Dow Jones Industrial Average

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Citi: "The Market Will Form A 'Terminal' High"

Stepping back from the trees to survey the forest (from the Moon perhaps) often provides some clarifying picture-paints-a-thousand-words view of the world. This is exactly what Citi's Rick Lorusso has done and while he called for a correction back in March which was followed by a 10.9% drop in the Dow, he was disappointed and is looking for a far greater adjustment - no matter how many times he hears about negative sentiment and QE and soft-landings. Starting from a truly long-term yearly chart of the Dow Jones Industrial Average, Lorusso conjures wave patterns, Fibonnacci, and cycles as he rotates down to monthly and daily charts to conclude that his charts "suggest the potential for a very significant high this year," in the July/August period, summarizing that Citi is "anticipating that the market will form a terminal high." - even more so on a rally from here as he warns "beware of new highs" so bulls be careful what you wish for.

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Things That Make You Go Hmmm - Such As The Transition From Conspiracy Theory To Conspiracy Fact

Attempts to manipulate free markets invariably end badly - after all, they are, supposedly, by their very nature, free. Over the past few weeks, the exposure of the Libor-rigging scandal has monopolized the headlines of the financial press. The rather obvious implication being that given almost half the reported inputs that help establish the Libor rate are discarded immediately, Barclays simply CANNOT have manipulated the Libor rate alone. Period. At best this is a cartel, at worst it’s outright fraud on a scale that is completely unprecedented. In Grant Williams' humble opinion, the Libor scandal will mark a fundamental change in the treatment of financial conspiracy theories in the media. The sheer amount of coverage it will undoubtedly receive will signal a shift in attitude towards the exposing of such scandals rather than the blind-eyes that have been regularly turned in recent years. Prime amongst conspiracy theories that may soon be finally proven to be either valid or the figments of overactive imaginations, are those alleged in the gold and silver markets. If the long-stated claims about government-sanctioned, bank-led manipulation of precious metals markets are eventually proven to have any validity whatsoever, the fallout from the Libor scandal will prove to be (to use the words of Jamie Dimon) just another “tempest in a tea pot” as the precious metals are the very underpinnings of the entire global financial system.

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As The US CapEx Boom Ends, Is The Fed Now Truly Out Of Ammo?

For the past six months we have extensively discussed the topics of asset depletion, aging and encumbrance in Europe - a theme that has become quite poignant in recent days, culminating with the ECB once again been "forced" to expand the universe of eligible collateral confirming that credible, money-good European assets have all but run out. We have also argued that a key culprit for this asset quality deterioration has been none other than central banks, whose ruinous ZIRP policies have forced companies to hoard cash, but not to reinvest in their businesses and renew their asset bases, in the form of CapEx spending, but merely to have dry powder to hand out as dividends in order to retain shareholders who now demand substantial dividend sweeteners in a time when stocks are the new "fixed income." Yet while historically we have focused on Europe whose plight is more than anything a result of dwindling cash inflows from declining assets even as cash outflow producing liabilities stay the same or increase, the "asset" problem is starting to shift to the US. And as everyone who has taken finance knows, when CapEx goes, revenues promptly follow. Needless to say, at a time when still near record corporate revenues and profit margins are all that is supporting the US stock market from joining its global brethren in tumbling, this will soon be a very popular point of discussion in the mainstream media... in about 3-6 months.

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"We Are Off The 2012 Lows" By About 10 Points

While the Dow Jones Industrial Average crossed into negative territory for the year on Friday, E-Mini and the S&P are still "off the lows" of the year (low print was 1259.75 on January 5th). However, if the rapid sell off in the premarket session accelerates, it is possible that we will wipe out all of the 2012 gains in hours if not minutes: December 30, 2011 close was 1252.50. We are now 10 just points higher and closing fast.

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Did The SEC Hint At A 7% Market Plunge?

Back in October 19, 1988, in response to Black Monday from a year earlier (the SEC is not known for fast turnaround times) a little known SEC rule came into effect, known as Rule 80B, and somewhat better known as "Trading Halts Due to Extraordinary Market Volatility" which set trigger thresholds for market wide circuit breakers - think a wholesale temporary market shutdown. According to Rule 80B (as revised in 1998), the trigger levels for a market-wide trading halt were set at 10%, 20% and 30% of the DJIA. Needless to say, a 30% drop in the market in our day and age when the bulk of US wealth is concentrated in the stock market, would be a shot straight to the heart of the entire capitalist system. Which is why the smallest gating threshold is and has always been the key.However, despite the revision, as anyone who traded stocks on that fateful day in May knows, the market-wide circuit breakers were completely ineffective and unused during the HFT-induced and ETF-facilitated flash crash of May 6, 2010. In turn, the SEC's flash crash response was to implement individual stock-level circuit breakers which however, instead of restoring confidence in the market, have become the butt of daily jokes involving freaked out algos. This was merely the most recent indication of how horribly the SEC's attempts to "regulate" a market it no longer has any grasp or understanding of, backfire on it. However, even that may pale in comparison to just how badly the SEC may have blundered yesterday afternoon, when it proposed yet another revision to its market-wide halt rule. And once again, instead of making traders and investors more comfortable that the SEC is capable and in control, the questions have already come pouring in: is the SEC preparing for another massive market crash?

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Guest Post: Peak Dow, Peak GDP And Peak Oil

Common sense suggests that if employment is rising, the stock market should follow as more jobs means more wages, sales and profits. We see this correlation in the overlay of the S&P 500 (SPX) and employment until the latest recession and stock market Bull run-up: this is clearly a jobless "recovery" yet the stock market has more than doubled. Is this decoupling of employment from the stock market "the new normal" or an aberration that's about to revert to historical correlation? To do that, the market would need to fall in half or the economy would need to add 10+ million jobs in short order. If we combine Peak Oil with Peak Credit, we get a household sector with stagnant disposable income burdened by servicing monumental debt loads. Here is a chart of household liabilities and wages/salaries, unadjusted for inflation. Household debt has completely outstripped income. These charts do not paint a picture of robust recovery, they sketch a grim picture of stagnant household incomes and rising costs for fuel and debt service.

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