Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
The Copper/Gold Ratio Would Change the Macro - 21st Oct 20
Are We Entering Stagflation That Will Boost Gold Price - 21st Oct 20
Crude Oil Price Stalls In Resistance Zone - 21st Oct 20
High-Profile Billionaire Gives Urgent Message to Stock Investors - 21st Oct 20
What's it Like to be a Budgie - Unique in a Cage 4K VR 360 - 21st Oct 20
Auto Trading: A Beginner Guide to Automation in Forex - 21st Oct 20
Gold Price Trend Forecast into 2021, Is Intel Dying?, Can Trump Win 2020? - 20th Oct 20
Gold Asks Where Is The Inflation - 20th Oct 20
Last Chance for this FREE Online Trading Course Worth $129 value - 20th Oct 20
More Short-term Stock Market Weakness Ahead - 20th Oct 20
Dell S3220DGF 32 Inch Curved Gaming Monitor Unboxing and Stand Assembly and Range of Movement - 20th Oct 20
Best Retail POS Software In Australia - 20th Oct 20
From Recession to an Ever-Deeper One - 19th Oct 20
Wales Closes Border With England, Stranded Motorists on Severn Bridge? Covid-19 Police Road Blocks - 19th Oct 20
Commodity Bull Market Cycle Starts with Euro and Dollar Trend Changes - 19th Oct 20
Stock Market Melt-Up Triggered a Short Squeeze In The NASDAQ and a Utilities Breakout - 19th Oct 20
Silver is Like Gold on Steroids - 19th Oct 20
Countdown to Election Mediocrity: Why Gold and Silver Can Protect Your Wealth - 19th Oct 20
“Hypergrowth” Is Spilling Into the Stock Market Like Never Before - 19th Oct 20
Is Oculus Quest 2 Good Upgrade for Samsung Gear VR Users? - 19th Oct 20
Low US Dollar Risky for Gold - 17th Oct 20
US 2020 Election: Are American's ready for Trump 2nd Term Twilight Zone Presidency? - 17th Oct 20
Custom Ryzen 5950x, 5900x, 5800x , RTX 3080, 3070 64gb DDR4 Gaming PC System Build Specs - 17th Oct 20
Gold Jumps above $1,900 Again - 16th Oct 20
US Economic Recovery Is in Need of Some Rescue - 16th Oct 20
Why You Should Focus on Growth Stocks Today - 16th Oct 20
Why Now is BEST Time to Upgrade Your PC System for Years - Ryzen 5000 CPUs, Nvidia RTX 3000 GPU's - 16th Oct 20
Beware of Trump’s October (November?) Election Surprise - 15th Oct 20
Stock Market SPY Retesting Critical Resistance From Fibonacci Price Amplitude Arc - 15th Oct 20
Fed Chairman Begs Congress to Stimulate Beleaguered US Economy - 15th Oct 20
Is Gold Market Going Back Into the 1970s? - 15th Oct 20
Things you Should know before Trade Cryptos - 15th Oct 20
Gold and Silver Price Ready For Another Rally Attempt - 14th Oct 20
Do Low Interest Rates Mean Higher Stocks? Not so Fast… - 14th Oct 20
US Debt Is Going Up but Leaving GDP Behind - 14th Oct 20
Dell S3220DGF 31.5 Inch VA Gaming Monitor Amazon Prime Day Bargain Price! But WIll it Get Delivered? - 14th Oct 20
Karcher K7 Pressure Washer Amazon Prime Day Bargain 51% Discount! - 14th Oct 20
Top Strategies Day Traders Adopt - 14th Oct 20
AMD is KILLING Intel as Ryzen Zen 3 Takes Gaming Crown, AMD Set to Achieve CPU Market Dominance - 13th Oct 20
Amazon Prime Day Real or Fake Sales to Get Rid of Dead Stock? - 13th Oct 20
Stock Market Short-term Top Expected - 13th Oct 20
Fun Stuff to Do with a Budgie or Parakeet, a Child's Best Pet Bird Friend - 13th Oct 20
Who Will Win the Race to Open a Casino in Japan? - 13th Oct 20
Fear Grips Stock Market Short-Sellers -- What to Make of It - 12th Oct 20
For Some Remote Workers, It Pays to Stay Home… If Home Stays Local - 12th Oct 20
A Big Move In Silver: Watch The Currency Markets - 12th Oct 20
Precious Metals and Commodities Comprehensive - 11th Oct 20
The Election Does Not Matter, Stick With Stock Winners Like Clean Energy - 11th Oct 20
Gold Stocks Are Cheap, But Not for Long - 11th Oct 20
Gold Miners Ready to Fall Further - 10th Oct 29
What Happens When the Stumble-Through Economy Stalls - 10th Oct 29
This Is What The Stock Market Is Saying About Trump’s Re-Election - 10th Oct 29
Here Is Everything You Must Know About Insolvency - 10th Oct 29
Sheffield Coronavirus Warning - UK Heading for Higher Covid-19 Infections than April Peak! - 10th Oct 29
Q2 Was Disastrous. But What’s Next for the US Economy – and Gold? - 9th Oct 20
Q4 Market Forecast: How to Invest in a World Awash in Debt - 9th Oct 20
A complete paradigm shift will make gold the generational trade - 9th Oct 20
Why You Should Look for Stocks Climbing Out of a “Big Base” - 9th Oct 20
UK Coronavirus Pandemic Wave 2 - Daily Covid-19 Positive Test Cases Forecast - 9th Oct 20
Ryzen ZEN 3: The Final Nail in Intel's Coffin! Cinebench Scores 5300x, 5600x, 5800x, 5900x 5950x - 9th Oct 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Stocks Primary Bear Trend About to Resume?

Stock-Markets / Stocks Bear Market Oct 16, 2009 - 04:21 AM GMT

By: Brian_Bloom


Diamond Rated - Best Financial Markets Analysis ArticleThe chart below looks like it’s headed for overbought territory on the RSI and it the falling tops on the MACD seem to be signaling that the ratio might be about to pull back. By implication, either the Dow can be expected to pull back or the dollar index can be expected to rise, or both.

The chart below (courtesy is of the Dow Jones Industrial Index divided by the US$ Index

The chart below (courtesy shows signs of both the dollar and gold reaching the apex of wedges. The analyst has taken some liberty in drawing the trend lines on the gold wedge to maximize the points of contact on the upper line. Similarly, on the lower line on the dollar wedge the number of points of contact has been maximized. Gold “may” be showing a false breakout (not necessarily – see below) and the dollar may be getting closer to an upside bounce (not necessarily, see below).

The reader might now look at the chart of the Dow Industrials on its own. It is also approaching the apex of a wedge – and also it should also be noted how the RSI is reaching for overbought territory and the MACD MA’s are showing falling tops. Here, a resolution may be anything up to four weeks away

Some theory relating to wedges:

Two quotes from Edwards and Magee, Technical Analysis of Stock Trends, 5th edition at page 156:

“In a Rising Wedge … there is no evident barrier of supply to be vaulted but rather a gradual petering of investment interest”

“Thus, a Rising Wedge typifies a situation which is growing progressively weaker in the technical sense.”

[Analyst observation: Note how volume on the above chart has been declining since April 2009. The “spike” in the past couple of days has been counter to the trend and may have arisen from book balancing behavior. Volume should be watched carefully over the coming few days. Breakouts, one way or another, typically occur on rising volume.]

The chart below, of US Steel in 1937, is reproduced from Edwards and Magee at page 155

The reader’s attention is drawn to the words “approached the top of its Secondary recovery”. A rising wedge is typically a reaction against the prevailing trend and, when the rising wedge is penetrated on the downside, the prevailing trend re-emerges.

Of some significance, this analyst has, on two or three occasions in the past few years, seen an exception to this general statement in that, sometimes, if the rising wedge is in line with the prevailing trend and the volume is robust, the wedge may turn out to be a continuation pattern. This “may” turn out to be the case with gold, because the direction of the Primary trend is “up” and the wedge is not running counter to that trend. It “may” also turn out to be the case with the US Dollar, because the Primary trend of the dollar is “down” and the wedge is not running counter to that trend.

However, in the case of Industrial Equities, the author hereof has been opining unequivocally for several weeks that, in his view, the Primary Trend is “down”.

In the interests of both integrity and objectivity it is pointed out that the rising wedge in the chart above (US Steel) took about two months to complete. Depending on how one interprets the lines, the wedge in the current Dow chart took a minimum of three months to complete. The wedges in the gold price chart and the dollar chart have taken at minimum seven months to manifest and there have been no rounding tops. This presents yet further evidence that they “may” not be genuine reversal patterns. However, volume in the industrial equities market has been behaving consistently with expectations associated with a wedge. This particular wedge looks genuine.

This technical assessment is “confirmed” by the underlying fundamentals for the following reasons:

1. The degree of jawboning by our political, financial and economic leaders in the past few months has been extraordinary and this has given rise to extraordinary confusion in the market place. Literally trillions of dollars have been thrown around like confetti without any thought as to who is going carry the burden of these additional dollars. The message of all this jawboning has basically been “Trust us. We know what we are doing”. This analyst’s response is: “Oh yeah? If you know what you are doing then how did we get into this mess in the first place? The bottom line is that this mess has been caused by an unbridled reliance on debt at all levels of society and now you want to address the consequences by ramping up the debt at a faster pace? There’s an old line from the Goon Show that used to air on radio around 40 years ago which seems to be appropriate about now. If memory serves, it was Bluebottle who said: ‘I may be stupid, but I’m not a fool’. The evidence suggests that you haven’t got the faintest idea whether what you are doing will work or not.”

2. The underlying fundamentals, whilst clearly improving, may merely be evidencing a bounce from lows. One needs to remember that the increase in economic activity has been the direct result of the stimulus – which stimulus is now working its way through the system. The first home buyers rebate and the cash for clunkers deals are about to become history – unless, of course, the authorities who claim to know what they are doing decide on the spur of the moment to extend these rebates by printing yet more paper dollars. That would be a brilliant example of knee-jerk planning.

3. Notwithstanding all the “green shoot” hype in the market place leading up to the reporting season for the most recently passed quarter; so far, the numbers are nothing to write home about. For example, Citigroup made a predicted (by some analysts) loss for the quarter of up to 38 cents a share. You remember Citi? Citi was the bank that had to be bailed out by the US Government to the tune of $45 billion and whose CEO said on September 16th 2009 (a couple of weeks ago) that “you could easily see [this $20 billion of preferred securities] being paid off” ( ) Oh? Really? With your provision for bad debts now at $8.9 billion? Why would you consciously move to reduce your preferred equity capital under those circumstances?

4. The run-up should be seen in context of the Twelve Month Trailing (TMT), GAAP adjusted Earnings Per Share. In the table below (source:

Now let’s understand what these numbers are telling us.

The markets are expecting TMT to Q3 2009 to be $7.94 and then “suddenly” to jump to $39.75 in Q4 of 2009 and then RISE by around 10% to $43,83 in Q1 2010 and the FALL again by 5% to $41.61 in Q2 2010.

As at last night (October 15th 2009), the SPX closed at 1096.56. This implies a FORWARD looking P/E ratio of 1096.56/41.61 = 26.35X

Peering into the murky future and against a background where the last quarter’s earnings are (so far) ho-hum, the P/E ratio based on FORECAST earnings adjusted for Generally Accepted Accounting Principles is 26.35X.

Historically, most Bull Markets have ended when multiples were around or below this level in an atmosphere of froth and bubble. Now, based on a V shaped recovery from the worst recession since WWII, the market is factoring in “hysterical” (as opposed to historical) P/Es?. By way of context, a typical Bear Market ends with P/Es of around 8 – 10X and the “average” P/E is around 15X.


Let me stick my neck out here. Monetary inflation cannot reasonably give rise to increasing profitability (which is the only reason why hysterical P/E ratios might be justified) in an environment where unemployment is growing. From both a technical perspective and a fundamental perspective, the wedge on the industrial equities index chart is probably real. Further, caution seems appropriate with regard to the dollar. It might be dangerous to short the dollar at this point because, technically, it “might” break up and there may be a sound fundamental reason for this: Conceivably the dollar “might” rise if US interest rates start to spike. (See chart below, courtesy If interest rates spike and this causes a scramble of dollar short covering, we might see blood in the streets because the speculators could be pole-axed. A falling dollar is a mite too obvious right now.

Analyst’s Comment

In all fairness to our illustrious leaders, their behavior has been quite rational. They can hardly expect to be re-elected if they stand up in public and tell us that things are bad. It’s there job to foster a spirit of optimism. For example, it’s Obama’s job to stand up and say that his administration is going to keep going until "every single American in this country who's looking for work is going to be able to get the kind of well-paying job that supports their families." (Source: ). But I ask you as a reasonable person. “Doesn’t the very ridiculousness of this statement engender some doubt in your mind?”

The question boils down to why anyone in his right mind would expect that – assuming we keep everything else equal – aiming a fire hose of money at an already drowning economy is going to make it any easier to breathe.

At the end of the day, the driver of economic activity is entrepreneurial endeavor which is applied to address market opportunities flowing from new technological developments – all of which is “greased” by the application of capital. When the economic motor is running strongly and the economy has developed a momentum, then the service sector can reasonable grow on the back of a vibrant economy. But the service sector has to have something to service. To argue that the service sector “is” the economy shows a lack of understanding of the dynamics of wealth creation across the system. It might work for the individual, but not across the system as a whole.

Contrary to the hopes and wishes Capital is not an engine of growth. It is the grease on the economic wheel. And the longer it takes our leaders to face up to this reality, the worse the “recession” is going to be.

In my recently published novel, Beyond Neanderthal, a 100,000 foot view is taken of what gave rise to the current debacle and what, in principle, we might do about it. What is needed in the current environment is “outside the box” thinking. Beyond Neanderthal – copies of which can be ordered via or via Amazon – is chock full of outside the box thinking. But there are no silver bullets. It’s going to take time.

Brian Bloom

Beyond Neanderthal is a novel with a light hearted and entertaining fictional storyline; and with carefully researched, fact based themes. In Chapter 1 (written over a year ago) the current financial turmoil is anticipated. The rest of the 430 page novel focuses on the probable causes of this turmoil and what we might do to dig ourselves out of the quagmire we now find ourselves in. The core issue is “energy”, and the story leads the reader step-by-step on one possible path which might point a way forward.  Gold plays a pivotal role in our future – not as a currency, but as a commodity with unique physical characteristics that can be harnessed to humanity's benefit. Until the current market collapse, there would have been many who questioned the validity of the arguments in Beyond Neanderthal. Now the evidence is too stark to ignore.  This is a book that needs to be read by large numbers of people to make a difference. It can be ordered over the internet via

Copyright © 2009 Brian Bloom - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Brian Bloom Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules