Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Dow Jones Upside Break May be a Head Fake

Stock-Markets / Stock Markets 2013 Sep 19, 2013 - 03:21 AM GMT

By: Brian_Bloom


To begin with, attention is drawn to the positions of the RSI and MACD on the chart below ( The RSI is overbought and the MACD has failed to rise to a new high. Technically speaking, this is a meaningful non-confirmation

Attention is now drawn to the article associated with today’s Associated Press headline:

“Fed delays bond tapering, wants to see more data”


“….  the Fed says that the economy is growing moderately and that some indicators of labor market conditions have shown improvement. But it noted that rising mortgage rates and government spending cuts are restraining growth.”

Translation: To date, the $85 billion a month injection into the economy has not been working as we would have liked.

Question: Would a continuation of the QE translate to a stimulation of government spending?

Answer: We won’t know until after the debt ceiling talks have been resolved. The market seems to be betting that Congress will approve continued spending along with a debt increase

Question: Would a continuation of QE translate to a stimulation of private sector borrowing?

Answer: Not unless interest rates head downwards again (ten year yields have been rising)

Observation: This optimism belies what the Republicans are saying about raising the debt ceiling and what some Democrats in Congress are doing. The Republicans are saying that they will not approve a raised debt ceiling unless health care cost cuts are implemented. President Obama is saying that he won’t negotiate on that. The rogue Democrats may desert Obama and agree with the Republicans in order to keep the wheels of the economy turning. But a cut in health care spending will reduce overall government spending which, in turn, will take the pressure off the economic accelerator pedal.

Interim Conclusion

We will know the outcome within a couple of weeks but, based on what the media is reporting regarding the debt ceiling discussions, today’s spike in the Dow may have been a head fake. Investor optimism may be based more on hope than on reality.

Let’s now look at some fundamentals

Unemployment statistics:

9% - 7.3% = 1.7% improvement since October 2011.

Labour participation statistics (from October 2011)

64.1 – 63.2 = 0.9% deterioration

Public Debt:

·         As at October 1st 2011: $14.8 trillion

·         As at August 30th 2013: $16.7 trillion

Change: $1.9 trillion rise  in 22 months

Annualised: 24/22 X 1.9 = $2.07 = 2 years

Average annual increase: $1.04 trillion

·         As at December 30th 2011: $15.2 trillion

·         As at December 31st  2012: $16.4 trillion

Change: $1.2 trillion in one year

Observation: Rate of increase of public debt is slowing

Reserve Bank pumping (QE in millions of dollars) – movement to  September 5th 2013:

Approximate historical increase since October 2011: +$ 0.7 trillion in 2 years. Current rate of increase at $85 billion a month = $1 trillion p.a.

US Nominal GDP: ( )


Nominal GDP (million of Dollars)

Plot Series Plot Log of Series





Growth in nominal dollars: 2012/2011 = $0.7 trillion in one year (Comparable 2013 statistics not yet available)


·         Average annual increase of public debt of $1 trillion has given rise to less than $1 trillion p.a. increase in GDP 2012/2011.

·         Since December 2012, the Fed’s balance sheet has been increasing at $1 trillion p.a. rate, and the unemployment rate has decreased by 0.5%, whilst the participation rate has fallen by 0.4%


The above evidences the fact that Fed activity and US Government deficit spending has effectively been burning rubber to keep the economic vehicle from going backwards.  Unless the economy starts to grow at a rate in excess of $1 trillion p.a. (1/16.2 = 6% p.a.), growth in corporate profits will be dependent on growth in overseas income.

What is happening on the global front?

The weekly Global Dow Chart below shows a breakup to new high but still below 2007/8 high

Overall Conclusion

Weight of funds and loose money/credit policies have been driving the markets upwards in the hope that the global economy gains traction. So far, in the US, it has been requiring a dollar of money/credit growth to generate less than a dollar economic growth. All eyes need to be on the coming negotiations regarding raising the US Debt ceiling. It will need to be raised by over $1 trillion to keep the economic ship afloat. What are the probabilities? The probabilities seem to favour a trade-off between spending cuts and raised debt ceiling. The chart of the US Dow Industrials shows indecision with a slight bias towards negativity because it is technically overbought and due for a pullback.  Therefore, the breakup of the  Dow following the Fed announcement that it will maintain QE may be a head fake. We are living in an extremely high risk investment environment.

Final Observation

At the end of the day, meaningful economic growth is driven by meaningful value-add activity. All the central bank jawboning is just “noise”. The key question is whether the next generation of technological advancements will have the gravitas – and will be commercialised quickly enough -  to drive the economy.  Time will tell.  The GDOW chart is not yet looking sufficiently optimistic to make that call. The appropriate stance is therefore one of defensiveness.

Brian Bloom

Author, Beyond Neanderthal and The Last Finesse

Beyond Neanderthal and The Last Finesse are now available to purchase in e-book format, at under US$10 a copy, via almost 60 web based book retailers across the globe. In addition to Kindle, the entertaining, easy-to-read fact based adventure novels may also be downloaded on Kindle for PC, iPhone, iPod Touch, Blackberry, Nook, iPad and Adobe Digital Editions. Together, these two books offer a holistic right brain/left brain view of the current human condition, and of possibilities for a more positive future for humanity.

Copyright © 2013 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