Monday, August 16, 2010

Dow greatest top in history - 3 years

The Dow appears to be in a huge head-and-shoulders top. Note that this top has formed almost three years after the Dow hit its high back in October 2007. The fact that we now have declining tops, meaning a lower distribution pattern (below the primary top of October 2007) is bearish. I n the most recent pattern, the Dow seems to be working on an expanded "right shoulder" of its H&S top. I have drawn a line showing the support for the H&S pattern. The breakdown of the whole formation would come with a Dow close of 9600 or lower.

Note also at the top of the chart that RSI has turned decisively down. At the bottom of the chart I show on-balance-volume, which is in an ominous downtrend.

As I see it, the top we are witnessing began forming in October 2007 and is still in the process of formation. This makes it the greatest top, in duration, in history. Fantastic.

Speaking of on-balance-volume, this is the invention of my friend, the pioneering Joe Granville, who I have known and traded services with since 1960. Joe insists that volume precedes price. Joe has done a tremendous amount of work on his volume studies plus his studies of new highs and lows on the NYSE.

New highs on the NYSE topped out on April 26, 2010 at 674. Joe is convinced that was the high for the market, and once the high is put in, the market has nowhere to go but down. But it doesn't have to go straight down, the market can meander down in its own way.

Here's what Joe is saying in his latest report: "Between now and 2011, I expect the Dow to break the March 9, 2009 low of 6548.05. Once that happens, it puts the Dow in free fall with a limitless fall. What I see then is the worst decline in history, the reverse of this, the mother of all tops. Now there is no way the market can turn around and make new highs. I know that because I have the OBV numbers which all topped out in the recent March-April terminal leap."

Russell Response -- Could Joe be right? I think he could be, because this top, starting with the Dow October high of 2007, has extended for almost three years. It's the biggest and broadest top I've ever seen.

The collapse and crash could arrive with almost no one prepared for major trouble. The majority of professionals are still bullish, and the public has no concept of what it's like during a true generational bear market collapse.

Historically, the greatest moves in the stock market have come when the fewest number of people are prepared for it. Right now, the news is all of superior corporate earnings and better times next year -- and whether or when the Bernanke Fed will open the quantitative easing spigots wide.

Every primary bear market brings about one massive shocker. In the bear market of the 1930s, it was the epidemic of bank failures and the collapse of the Dow to the unbelievable value of 41.22 on July 8, 1932.

What could be the shocker of this bear market? This is obviously a Russell guess, but I believe the shocker of this bear market will be the collapse and death of fiat money. Bear markets exist for the purpose of getting rid of the corruption and lies and garbage of the preceding bull market. Fiat money is a lie and basically man-made garbage. I don't believe it will survive this bear market. Already, almost every fiat currency in the world has lost purchasing power against real money -- gold. I believe through suspicions and competitive devaluations, a decline in the value of fiat money will continue through the bear market years ahead.

Gold -- is in the process of breaking out of the head-and-shoulder bottom as I thought it would. This move is capable of taking gold to a new record high.

Below a monthly chart of gold going back to 1999, one of my favorite charts. The red arrow points to the "golden cross." Monthly gold continues to climb and always well above its rising 50-month moving average. Question in New Yorkese -- "So what's not to like?"

I like the action in gold, no headlines, little comment, media doesn't seem to notice the insistent climb in gold, all around bullish action. Does your broker know that gold is near a record high? No? Then don't tell him. He might call all of his sleeping customers.