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5 "Tells" that the Stock Markets Are About to Reverse

Stock Market Dow Theory Divergence

Stock-Markets / Stock Markets 2015 Mar 06, 2015 - 11:09 AM GMT

By: Christopher_Quigley

Stock-Markets

European Basic Income Initiative.
Based upon the teachings of Major Clifford Douglas and his Social Credit ideals a major citizens initiative is gaining traction in Europe called UBIC: Unconditional Basic Income Europe.
 
This movement aims to try to solve the issue of structural unemployment in Europe. Unemployment caused not by recession and austerity but labour displacement resulting from the technological fact that increasingly more and more can be produced by less and less labour. Thus the powers that be are beginning to realise that if folk do not have wage income to purchase what is produced a permanent recession will ensue.


This is how Crate Larkin the Social Credit author described the essence of the problem that society now faces:

“The Gap is Growing:
As we have seen, the more automatic machinery replaces men and women, the wider becomes the gap between buying power and prices because salaries and wages are thus reduced, leaving other cost items proportionately increased. When we stop to realize that the gap is constantly widening as efficient machine-power rapidly replaces inefficient man-labor in doing the work of the world, it becomes evident that we are reaching the senseless absurdity of a maximum production and a minimum of consumption. Yet we wonder at the paradox of poverty in the midst of plenty!”

The ideas of Social Credit have been with us a long time. They emerged in the main from the economic crisis of the great depression. Douglas (an engineer by profession) when running a factory realised that the orthodox pricing and banking arrangement in the west was ensuring depressions nor mitigating them. He wrote many books and travelled widely around the world lecturing on his theory. After the 1914-1918 war many people in England, Australia and Canada formed political grouping around his ideas and sought political power to bring economic change but alas strident opposition from banking elites and personal infighting saw these movements fade and die.

In addition to inspiring political movements, Social Credit inspired Henry Ford. He applied its principles in Detroit in 1920 and by doing so he completely redefined "classical" economics.
Under "normal" economic theory it was assumed that a corporation could only maximise profits by ideally becoming a monopoly which meant increasing price and limiting supply. Ford did the exact opposite. He had a more holistic view of the role of the corporation in society. He understood the synergetic relationship between money and goods. He DOUBLED the wages of his workers, DECREASED the price of the Model T and in the process remade the Ford Motor Corporation and remade America. This policy was not inflationary because he knew he could at least double production through increased efficiencies when he doubled wages. This is the essence of the enlightened policy of Social Credit for communities rather than of monopoly credit for social elites alone.

The Ford Company boomed. How did this happen? It was axiomatic. He understood the importance of money and purchasing power in society. With "high" wages Ford's workers were able to make a good living and have excess funds to save or spend. Accordingly, their financial anxiety ceased and staff turnover dropped by a multiple of five in one year. This dramatically decreased management expense and increased productivity. Workers finally had peace of mind. With the increased disposable income in the Detroit area the general economy boomed. All classes of economic sectors expanded. As a result more workers, new business owners, company managers, insurance brokers, real estate brokers, bankers, salesmen, craftsmen, delivery men, builders, farmers and retailers all could afford Ford cars. Demand for the model T exploded through the increased buying power which Ford created.

Compare for one moment the circumstances in Detroit in the 1920s and mainstream America, Ireland and Europe today. The exact opposite is occurring. Meaningful wage levels are being destroyed. Real buying power is contracting due to systematic out-sourcing of real jobs and the misguided use of capital investment to destroy human engagement. No jobs or low jobs means there is not sufficient money circulating to consume what is produced. The system contracts and cannot hold. The cycle, once started, feeds in on itself resulting in deeper and deeper deflation. Society slowly but surely hollows out from the inside. All the while, as is so apparent in Ireland, folk do not fully understand the total implications of what is happening due to "dumbed down" educational policies. To replace falling wage (money) levels the banking elites have tried to substitute credit. This substitution of monopoly credit for previously privately owned cash creates an unstable arrangement because debt is very expensive and is non-liquidating.

The UBIC initiative in Europe shows how deep and systemic the financial crisis  in Euroland is.
While it may take a long time to gain the political traction necessary to allow its implementation I do believe it is a step in the right direction. Hopefully it will at least motivate people to try to understand the failings within accepted monetary policy and institute a movement to modify the travesty that is current Keynesian debt orthodoxy.

Dow Theory Divergence

Since early January the stock market has taken the appearance of a bullish stance.

However, the Dow Theory sell signal given at the start of the year has not been altered. To do so both the Dow Industrials and the Dow Transports would need to break to higher highs. The Dow industrials have done so but the Dow Transports have not. Thus the sell order remains in place.

Looking at the comparison chart below of the Transports and the Industrials one can observe
divergence developing between both indices. This is an indication of increased risk in the market. Accordingly investors should take heed. I would remain cautious opening any new long positions until the Dow Transports breaks above  the 9217 level which is the key previous late December closing high.

Chart: Comparison of Dow Transports and Dow Industrials: Daily.

Charts: Courtesy of Worden Bros.

Reference:      UBIC website: http://basicincome-europe.org
                       
                        “From Debt to Prosperity” Crate Larkin.
                        The New economics group of New York (1934).

By Christopher M. Quigley

B.Sc., M.M.I.I. Grad., M.A.
http://www.wealthbuilder.ie

Mr. Quigley was born in 1958 in Dublin, Ireland. He holds a Bachelor Degree in Accounting and Management from Trinity College Dublin and is a graduate of the Marketing Institute of Ireland. He commenced investing in the stock market in 1989 in Belmont, California where he lived for 6 years. He has developed the Wealthbuilder investment and trading course over the last two decades as a result of research, study and experience. This system marries fundamental analysis with technical analysis and focuses on momentum, value and pension strategies.

Since 2007 Mr. Quigley has written over 80 articles which have been published on popular web   sites based in California, New York, London and Dublin.

Mr. Quigley is now lives in Dublin, Ireland and Tampa Bay, Florida.

© 2015 Copyright Christopher M. Quigley - 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 trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Christopher M. Quigley Archive

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