DOW

Alan Greenspan, the Fed and “Irrational Exuberance”

Hamilton

Greenspan

The Maestro spoke again today, this time to let us know that stocks are dirt cheap and can only go one way given the present p/e ratio and that is up. Just for the record we thought it might be instructive to see when exactly it was that the maestro uttered his most famous words, “irrational exuberance”. It was on the 5th of December 1996, during a speech entitled “The Challenge of Central Banking in a Democratic Society”. On the chart below of the DOW there is a red arrow to show when that was;

greenspan dow

In the previous ten years the Dow had tripled in value. Since then 16 years have gone by and the Dow is at roughly 13000, implying a compound growth rate of 5.1% (which does not include dividends), which is much higher than the long-term growth rate. This begs the question why exuberance then and a buying opportunity now?

The answer, I would suggest, can be found in parts of that speech particularly when the maestro says, “We as Central Bankers need not be concerned if a collapsing financial bubble does not threaten to impair the real economy, its production, jobs and price stability”.It is almost as if these guys , like ostriches, bury their heads in the sands of the world of academia and are completely disconnected from the real world.

DOW, DAX, SPX, NYA , STOX600, TSX, DJT

Hamilton

indu feb8 2012

The DOW has clearly exceeded its May 2 high of 12876 by about 50+ points. This would normally negate the count, that is the one where this was wave 1 down followed by an a-b-c correction/rebound. I simple do not know what to do with this! The structure is just fine, only it should not have gone this high. EW is supposed to work when markets work, that is when there are a multitude of participants who freely make up their minds to buy or sell. Perhaps this precondition is no longer met now that CB’s have thrown in 15 trillion into the punch-bowl (1/3 of the value of world equities!), never mind all the other “stimulating” factors. I just do not understand but at the same time will not get religious or dogmatic about it. Other than the Nasdaq, which is in a completely different phase, just about every other major index has NOT negated this count, so for the time being we will stick with it. Below are some examples;

DAX feb 9 2012SPX feb 9 2012NYA feb 9 2012

stox600 feb 9 2012TSX feb 9 2012DJT

You can click on them to enlarge. Un till such time that a few more of these “negate” the count I will take the catholic approach and simple nullify this one  single incident.

DOW Chemical

Hamilton

This is the world’s second largest chemical company after Germany’s BASF, here are the charts;

DOW Chem dow chem 2

You can click on the charts to enlarge. The large B-wave on the left is particularly clear; it calls for new lows sometime in the future, that is below the roughly $7 back in March 2009. There are alternatives but none that are very plausible at this point.

On the short-term chart on the right, the 5 wave initial drop is equally clear on this stock. The drop is from roughly $44 to $20, almost cut in half. As always, a 50% or even larger rebound is normal. That could take this stock to $32, where, by coincidence , we would have a completed a-b-c wave 2 with c=a. It does not have to go that far and it can go a little further, but the structure is perfectly clear. Wave 3 etc will start at some point in the very near future and it will be fast and furious compared to what we have so far.

TSX and DOW

Hamilton

Clearly the Dow did not stay in the triangle, it is now more likely an a-b-c, more or less the original thought. We will see. In any case 4 days in a row, up and down more than 400 points has never happened before.

Concerning the TSX, I am wondering if another original idea might not apply, given the violent move. Do not think so but one cannot help but wonder.

tsx aug 11 2011 tsx aug 11 2 2011

On the left is the original idea . It was discarded because it took to long. On the right is the latest up-leg. Just like the Dow , 900 points up in 3 days is insane. It looks like a wedge but  short-term I am not going to guess.