Dow at 52-Week High? Yeah, Right.
by Sol Palha, Tactical Investor
January 12, 2004
does have its helpful features.
You always know what you're going to be thinking tomorrow.
We hear everyone talking about the Dow being in a bull market. Well they are right but there is one little change needed, just remove the word market from the equation, I agree with the �Bull� part as in BS. Right now the market is doing nothing. I have said it again and again, but we can make money while it does nothing.
Dow 10,500 today is not the same as Dow 10,500 of 2002. The US dollar has depreciated approximately 35% so the Dow would have to be at 14, 175 . For it to really break out and start a new serious Bull market it would have to take out the highs of 11,700 set in early 2000, but it would not be 11,7000 it would have to be 15,795. That is why we distrust mechanical systems, as with anything mechanical they must and will break down. Mass psychology should be one of the most important components in any system. The reason is simple: The market is a madhouse and you need to act as the shrink to see through the insanity, but make sure you do not get lost in the sea of madness.
This is another reason why I suggest that most of you read as a little as you can on investing and read more on psychology, philosophy and read articles written by experienced wise investors. i.e. such as Peter Drucker. Read this article by Peter. He is really a smart chap. He should be. He is 94 years old. http://184.108.40.206/focus/f-news/1051078/posts
Such things as basic math are completely forgotten by the so-called experts, whom we now baptize as experts in nothing more than �the art of BSing�. Become your own expert and you will have a lot less problems. That is why we adopt the creed � Investing is a way of life.�
Time for Some Charts
I warned you we have no fixed format here at the Tactical Investor other than making sure we keep you awake and on the right side of the market. That is our Goal and we hope we can always meet it.
I am putting up 5 graphs. Two graphs are of MMM and UTX priced in US dollars and Rands, the strongest currency in the world right now. The other chart is one is of the DOW priced in Rands. It shows that this Bull Market perception is an illusion. I have not bothered pricing the Dow in US dollars, as you all know what that chart looks like, right! Well I hope you do, otherwise one has to question ones sanity investing in something one has no idea of. Next week in a follow up article (The illusionary Bull) I will depict the Dow in 6 different currencies so that you can clearly see what the Dow is doing.
Interesting times we live in. we spend years educating ourselves, and even more time trying to convince the world we are someone. Then we go into the stock market and prove to the world that we are nothing but raving idiots, who mistook the concept of being a genius with the concept of stupidity, Vanity and Ignorance.
The market reduces us to what we truly are and exposes all our vices. Just to wet your appetite, those men that like fast cars, the wild sexy woman and the fast life, usually try to play with stocks in the same way. And what happens? The Grim Reaper smiles, as he knows that soon there will be a lot of fresh meat.
Okay, off to the charts as they always have a fascinating story to tell. They are self-explanatory.
Priced in Rands the Dow is standing virtually still moving in a tight range. t has been doing this for a very long time. This is just a one-year chart but if you take a 3-year chart the picture hardly changes. So while everyone and his pet hamster are celebrating this bull, they should seriously check their heads and see if there is any gray matter left up there. Does this look like a bull?
You know what? Let's just play safe. Don't answer that question J.
Okay, here we have MMM. This is a 3-year chart and you can see it is doing nothing. What a sorry state of affairs: manipulation of the data, or maybe it is just sheer ignorance. Almost none of the top theorists, the Elliot wavers, the Gann fans (who distort his info), the Dow theory fans fail to give any credence to the fact that we are doing nothing. They keep analyzing the market with the same set of old eyes. This is no longer the 90's era the dollar is no longer mighty. It is dying.
One very good clue to all of you chaps: Let me enlighten you with another English term, and that is blokes. (blokes = guys for those of you who are not familiar with this word and for the gals we refer to them as dames sometimes). So for all you blokes out there that want one nice clue, follow the Elliott wavers closely. As soon as they get very bullish, the top will be very close at hand.
Time to pop the strong the medicine and look at this chart with closed eyes and think we are in a bull market. This is the same chart of MMM except it is priced in good old American pesos.
Same story here. UTX looks terrible when priced in Rands.
Lo and behold: a miracle! We just performed a Houdini here. It looks marvelous, simply smashing jolly old boy. I forget who used to say that, but in one of the old flicks I remember some Brit or otherwise known as �pommies� used that term quite often.
And that is the end of the sad but true tale of Wall Street�s and the top-notch advisory services take on the market. They have selectively decided to look at only half of the equation.
The Dow is really standing still. As the Fed increases the money supply; the Dow simply adjusts to reflect this increase. It is building a very dangerous channel formation when priced in stronger currencies. Channel formations are very healthy and usually are opportune moments to take long positions if the index or stock has corrected severely. After a severe correction the smart individual waits for the index or stock to move sideways and from a channel, at which point they take positions. However the exact opposite has occurred in the Dow, it had a very minor correction and is now just moving sideways. This pattern usually indicates that a huge move will occur, usually to the downside. The only problem is that it does not tell you when it will occur. But when it does, the move is fast and furious.
That is why playing the equities markets right now, is something one should do with extreme caution and with guidance. Either educate yourself or make sure you have someone to guide you.
The alternative and much safer investment is to buy Gold and Silver bullion on any significant pull back and hold as the long term trend is up and has just barely started. This Bullion bull will last for a very long time. We cannot say the same for the so-called Dow bull.
A small mind is obstinate. A great mind can lead and be led.
© 2004 Sol Palha, Tactical Investor
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