Are we there yet? It certainly looks like it!
I believe the 28th of December will go down as marking the day on which major reversals of many important markets were launched following stunning rallies post October. Those highs very likely mark the end of the decades-old bull trend in financial assets. The trend is now down for especially highly speculative assets.
I thank EWI for highlighting the importance of tracking the Dow Jones Transportation Index – a historic index that was closely followed by investors in the 19th and 20th centuries as equally important as the Industrials (what we call the Dow today). Of course, in this era of the Magnificent Seven’s dominance of the MSM headlines, boring old transportation stocks get barely a look-in.
But, as in life. it is often the hidden factors under the radar that offer the greatest clues as to what is really going on.
While the Dow was making its ATH on that date and AI stocks in full flow, the Transports were lagging badly and was setting up for a massive bearish non-confirmation with the Dow that is now in January being realised.
For the latter part of 2023, I had been warning of an impending likely top in the Dec/Jan window in accordance with the 2-year cycle high phenomenon in the Dow in the chart I have been posting at every opportunity. That chart should be stuck on every trader’s Notice Board. And the 28 December Dow high certainly fits in beautifully with yet another high point on that chart.
As for the Transports, it too made a high on that date but not a new ATH, as did the Dow. A leader in the transport section is FedEx and here is the revealing chart
It broadly followed the general indexes and rallied to a (lower) high at mid-December from its September low Poor results was not the typical ‘bad news is good’ story for the shares and they gapped down a massive 15% on the 20th. That sets in place the termination of the wave 2 up correction to the 2121 ATH and if the gap is breakaway, as I strongly suspect, wave 3 down has already started.
Note that while FedEx failed to make a new ATH along with the Transports index, the Dow did – on 28th December. And the state of Transports as a basic economic sector provides a vital clue as to the general state of the economy.
Thus, provided the Dow (and other indexes) do not go on the make new highs above their 28 December values, there will exist a potential Dow Theory bear signal. The Dow Theory is the oldest technical indicator in the book and was devised by Charles Dow in the 19th century. It has stood the test of time which many more recent indicators have not.
The venerable Mr Dow understood the relevance of market divergences very early on – and they are still a pillar of my own work.
One item of interest is that the Dow consists of 30 of the highest cap stocks on the NYSE. Of that 30 only six made ATHs in 2023/2024 if Apple and Microsoft of the M7 are put to one side. Thus, the vast majority (24) diverged from the index and failed to confirm the 38,120 Dow ATH. That huge divergence is bearish for the general market. Only an unlikely move towards new ATHs in most markets would cancel out that conclusion.
The Russell 2000 is the index to watch
This index contains 2000 small cap shares and is about as far away from the more speculative Big Tech as most, except the Transports. The fate of most of the companies is most closely aligned with the state of the ‘basic’ US economy (see FedEx above) where the majority of the US GDP is produced. Serious index traders should pay attention to it.
It made its ATH in November 2121 and the huge short covering post October rallied it up to the Fib 50% retrace in the wave 2 correction.
The last four days have seen large gaps down from that high and if my view that social mood is now turning negative, wave 3 down has started with a vengeance.
This wave 3 will take the index to new lows below 1600 (currently 1970) with lower potential. There will be sharp brief rally phases and these will offer shorting opportunities.
US Commercial Real Estate is in big trouble in a slow burn
Recent headlines have pointed to a marked deterioration in US commercial property especially in New York. And this promises to pose a further threat to US banks for a re-run of the Silicon Valley Bank bust but an a much grander scale.
With the Work From Home theme now seemingly permanent, demand for office space in New York remains soft. Combine that with the exodus of many finance companies to places like Texas with much lower taxes and we have a recipe for a severe bust with banks in extreme jeopardy.
This is a development well worth watching.
The Post Office scandal – a potent marker of UK social mood
I have been following the progress of what is being described as the greatest mis-carriage of justice in British history with interest. Not only for how justice can be restored for the hundreds of its victims, but also for its timing. Yes, its timing. I believe this week’s news that the police are now investigating the PO and officers for possible fraud is an important signpost for a massive change in mood.
It is being brought to the public’s attention now with last week’s screening of the ITV series Mr Banks and the Post Office, I highly recommend viewing it.
This affair has been dragging on for 20 years or so with lives ruined and some suicides.
The basic facts of the errors and manipulations in the PO’s systems (Horizon) have been known for some time from investigations of the Daily Mail and others, But it is only now in January 2024 – many years into the scandal – that criminal investigations into the PO’s conduct is now being undertaken by the police.
So why now? Great question! Many would say that justice is a very slow burn in the UK, and that is true. Of course, the British class and legal system has always been totally opposed to the interests of the ‘little people’ (such as the sub-postmasters). The Establishment has a well-deserved reputation of closing ranks around their own when threatened. And they usually succeed.
But the waves of justice are not static and they follow the general social mood – the very same waves that determine waves in the price of stocks.
Remember, this social mood is unconscious and not rational. It operates from the patterned subconscious level in all humans.
For the last 20 years of the scandal, stocks have been buoyant as social mood has been elevated and scandals and wrongdoings were mostly swept under the carpet. The mood was forgiveness.
But now. conditions are changing from the 28th of December with likely reversals in many indexes as the leading indictors of this changing of the guard. Now, social conditions are reversing from highly bullish and accepting to a more negative and punishing mood and that is when carpets are slowly being lifted to gradually reveal the scale of previous wrongdoings.
And that makes this critical Dec/Jan window for stocks so crucial for the PO scandal (and vice versa, of course). As social mood becomes more negative, expect to see justice gradually take an upper hand, not only for this case but for others.
Now, if criminal charges against the Post Office and its officers are dropped, the public mood will be angry and who knows what could happen then?
For instance, the Jeffrey Epstein affair that has involved many prominent names at least since 2015 promises to bring more allegations against Prince Andrew to light this month. The prince is about as high as you can get in the British Establishment. You can be sure he gets the top lawyers and unlimited financial support, as has the Post Office.
But when the public mood really turns sour, retributions will be harsh. And that will apply in spades in the world of politics, but I digress.
I have just spotted this little titbit from Bloomberg on the current state of social media interaction – as I spluttered in my coffee (again). Of course, it was written from the USA (where else?) and the author must have been unaware of what the word ‘bonk’ suggests to us in the UK. I like Yo as it takes the two at each end to be a YoYo.
But what a fitting barmy time-wasting ap that arrives right at the end of the surge of the social media phenomenon. Is this the final piece of madness that marks the top? It certainly fits inside my Dec/Jan window.