DOW Peaked?

11 May 2013

Introduction

Has DOW peaked? This is one question that many wanted answers.  This article will present some random thoughts on whether DOW has peaked or near peak.

DOW Theory

In the past,  many used DOW theory to determine whether DOW had peaked.  Under some specific conditions especially when DOW Transportation Index ($TRAN) runs about 25% below DOW,  DOW Theory effect has known to kick in to indicate a market crash ahead.  True enough $TRAN was -38% below DOW on 16 Feb 2000 before the Dot.com bubble crash and was -26.2% on 9 Jan 2008 before the Sub-Prime problem.  However,  $TRAN never hit -25% this time.   It only managed to hit -21% on 21 Sep 2012.

No Market Crash?

 

It is very hard to tell at the moment; however, the following details tend to indicate that something might happen in the near future.

What Could Have Saved The Market on Sept 2012?  

Fed announced unlimited QE on 13 September 2012.  It is believed that this Fed's announcement saved the market from further deterioration. The monetary policies could have distorted the market like it has distorted the yield curves.   The market is so flushed with M3 money supply that has enriched the market instead of the economy.  Lets further examine the dangers lurking ahead.

Signs of Market Crashes

From the following charts,  one can identify 3 common signs in addition to the DOW theory:-

a)  There is a divergence between $TRAN and CRB,  the Commodity Index, few months before the crash; 

b)  The Bank index $BKX is always leading the crash;
c)  CRB will then pick up and rise towards the DOW peak.

Does the Present Market Has the Signs?

The present market has only the first sign i.e. a divergence between $TRAN and CRB.  It has not fulfill the DOW theory nor the bank index,  $BKX,  has started to decline.   CRB is still at its downward trending.

Can a Crash Occur? 

It is premature to tell at the moment;  however,  the following charts are telling us something could  happen in the  near future.   This is because:-

a) $BKX,  the banking index,  is about to make a triple top;

b)  Nikkei is at all time resistance

What Other Say?

Many analysts said they are bullish about the present market.  The Professor of Doom, Dr. Nouriel Roubini said that  this bullish market trend could go on for the next 1 to 2 years.  

then there is Prof Paul Krugman who said Bernanke was not blowing any bubble right now.  Even the Gloom, Boom and Doom, Dr. Marc Faber, was not sure and now said   "a correction can occur".

However,  Warren Buffet and other billionaires were dumping shares at an alarming rate.   Warren Buffet once said "Going bearish when others are bullish"

Update 1:   15 May 2013

The bank index,  $BKX,  broke the long term resistance line last night with a 1.8% gain.   This has pushed DOW up another 0.81%,  Nasqaq by another 0.7% and S&P by 1%.   However,  $BKX has also touched the upper bounce of the rising channel.   Is this breakout sustainable?  There is no way to tell as Yahoo and many other website stopped providing volume figure for $BKX since Jan 2013 for some reasons. 

BTW,  the Fear and Greed Index of CNN Money jumped 3 points to 87 points last night increasing the weekly gain by 10 points.  It will soon reach its peak and ready another round of correction