from outrageous to insane. For example, in Oct, this 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 shops, 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?

The Distrust of Government Statistics and the Fear of Stagnation in Society’s Progress

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 refuse to move at all for fear of being carried off their feet. The prospect does frighten me that they may finally become so engrossed in a cowardly love of immediate pleasures that their interest in their 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