Weekend August 22 2021
The SPX and DJIA both topped this past week, And they did so amidst the disastrous pull out from Afghanistan.
Andy Kessler ran an interesting column a week ago in the WSJ about the significance of August. Bob Prechter in his latest EWT notes that eight market tops occurred in the July to early September period.
The Dow Theory non confirmation continues with the Transports perhaps already completing a Wave Two corrective move up.
The Transports topped back in May along with the Composite, Industrials, Transports, Utilities at exactly the same time. The topping see first chart of multiple indexes in the Juy to Sept time period id significant.
Charles Dow in creating his Dow Theory held that the Industrials and Transports need to move together, one confirms the others. The firms that make goods should be confirmed by those transporting the goods. Clearly we have a non confirmation. Here is another non confirmation, bfreadth is rapidly deteriorating.
The maximum number of new highs peaked in April before the May tops of the Transports and Composite. Do you see how this is all coming together?
Add in the Afghan disaster, already inviting comments from China, rising crime in major cities, the lack of a Southern Border, and it all begins to look more like the late 1960s period finally leading to the similar disastrous exit from Saigon. We have noted that rising negative mood world wide was not supporting the stock advance.
NYSE Advance Decline Line
The single most reliable indicator is shown above the NYSE Advance Decline line. Looks like the NYSE topped in August as the A/D line fell, again a signal of a lack of breadth. Note PMO collapsing at bottom.
Inflation or Deflation
We have noted that Jerome Powell may be right that this burst of inflation, recall lumber prices, may be transitory. And that may be predicting a world slowdown. Already automakers are slowing production due to chip shortages. China is cracking down on various industries, their largest property developer Evergrande is in too much debt, retail and travel expectations are cooling amid another covid outbreak. I am not so worried about covid as I am falling commodity prices. Recall the 200877 run up in oil to $140 and then a six month collapse to $35. Crude oil has fallen from $75 ot $62 in the last two months.
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