Thursday market action reveals US stocks flirting with a major decline
WASHINGTON – While the financial media, such as it is, continues to hype recent “all-time highs” achieved by this or that market average, that story continues to remain suspect. The reason why is easy to see. Traders and investors are tiring of these “all-time” peaks. They tend to mask the declining interest in an ever-increasing number of stocks. The kind of major decline that often happens in September and / or October. And our Thursday market action reveals that US stocks may be flirting with just this kind of epic decline.
Meaning we’re almost there right now.
The downsliding in many issues is a little bit of what people called, or at least used to call (TRIGGER WARNING) the “Chinese Water Torture.” Cold water, drip-drip-dripping on the top of a prisoner’s head until he went nuts. Well at least that was the theory. But in the case of our current markets, many investors, including yours truly, are watching as 2021’s thus far carefully cultivated profitability is being eroded. One… drop… at… a… time. Wall Street’s Thursday market action is just more of the same.
So, despite all those much-ballyhooed market average highs, most portfolios are not looking quite so hot as we advance further into always treacherous September. And that includes ours.
Action items. Or, radically reassessing our portfolios
As a result, we’re selling off a number of our positions. And have actually been reluctantly doing so for the past weak. Some of these positions were profitable until a few days ago.But some got clobbered virtually without warning. That proved particularly true for Dow Jones Industrial Index (DJI) and DJI-worthy stocks like Deere (NYSE:DE), Johnson & Johnson (NYSE:JNJ), Dow (NYSE:DOW), Abbvie (NYSE:ABBV) and many others.
We have reduced or eliminated positions in these shares as they broke through support lines on their charts. And particularly if they dropped below their 200-day moving averages. That’s almost always a very bad sign.
Meanwhile, to balance off these losses or breakevens, we finally dumped our small but quite profitable holdings in Target (NYSE:TGT). The shares appeared to have peaked recently, and retail stocks in general haven’t been doing too well lately. So why not take our nearly 50% profit in this position to help balance out the other losses?
Is the Great Bull Market getting long of tooth?
Indeed, what’s been happening with stocks in general and lately, DJI stocks in particular, is that you can hear the Great Bull’s engine sputtering and its gears grinding. You can certainly hear the gears grinding as our Thursday market action staggers toward the DJI’s fourth (or is it fifth?) negative day in a row.
It’s all begun to feel like a big market semi climbing an ever-steeper hill toward the next possibly meaningless “record high” before suddenly losing its breaks and barreling down a steep hill of decline before bailing out and heading for an available “runaway truck ramp.” We see several of these on I-68 in Maryland, which many take as an alternative West to the Pennsylvania Turnpike. Scary. Like this current wobbly market.
McClellan Oscillator takes a plunge
Take a look at one of our favorite indicators, the McClellan Oscillator below. That’s a proprietary chart that shows building market peaks and collapsing market declines. Small variabilities in this chart are usually nothing to worry about, while big spike up or down seem to drive markets toward climactic buying or climactic selling.
Sharp peaks above the X-axis zero-line of this chart indicate stocks might be topping and ready for a sharp decline. Meanwhile, sharp, steep valleys below that zero-line might show Mr Market is bottoming.
But in either case, with amazing (though not perfect) regularity, each recognizable top or bottom spike on the McClellan Oscillator serves as an excellent predictor of a sharp (if often short), potentially profitable stock market reversal.
In the chart below, (courtesy of Stockcharts.com), based on Wednesday’s close (these charts normally get updated after each day’s closing bell), we can see that the market topped strongly, at least near term, a few days ago. Now we’re getting jagged moves taking us quickly to the downside. Yesterday’s negative spike tellingly took us below the zero-line. Based on today’s continuing action, circa 2:40 p.m. ET, I suspect we’ll have a worse-looking Oscillator chart poasted after today’s close.
VIX points toward greater stock market volatility… and a major decline in US stocks?
We pair this chart with another chart, this one following the up and down moves of the VIX volatility index. The higher this index spikes, the more volatile the movement of stocks becomes. The lower it drops, the smoother and more tranquil daily market action seems to become. In other words, spikes higher mean more vicious market moves up or down. (In our experience, those moves are usually down). Lower readings provide smoother sailing and less nasty moves either up or down.
In practice, option traders prefer those upward spikes, as trading in those stock proxies can help make for quick trading profits at such intervals. (Or losses, if you’re not careful.) We don’t play options very often anymore, so we personally don’t like these upward spikes. We prefer that the VIX remain quietly in the safety zone.
Right now, after a brief rest in the “safety zone” we’d note that our most recent Thursday afternoon reading of the VIX – which, unlike the McClellan Oscillator, is continuously updated at Stockcharts.com – show that Thursday’s subpar action is giving us a reverse spike up in the VIX. Should this continue, which it looks like it will, the current tendency of markets to decline might accelerate. Our ongoing Thursday market action increasingly has that look and feel.
What’s behind today’s spooky stock market action?
To beat a dead horse, we suspect that this month’s increasing market nervousness is largely attributable to the media’s and our shadow White House’s continuing freakout over the latest of what will soon prove to be an endless parade of Greek-lettered Covid-19 variants. Pushing Covid terrorism is one way, at least, of moving this administration’s epic, Jimmy Carter-like botch of an Afghanistan withdrawal off the real or virtual front pages.
This effort is failing, as it’s plain to see. But that doesn’t keep Washington’s Ruling Class from pushing this arguably bogus story until even the most stupid among us (i.e., Trump supporters) fall into line and get as many shots and vaccine passports that the government decides we must have.
Problem is, many sectors of the economy are subject to the start-and-stop, mask-or-no-mask, quarantine-or-no-quarantine idiocy driven by the obviously incompetent fools that pose as leaders of the Federal government. Unfortunately, this idiocy is taking a serious toll on stocks, not to mention a serious toll on Americans’ mental wellbeing. Generally, Americans don’t like to feel confined, like nameless prisoners. But that’s what it’s felt like for at least a year and a half and running. The Ruling Class actually likes this, but we’re not supposed to know.
Thursday market action also driven by our Hamlet-like Federal Reserve?
Also not helping matters is the Fed’s Hamlet-like non-decisions on if and / or when to jack up interest rates. (I.e., taper all those taxpayer paid-for bond purchases that have led to significantly increased inflation.) All this has negatively affected interest rate sensitive investments like bonds and preferred stocks. We see this every day in such holdings in our portfolios.
In other words, all this foolishness is coming home to roost once again, and needlessly so. American needs to get back to its normal focus on business. But, as Washington’s Ruling Class continues to ratchet up its exploitation of Covid as a means to force political control over citizens not on board with Communism and the strangely allied “Great Reset” favored by George Soros and other James Bond villain-like mega-rich dudes pursuing World Domination, the Current Covid Crap will continue and life in these United States will worsen.
Is Mr Market worried about Washington’s creeping fascist tendencies?
So what’s next? The kind of shockingly and genuinely fascist government measures currently “quarantining” (i.e., repressing) mass quantities of Australian citizens. In their own homes? Effectively under house arrest? At least some US citizens have begun to understand that this CAN happen here, and it’s already begun in parts of Hawaii.
This sort of thing badly unsettles companies and the stock markets that permit the average investor to invest in them.
America’s increasingly dominant and fascistic left-wing party got the latest edition of America’s “fundamental transformation” underway last fall by arguably committing treason on a massive scale never seen in this country. They did so in order to change the American narrative, rob citizens and business of the freedom of choice they’d so long endured, all to pursue a mad plan to put a pathetic, dementia-addled persona in the White House so they could govern, I mean rule this country via shadow committees nominally headed up by an idiot.
Marxism on the March? Stocks in trouble?
We’ve seen this kind of fundamental transformation before. It’s that delicious flavor of Marxism we call Communism. Think Cuba. Think Venezuela. We already know how this movie ends. Unless we can quickly rewrite the final scene.
Meanwhile, maybe the best thing to do right now is trim our portfolios and get out of the way before our 401(k)s and life savings either get confiscated or blown away by the Treasury Departments printing presses.
Sorry for the downer here, disguised as today’s column. But we’d all better be careful and watch our fiscal backs. They’re up to no good in DC.
Headline cartoon by Garrison. Link: Grrrgraphics.com.