The 1929 & 2007 Bear Market Race to The Bottom Week 135 of 149
Bull & Bear Markets Review
The Guild of Mad Science
COMEX Gold Charts
Mark J. Lundeen
14 May 2010
Color Key to text below
Boiler Plate in Blue Grey
New Weekly Commentary in Black
Below is my BEV chart for the Bear Race.
The DJIA was up 239 Points in Wk 135, and my only recommendation is that people should run away as fast as their legs can carry them! The Stock Market’s internals are crumbling. Rising Volatility, NYSE 70% A-D Days coming one after another, Mr Bear is taking a Monkey Wrench to the Stock Market.
Who knows what tomorrow will bring. I sure don’t. But there is such a thing as situational awareness. In the past two weeks, there have been many changes not seen since Autumn of 2008. That is not good. So just because you’re an investor, it doesn’t mean you have to be in the Stock Market all of the time. There are times when it’s best to step back and let the bus go down Wall Street without you. This is one of those times.
Let me tell you something about you & Mr Bear. Most people don’t know who they are dealing with, but Mr Bear knows exactly who you are! You’re the people, Long or Short, whose wealth he is going to take home in his lunch bucket. Last week he ate the Longs’ Lunch, this week he ate the Shorts’ Lunch.
Simple Gold and Silver Coins look very good at times like these. The fundamental problems in the Financial Markets are from all of the distortions in Market Valuation caused by Doctors Greenspan and Bernankes’ past â€œLiquidity Injections.â€ For this reason, Precious Metals are off Mr Bear’s menu. They may take a hit now and then, but that’s from the â€œPolicy Makersâ€ trying to shake you down. But they are weak, while Mr Bear is strong. So a year from now, Gold and Silver will be much higher, the Stock Market much lower, and there is nothing the â€œPolicy Makersâ€ can do to stop this from happening.
Below are the DJIA Volatility’s 5-Day M/A & BEV Chart
Seeing the Up Spike in the Blue Volatility Plot above is not good! Don’t take my word for it; look at the DJIA’s Red Plot. We saw these Volatility Up-Spikes in August of 2007, just months before the DJIA’s Octobers Terminal Zero. Look at what followed a year later. In Wk 135, we don’t know if we are about to see is a replay of 2008-09. But why is Volatility spiking up like it did in August of 2007? And why from nowhere are we seeing such a large spike? Something beneath the surface of the Stock Market is changing!
This Volatility Up Spike isn’t from anything we’ve been reading in the news papers for the past month. Someone, or some people of wealth and power knows something we haven’t been told about, and they are repositioning their assets. Let’s see if a huge, but currently unknown to the public, news story hits the media in a month or so.
It’s been a long time since I published this next chart. It’s a Volatility Comparison of the Great Depression and the 2007-10 Bear Markets. All Percentage changes in Volatility are positive. Up or Down days are all converted into positive values on my Excel File. But to provide for the best comparison, I inverted all the 2007-10 data points to negative values. This allows me to show the two Bears in two different windows. So when our Bear’s Volatility starts heading down in the chart (2007-10), it’s actually going up.
For the first time since 26 January 2009, the DJIA Volatility’s 40 Day M/A is above its 200 Day M/A. That’s significant. But what is worse is that in Wk 132, the 40 Day M/A turned up. Now in Wk 135, the 200 Day M/A has also turned up.
This development needs to be watched very closely. When the 40 Day M/A hit 3.5% in 1929, people were jumping from windows over Wall Street. It was worse in 2008; Congress demanded the Federal Reserve and US Treasury do something to â€œStabilizeâ€ the Stock Market. Only God knows what will happen when the 40 Day M/A goes over the 3% line again.
Daily Volatility Statistics for Wk 135
DJIA% MoveDJIA 2%
70% A-DMonday10785.14+3.90%3+88.23%* Tuesday10748.26-0.34%3-Wednesday10896.91+1.38%3*Thursday10782.95-1.05%3-Friday10620.16-1.51%2-73.87%* Wednesday saw a NYSE A-D Ratio of just a fraction from 70%: +69.83%. This is the Second Week in a Row where the NYSE A-D Ratio just missed hitting the 70% line. Seeing the DJIA rising * only * 1.38% on Huge Breadth is not a sign of Market Strength!
Historical Daily Volatility is < 1.0% Source Dow Jones Last week, I said the most Bearish Thing that could happen in the Stock Market was for us to see a Positive NYSE 70% A-D Day. Well we got one on Monday, and missed another in Wk 135, Wednesday, one by only 0.17%. What does this mean? Well it's sort of like a herd of cattle in one of those old Cowboy movies. But in this movie, Mr Bear is in the saddle. First he makes his cattle stampede one way (Advancing), and then he stampedes them the other way (Declining). All this stampeding tires them out and makes them docile, as he drives them to the railhead, and then on to slaughter. Bull & Bear Markets Review Human Psychology Drives Markets Bull and Bear Markets have one thing in common with each other; the People who come into the markets to buy and sell. Markets are human things. There is no market analogue in the Animal World, as only Humans generate surpluses for the purpose of trading. That's true with the Stock Market too. When People generate more income than they need to pay the bills, they may decide to take their surplus income to the Financial Markets, hoping to improve their situation in life. But Bull and Bear Market, as we all know, have great differences too. To most people, its enough to know that in Bull Markets, prices rise, while in Bear Markets prices fall. However, as Serious Students of the Markets, we should know there is much more to Bull and Bear Markets other than rising or declining asset valuations. Human psychology plays an important part in how a market values what is being traded. There's only one market cycle that is dependable. It's based upon Human psychology, and is completely independent of the â€œValuationsâ€, of whatever is being traded. For half of the Cycle, Markets are driven from despair to euphoria in a Bull Market. In the other half, the Market is driven from euphoria to despair in a Bear Market. There is no set schedule of how long it takes these Bull and Bear Markets to drive their investors from the Penthouse to the Outhouse, and then back again. It may take years, or even generations for a particular market to go from where everybody is * out * to where everyone is back in. For example: the Stock Market from 1932-2000. The same is true for when everybody is * in * the Market to where everyone promises never again to play the fool for Wall Street: the Stock Market from 1929-32. Note I did not use the 2000-10 Stock Market era as an example for a mass market exodus. Today's Retail Investors, even after two major bottoms in the DJIA, have not abandoned the Stock Market, en-mass, as they had in 1932. They may no longer be lining up around the block to buy Wall Street's latest IPO, as they were in 1999, but the Baby Boomers are still holding on to a forlorn hope that the Stock Market will still provide for them in their retirement. It will not! Before Mr Bear is finished with his work, the Stock Market will become an object of public scorn and contempt. That will be the bottom, and should produce one of those generational buying opportunities, as stout hearted Gold and Silver Investors saw in 2001. From 1971 to 1980, as Gold rose from $35 to $840 an ounce, the Precious Metals Markets went from zero public interest to a mass mania. But things change all the time, as from 1980 to 2001, Precious Metals went from being a respectable asset class, to an object of public ridicule. But notice how the Precious Metals Market turned, just as its Market Psychology bottomed in 2001. After a 21 Year Bear Market, Gold declined to $255 an ounce and respectable investors and money managers wanted none of it! Nine years later, Gold and Silver are no longer only for the â€œTin-Foil Hat Crowdâ€; Central Banks are buying too, but you now have to pay $1240 for an ounce of Gold in an increasingly crowded market. As always, the Bull Market in Precious Metals will not terminate until it once again we see panic buying by the public, who will pay any price for their heart's desire. But due to the success of the American â€œPolicy Makersâ€ in integrating the US Dollar into World Commerce, demand for Gold and Silver will go Global when the US Dollar fails. Demand for Precious Metals is still in its early stages. How far Valuations are driven up or down in these cycles are not determined by the Bullishness or Bearishness of the Market's participants, but is dependent upon the extent of the expansion of Credit that banks have provided the Market. As we live in a time that worshiped Megalomaniac Central Bankers, and the massive â€œLiquidityâ€ they â€œInjectedâ€ into the Financial Markets, my expectations are that we will see a massive Bear Market in Financial Assets that will rival or even exceed that of the Great Depression's 89% decline in the DJIA, before we see our ultimate bottom. Currently, Monetary Inflation has become so grotesque, that â€œPolicy Makersâ€ now have to create Trillions of Dollars of Monetary Inflation to finance their â€œPolicies.â€ But one day, this process will go into full reverse. The World will upchuck Doctor Bernanke's Dollars. Precious Metals will then be on the receiving side of this flow of â€œLiquidityâ€; driving Gold and Silver prices up to levels that are simply not believable today, as Financial Assets are ground into dust. You may disagree, but this is my logic for expecting the March 2009's lows in the DJIA, not to hold when Mr Bear comes back in earnest, and that Gold may soar far north of $30,000 an ounce. Time will prove or disprove my Bearish Thesis. Trading Volume & Market Volatility In my studies of Stock Market mechanics, I've found two indispensable variables in tracking Bull or Bear Markets: Trading Volume (number of shares traded daily) Market Volatility (daily % moves in valuation from the previous day's Closing Price) DJIA Bull & Bear MarketsMarketDJIA 2% DaysVolume BullFewIncreasing BearManyDecreasing Bull & Bear Markets are Mirror Images of Each Other. Source Barron's Graphic by Mark J Lundeen Trading Volume Bull Markets see rising Trading Volume as the Bull progresses from a Bear Market Low, towards the Bull Market's BEV Terminal Zero (the last all-time high of a Bull Market Cycle). This is a very logical relationship. As Valuations rise, additional investors are drawn into the Market, increasing Trading Volume as their bidding competes for available shares. Bear Markets see declining Trading Volume as the Bear progresses towards it ultimate Bear Market Lows. This is because during Bear Markets, investors become discouraged with their losses, and leave the market as asset valuations decline. In Wk 75, I covered this topic from 1900 to 2009. I noted this relationship held true from 1900 to 2000: 100 years. But after 2000, Volume began increasing in down markets and decreasing in up markets. This is the exact opposite of what happened with Volume in the previous 100 years. Its no secret what is going on; Congress is on record telling the Federal Reserve and US Treasury to â€œStabilizeâ€ the Markets. The only way the Government can â€œStabilizeâ€ a Market in a selling panic, is to buy stocks in the open market at prices no one else is willing to pay. So it's reasonable assuming the increase in Trading Volume during the big market declines of 2000-09, were the result of the US Government â€œStabilizingâ€ the Stock Market. We should not be surprised if one day we learn that the largest shareholder in most American Companies is the Federal Government. Until an audit of the Federal Reserve is performed, we really don't know what the Government has been buying with its Inflationary Dollars. All we can say with certainty is that after 2000, the public record shows that Washington has been very busy in the Financial Markets. Investing, and following the Markets isn't studying science. While much of what Markets do can be calculated with Mathematics, what actually drives Markets are the changing Emotions of Fickled Mankind. I include the â€œPolicy Makersâ€ in this. So my Rules of Thumb for Volume and Volatility are not iron clad laws of nature, like Ohms Law in Electricity. But over time, in aggregate, they should hold up. When they don't, there is something wrong. Since early February, it has been real quiet in the Stock Market, but starting in late April, we're seeing 1% & 2% DJIA days again. It's interesting comparing these days of increased Volatility in the DJIA, with the DJIA trading volume in my table below. Something is out of whack in the Stock Market. DJIA & DJIA Trading Volume (Mils)DateDJIADJIA Vol% DJIA% Vol19-Apr-1011,092.05214.660 20-Apr-1011,117.06175.1080.23%-18.43%21-Apr-1011,124.92188.8450.07%7.85%22-Apr-1011,134.29210.7570.08%11.60%23-Apr-1011,204.28207.1600.63%-1.71%26-Apr-1011,205.03191.8780.01%-7.38%27-Apr-1010,991.99263.333-1.90%37.24%28-Apr-1011,045.27236.2990.48%-10.27%29-Apr-1011,167.32194.2991.10%-17.77%30-Apr-1011,008.61255.091-1.42%31.29%3-May-1011,151.83178.0661.30%-30.20%4-May-1010,926.77241.886-2.02%35.84%5-May-1010,868.12215.727-0.54%-10.81%6-May-1010,520.32459.859-3.20%113.17%7-May-1010,380.43428.338-1.33%-6.85%10-May-1010,785.14313.3543.90%-26.84%11-May-1010,748.26223.949-0.34%-28.53%12-May-1010,896.91196.6261.38%-12.20%13-May-1010,782.95201.475-1.05%2.47%14-May-1010,620.16256.496-1.51%27.31%Typically, Big Up Days for the DJIA should Match the Big Volume Days, and Big Down DJIA Days should Match with the Low Volume Days. But since 2000, this has not been so.Source Barron's Graphic by Mark J Lundeen Let's deal with facts: President Obama is a Socialist. His political roots spring from the Students for a Democratic Society (SDS) of the 1960s. He's introduction into Chicago Politics was by the Political Terrorist William Ayres, founder of the Weather Underground. I can't believe Our President is a big supporter of personal property. The Bond Holders of GM and Chrysler discovered this last year. If he could get away with it, I believe he'd support the idea of Washington purchasing America's â€œMeans of Productionâ€ with Monetary Inflation, leaving scant little for the Floor Traders on the NYSE to buy and sell. When Mr Bear comes back, and the DJIA breaks its BEV -60% line, it would be a perfect crisis for such a â€œBig Government Solution.â€ They may not be thinking of this now, but what options will they be considering when the DJIA descend to levels not seen since the Great Depression? Would a DJIA BEV -90% Market be acceptable to our President and Congress, Republicans included? I think not! I'm not saying this is going to happen. But with our current President and Congress, I don't see why they wouldn't favor eliminating an institution, the Stock Market, Socialism has never approved of, when it becomes a major thorn in their side. The Political Aspects of the Market is just something I think warrants watching. Market Volatility as Seen in DJIA 2% Days Bear Markets are Volatile Markets, and the bigger the Bear, the higher the Volatility. Surprisingly, the largest up days for the DJIA in the past 110 years are found in the Big Bear Markets. It's a fact, during the Great Depression Bear, and our 2007-10 Bear, the largest moves from the previous day's close were positive days. In the Chart below, I stripped out every day where the DJIA's close was less than 2% from its previous day's Closing Price. Those periods with few or no DJIA 2% Days, tend to be good markets to be in. But it's hard making money on the long, or the short side when Volatility rises. Note how Mr Bear makes life miserable for Short Sellers with plenty of strong up days, just before he takes the market down again. You know, Mr Bear doesn't care if the DJIA moves up or down by over 2%, or greater; he likes rocking everyone's' boat. I don't know why I should treat big down days different than big up days. So in the Chart below, I treat all 2% days (+ or -) as being positive events. I then take a 200 Day Running Sample, to see how many DJIA 2% days are in each Sample. This is really an amazing chart. With the exception of the 1942 DJIA BEV -50% Bear, it catches every major DJIA Bear Market from 1900 to 2010. Here is my list of DJIA Bear Markets. Dow Jones Bear Markets 1885 to 2010 -40% Declines * Daily Closing Prices Date of DJIA Bull Bear Time in Bear Bottom HighLow% Decline Weeks 108 Jul 1932381.1741.22-89.19%149209 Mar 200914,164.536547.05-53.78%1353* 28 Apr 1942 194.4092.92-52.20%2364* 31 Mar 1938 194.4098.95-49.10%56515 Nov 1907103.0053.00-48.54%96608 Aug 1896 78.3841.82-46.64%325724 Aug 1921119.6263.90-46.58%94809 Nov 190378.2642.15-46.14%124906 Dec 19741,051.70577.60-45.08%100The Current Bear Market is only 135 Weeks Long. But Bear Markets can last a very Long Time. Don't be Surprised if the 2007-10 Bear still has Years to go. The US Federal Government is doing Everything Necessary to drag this Bear Market out for a Long Time to Come. * Based Upon 10 March 1937 Bull Market TopSource Dow Jones Averages 1885-1990 Business One Irwin & Barron's Graphic by Mark J Lundeen As the #1 & #2 Bear Markets are the Great Depression Bear, and our own, a side by side comparison of the DJIA's 2% Days in a 200 Day Sample is interesting. At the Bottom of the 1929-32 Bear, every other day was a DJIA 2% day; Wow! In October of 2008, we came close, with 40% of the days in the 200 Day Sample being a 2% Day. This was a big deal. Big enough to make Congress go on Live TV and order the Fed and US Treasury on CNBC to do what they had to do to stop the pain, and â€œStabilizeâ€ the Stock Market. I don't want to be repetitious, but too little is made of the fact that our â€œFree Marketsâ€ in 2010 are mostly political props. Anyways, you may want to take a second look at my first 2% Chart (the chart above the table) to really appreciate how massive these two Bear Bottoms were. Currently the 200 Day Sample is a 12, with 6 of those 2% Days from the first of August 2009 to New Year's. If Mr Bear leaves us alone, we should see this plot shortly dropping to 6, and staying there, or go lower, for months, and years to come. But I notice that in the past two weeks, we've seen 3 DJIA 2% days. I think this is an omen of bad things to come. If I'm correct that Mr Bear is back, we will see Market Volatility, and DJIA 2% days increasing as he goes about his work destroying those Asset Values the â€œPolicy Makersâ€ treasure most: American Voters' Retirement Accounts Pension Fund Assets It's what Mr Bear does for a living, and he does it very well. In the process, we'll see the 2007-10's Red Plot once again rising up, and I suspect exceeding the highs of the Great Depression Bear. It's a mess made in Washington. I hope I'm wrong, but my fears are that I'm not. When I put it this way, the idea of Washington buying out the Stock Market doesn't sound so outrageous, does it? Considering that at the 2009 bottom, they bought GM & Chrysler with Monetary Inflation. Why not the entire S&P 500 in the next? The Lundeen Bear Box and Step Sum is below. The DJIA's Step Sum is heading down. And guess what; so is the DJIA. Not much else to say about this in Wk 135. But I suspect I'll have something to say about it in Wk 136. The Step Sum is an indicator of market sentiment. When the underlying sentiment is bullish, the Step Sum rises. When bearish, it falls. Think of the â€œStep Sumâ€ as the sum total of all the up and down price â€œstepsâ€ in a data series over time; an Advance Decline Line for a data series derived from the data series itself. Logically, bull markets will have more net up days, while bear markets will have more net down days. Understanding the Step Sum is no harder than that. The Guild of Mad Science These are interesting times in the Gold Market! Zero Hedge reports a Gold & Silver Run in Europe. I'd expect seeing that happening in Europe first. Unlike Americans, Europeans during the 20th Century have frequently seen their money turn to dust before their eyes. A life time of saving just vanished, because there comes a point when an ever increasing supply of paper, or its â€œelectronic equivalentâ€ can no longer function as a means of trade, or as a store of wealth. That's when Paper stops being Money, and being a Billionaire becomes nothing special very quickly. "Such were the sources of that flood of paper money which, ever since, has alternatively accelerated and threatened the economic life of the world." -William Durant: Our Oriental Heritage, (1935) pg 780 I doubt our Doctor Bernanke, during his days at Princeton, spent much time in his lectures on the when's where's and why's of past failed paper money schemes. Those academics who DO never become Chairmen at the Fed. So it wasn't a coincidence after Bernanke's November 2002 speech at the NY Economics Club, where he promised he would drop bails of $100 Bills from Helicopters to stop asset price deflation, that he became Alan Greenspan's Heir Apparent in the media. In Science Fiction Movies, the "Mad Scientists" who attempt to destroy the World are either Medical Doctors or Ph.Ds in Physics'. But this is only in the movies. In Real Life, the actual Mad Scientists who really are destroying the World are the â€œSocial Scientists.â€ Our current Fed Chairman is a Keynesian Economist, and a member in good standing in the Guild of Mad Science. This Chart above shows his considerable contribution in the coming Global Chaos. The Guild needed someone to destroy the American Dollar, and in Doctor Bernanke they found the man willing to do a â€œProper Jobâ€ on the Dollar. No currency can survive this level of over issuance, and the Doctor knows it. That's why he does it, and why they love him in Washington and Academia. COMEX Gold Charts Now that I've shown you the current lay of the Monetary Landscape, let's take a look at what is happening over at the COMEX. Here is a Chart giving how many Ounces of Paper Gold have been traded daily, as well as how many Physical Gold are Stored at COMEX approved vaults since 1974. The Blue Plot (Left Scale) is for Physical Gold Stored at COMEX approved facilities. Only a fraction of this Gold is available for delivery in settlement of a Paper Gold Futures Contract. The Red Plot (Right Scale) is how many Ounces of Paper Gold are being traded at the COMEX. Currently, there are 5.6 Ounces of Paper Gold being Traded for every 1.0 Ounces of Gold stored at the COMEX. There actually is nothing wrong with this, as everyone who currently trades Gold Futures knows this is the situation. Anyways, most traders of Gold do so to either hedge Dollar production costs, or are seeking profits in Dollars. The problem I see coming, is if a day comes when the Gold Longs (buyers), as a group, decide they would rather take actual Gold, instead of Dollars, from the Gold Shorts (sellers) in contract settlements. It's their right to do, but currently, the Gold Shorts don't have the Gold to Deliver. I said â€œif a day comesâ€, because I don't want to say anything â€œirresponsible.â€ But in May 2010, there are too many Infernal â€œPolicy Makersâ€ in Washington talking in terms of Trillions of dollars, to fund their expanding, but bankrupted Government for this not to happen! The price of Gold and Silver Coins could double, or more on the news of a COMEX default. After a COMEX Default, Mining shares are likely to become the replacement of choice of those people seeking a rational Gold and Silver derivatives to hold in their portfolios. I say beat the crowd and buy the Miners now. But as we can see below, in Wk 135 of our Bear Market, the crowd is still hanging out at the COMEX. The COMEX's Open Interest for its Gold Contract reached a new All-Time High (BEV Zero) on Friday 14 May 2010. This is the first BEV Zero since January 2008, and the largest Open Interest in the history of the COMEX. I just get the feeling that there are going to be many disappointed people trading at the COMEX, sometime in the not to distance future. Right now Gold and Silver Mining shares are cheap, so why waste your time and money on Paper Gold at the COMEX? A few weeks back, I recommended that my readers may want to consider as a * speculation *, a few Exploration Companies, and one Junior Producer. One of them, International PBX Ventures has drilled some excellent cores from their Copper-Molybdenum property. This news came out just days after I made my recommendation, so I thought an update would be appropriate. This project has a lot going for it, and has the potential to make some excellent profits for PBX's shareholders. I need to note that I'm a large shareholder in PBX, but I receive no reimbursement, in any way from PBX in making this, or past recommendations. Mark J. Lundeen mlundeen2@Comcast.net 14 May 2010 Dow Jones -40% Declines From 1885 to 2008 is the article inspiring this race of 1929 & 2007 Bear Markets. You may want to read that article to understand my â€œBEV Chart.â€ Dow Jones Industrials Average Market Volatility is the source for my volatility studies. The Lundeen Bear Box and Step Sum is the source for my Lundeen Bear Box and Step Sum Chart Note For the Record: Mark Lundeen does not want a devastating bear market in the next two years. However, in full view of Congressional Market Oversight Committees and under the supervision of Government Regulatory Agencies, things were done that I believe will make a historic bear market inevitable. If you have a problem with this bear market, contact Washington, not Mark Lundeen.