Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

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

Stock Market Dow Theory Contrived Buy Signal or Paranoia?

Stock-Markets / Stocks Bear Market Mar 23, 2010 - 04:22 PM GMT

By: Brian_Bloom


Best Financial Markets Analysis ArticleAm I being paranoid? Was the spike in the Dow Jones Industrial Index – which took it to a new high thereby resulting in a Dow Theory buy signal – contrived?

Have a look at the chart below (courtesy

5 minute chart of the Dow shows:

A false breakout from a rising wedge at close of play last Thursday – leading to a Dow Theory buy signal when the Dow “spiked” to a new high.
A price reversal on Friday morning leading to a true breakdown from that rising wedge.
A sharp rise on Monday morning, but culminating in another breakdown from another rising wedge in context of a rise that could be argued to have been a double top. Interestingly the spike rise on Monday, March 22, also occurred soon after the opening – which begs the question: “Why would the passage of the new Health Services Bill be deemed to be good news from a corporation’s perspective?”

As you know, I don’t trust short term charts anymore because of the trading noise, but this looks suspiciously to me like an attempt (and failure) to get the Industrial Index to break up through long term resistance so that it might run.

The long term (weekly chart) looks like this (courtesy

Note how the price broke up through the down trend line on rising volume last week. However, in context of the “spike” that occurred at the close on Thursday 18th and in context of the subsequent pullback from that spike’s top, we need to allow some time to pass before we draw conclusions. I don’t like the feel of this. There is no fundamental reason I can think of why the markets should be anticipating rising corporate profits in the next year or two.

If you have a look at the forecast (GAAP adjusted) profits (twelve month trailing earnings) (courtesy you will see that the rate of growth of profitability (adjusted for GAAP) is being forecast by management to slow down

TMT Q2/Q1 = 60.93/59.44 = 2.5% growth

TMT Q3/Q3 = 61.69/60.93 =1.25% growth

If management is forecasting profitability growth rate to slow, why would the Dow Jones break to new highs from a base starting point P/E ratio of 19.6X? 19.6X P/E ratios manifest – fundamentally – when the market expects profitability to rise sharply. In an environment of flattening earnings, P/E ratios of closer to 12X – 15X are more appropriate.


Fundamentally, there is a logical disconnect here. This disconnect is being accompanied by some rather odd looking short term market behaviour. When these two factors are viewed side by side, a warning bell can be heard. Caution is advised.


I have been copping a lot of flack for having had the gall to suggest that the Central Banks are probably not trying to manipulate the gold price at this stage.

In summary, I stick by my view – which is not intended to be controversial. If one takes a ten year view of the gold price chart one sees that the price of gold has quadrupled in that time – against a background where the central banks were certainly (at one time) attempting to prevent a rise. But a fourfold increase in the face of such attempts represents a miserable failure – if the central banks were in fact trying to suppress the gold price during all that time. Frankly, one would have to assume that the central banks of the world are populated by intellectual hunchbacks if, in the face of such miserable failure, they still believe they have the capacity to change the direction of the Primary Trend of the gold price.

If one has a look at the P&F chart of gold below, one sees that the gold price is sitting on support

If the gold price falls below $1,100 a ounce it can be expected to continue falling and to break down through the rising trend line.

In context of the P&F chart below – which has been sensitized to reflect movements of 3% or more – it is clear that the gold price had risen to a point where it became overbought. (Amazing given the alleged price suppression activity of the world’s central banks)

Overall Conclusion

Paranoia can be a two way street. If the market appears to be moving contrary to expectations it pays to find a quiet place to sit and think. Logic dictates that there is no (visible) fundamental reason why the Industrial. Index should be powering upwards. Logic dictates that the gold price needs to consolidate within the confines of a primary bull market. Technically, if the “volume of cash” was what was driving the Industrial Index to new heights, then that same volume of cash should be driving the gold price to new heights. Something is out of kilter here and that something does not have a good feel to it. Perhaps, at the end of the day, it is not a happy state of affairs when the President of a country is prepared to ram a law down the throats of the broader population, who are signaling serious concerns with that law, in order the protect the interests of a minority proportion of that population.

By Brian Bloom

Once in a while a book comes along that ‘nails’ the issues of our times. Brian Bloom has demonstrated an uncanny ability to predict world events, sometimes even before they are on the media radar. First he predicted the world financial crisis and its timing, then the increasing controversies regarding the causes of climate change. Next will be a dawning understanding that humanity must embrace radically new thought paradigms with regard to energy, or face extinction.

Via the medium of its lighthearted and entertaining storyline, Beyond Neanderthal highlights the common links between Christianity, Judaism, Islam, Hinduism and Taoism and draws attention to an alternative energy source known to the Ancients. How was this common knowledge lost? Have ego and testosterone befuddled our thought processes? The Muslim population is now approaching 1.6 billion across the planet. The clash of civilizations between Judeo-Christians and Muslims is heightening. Is there a peaceful way to diffuse this situation or will ego and testosterone get in the way of that too? Beyond Neanderthal makes the case for a possible way forward on both the energy and the clash of civilizations fronts.

Copies of Beyond Neanderthal may be ordered via or from Amazon

Copyright © 2010 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