The Dow Jones Industrial Average ended the week at 11,269 – almost exactly on the midpoint of the action zone. This is the equilibrium, the point at which the Dow should trade on average. Once it moves above this point, “the market” starts to become over-valued. And the closer the Dow moves to the top of the action zone, the closer it gets to correcting. For instance, every time the Dow reached 12,700 since the crash it fell back. Why?
Because market conditions don’t warrant top of the action zone valuations.
Also note that the Dow never once tested the low-end of the action zone during this massive sell-off. Why not?
Because the news wasn’t bad enough.
Yes, market conditions are ugly and getting worse. But let’s face it, interest rates are low and inflation hasn’t yet showed up in the national numbers. We all know inflation is out there — and we feel it. But as long as Wall Street can’t see it in national numbers – it doesn’t exist.
Remember, the Wall Street establishment – the center of the financial markets – never saw the collapse of the financial market coming until companies like Bear Stearns and Lehman Brothers went bankrupt. It’s like they’re always the last ones to know.—And when they do find out they espouse, there was no way for anyone to know such a thing would ever, or could, ever happen. (If you believe that you haven’t read my book.)
Bottom line: The news wasn’t bad enough to test 9,184 this week. To that end, inflation and interest rates are the fundamentals to watch.
PS: I know we’re just getting started here at LYB but I plan to host my first on-line event Monday, August 15th, at 8pm eastern. Please take a moment and RSVP if you plan on attending. Thanks!
Have a great weekend!!!
Talk soon,