Tuesday, June 17, 2014

Dow Theory Update for June 17: When Dow Theorist lose it (II). Some bullish reasons, which may be wrong (as with all fundamentals) to give pause to the bears.

Is Zero Hedge giving the "fundamental" answer?


Yesterday I took to task those Dow Theorists, who, betraying their trade (pun intended), ignore the technical messages of the market. I wrote that many fundamentalists were scratching their head with unbelief because they consider the stock market irrational. According to them, stocks are expensive, the economy is in disarray (which may be true), but oh my! stocks refuse to head south.

While I have no idea about what is propelling stocks up, here are some links, seen on Zero Hedge, that maybe give an explanation:

This article says that European stocks were nose-diving because of the Ukraine-Russia serious conflict. Could it be that the US stock market sees such conflict affecting more severely Europe (think of gas) than US (think of fracking, while it lasts)? I don’t know, but maybe the market in its wisdom does, and we see it reflected on the charts.

This article says that the Fed is looking at imposing prohibitive exit fees for bond funds. Is the stock market discounting the distinct possibility of a bond debacle (or forced illiquidity, which is tantamount) and hence the supply of stocks is getting restricted (people are less willing to part with their stocks) while non-confirming volume has many pundits crying that the bull market is on weak legs? I have no idea, but maybe this accounts, at least partly, for the bull run.

Is severe inflation ahead? Core CPI jumped most in three years. Is the stock market discounting higher prices and hence (at least temporarily) adjusting stock values for inflation? I have no idea.

Or is it perhaps because central banks invest instocks because they anticipate a dollar devaluation? This article seems to think so.  I have no inkling.

Is the dollar on the verge of collapsing? I don’t give a link, because you can find tons of articles concerning the dollar’s demise. Once again, I have no idea.

All in all, I have no idea as to what propels stocks higher. However, I do know that any of the fundamental reasons above given could partly or totally account for higher prices. Or maybe not? Who knows? In any instance, you can find many bullish arguments to make the bears shut their mouth. And, of course, you can also find many bearish arguments. Tie. In truth, nobody knows.

Isn’t it better to just apply a time-proven  method for determining the primary trend (less prone to noise than shorter time frames), put one’s ego aside, devote your time and energy to properly absorbing the Dow Theory (and it takes time to master it, as it looks deceptively simple), instead of screaming in frustration that the market should go down?

It is beyond me the stubbornness of a good deal of investors. Of course, it could well be that newsletter writers (Schannep and a few others excluded) and investment managers must look bright or otherwise they lose clients, since clients are plagued with the same ego biases, so they have to cater for their personality weaknesses.

US stocks and precious metals.

No noteworthy changes in trends. I refer to my latest assessment for those interested in the current state of trends.

The Dow Theorist

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