So I've been silent for almost two full years. The main reason for this is that the bear market I was expecting failed to show up. The more I examined the charts, the more I realized that on a daily basis, Dow theory no longer works. I believe this is because of the noise High Frequency Trading introduces into the system.
Therefore, I have been forced to take a much longer view of the markets by relying on the weekly closing prices over periods of 5 years or longer. This has significantly drawn out the time that I am holding indexes, but it's paid of nicely.
Right now, both the Dow Jones Industrials and the Dow Transportation index are neither confirming or denying a bear market. It doesn't look good right now with the rammifications of Brexit looming like a hurricaine which might fizzle out quickly or gather intensity ... no one knows! If the hurricane intensifies, it might give us an opportunity to make another once in a lifetime stock purchase sometime in the next year or two. I know ... that's a loonnnnng ways a way. But it pays to have a plan.
So here's the story. In November of 2014, the Transportations made a new all time high along with the Industrials. The industrials went on to make another new all time high in May of 2015, but this move was not confirmed by the transportations. Ever since then, the stock markets have been a sea saw. Presently, it looks more like an avalanche of cash (roughly $2 trillion worldwide to be more specific) is leaving the stock markets and is heading into Gold and other safe haven assets like cash. This may be setting up a huge temporary run for gold, especially if this very strong intermediate trend continues.
But keep in mind ... the primary trend as of today is still UP. I know. It's insane. It doesn't feel like it should be up, but it is. This may change, and I'll be watching and reporting. The reason I am calling the trend up is that while the transportation index shed 20% a few months ago, this was not confirmed by the industrials. It's like there's a cushion under the industrials preventing them from falling too far.
I believe that cushion is corporate debt and share buybacks. Corporate debt is sky high these days, and companies are using debt to buy shares of themselves, which is padding their balance sheets. It essentially makes them look good on paper when in real life, sales are slowing.
I am therefore be extremely curious to see what happens in this next leg down. If we hit a new low that surpasses the previous couple of lows, I suspect it will be deep and painful, and a perfect opportunity to buy stocks.
