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One Sure Stocks Bear Market Sign

Stock-Markets / Stocks Bear Market May 04, 2018 - 06:34 PM GMT

By: Barry_M_Ferguson


Investors should always be on the alert for a bear market. Wouldn’t it be great if there was a clear sign that a bear market was forming? Well, in my opinion, there is.

I call it the formation of a Dikembe Mutombo Line. In our nanny-state, government manipulated, anti-capitalism, totally corrupted, illusion of wealth pseudo economy, the Dow Jones Industrial Average is the ultimate shiny object of hypnotism. The average person on the street has no idea whatsoever how they are being punked every single day.

If readers missed my article from 04/04/18, here is the link to see the manipulation of stock prices at the origin:
Since everything in stock indices now has gotten so obviously contrived and arbitrary based on central banker manipulations to keep us playing the game of economics, we need an explanation for the silliness that we see. Thus, the Dikembe Mutombo Line (DML) comes into play.

Forget about fundamentals or data or anything read or heard in investment media. It is meaningless drivel. All that matters as far as stock prices is what the Federal Reserve is doing. The Fed, after all, sets prices that we supposedly free and capitalistic people pay for stocks every day.

So how do we know for sure that stock indices are falling into a bear market?

Simple. While we would all agree that bear markets are a normal process of participants selling off assets because their prices have become overly expensive, the Fed has determined that price discovery will no longer be allowed if that discovery pushes prices lower. When artificial lines are drawn, a bear market lurks. Why?

Since we now live in a false economy where debt is the engine of growth and repayment of that debt is impossible, someone has to rig prices. Should stock prices tumble, the tail that now wags the dog would surely usher in an undeniable recession. Enter the Fed.

So what do we look for at the beginning of a bear market?

Obviously robust selling begins to lower stock prices. Now, the Fed and other dark forces conspire together to limit the price drop that the selling imposes. Clearly this is arbitrary but give the Fed credit for one thing. They pay close attention to technical patterns. How do we know that a bear market started in Q1?

Here is the answer. As prices thrust lower, the Fed steps in to arrest the selling with equal buying force. Again, I have included the chart below to show where the Fed has elected to arrest the current bear market. This is the DML. They block the selling attempt of prudent investors and then just like former NBA center Dikembe Mutombo used to do when he blocked a shot, the Fed wags a finger at would-be sellers in admonishment. Then another thrust down and again the Fed arrests the selling. Like a blocked shot in basketball, these turning points in selloffs that suddenly become rallies are ‘V-shaped’ and materialize from nowhere.

For whatever reason, the Fed has chosen Dow 24,000 as the DML. I suspect derivatives come into play. They will defend this line at all costs. When we see these artificial limits imposed, we can be sure that the Fed sees the onset of a bear market and the ensuing recession. Forget economic numbers. They are faker than a Trump Russian dossier. Forget corporate earnings. They are more manipulated than Play-doh. Stock indices turn when the Fed says they turn. Today, the Fed will not allow a drop below Dow 24k.

Notice the 400-point selloff on Thursday morning that took the Dow well below 24,000. That was met by a midday rally (surprise?) that brought the Dow back to where? Yep, 24k. Well, 23996 before a slight fade at the end of the day. So for Friday, 5/4/18, everyone on planet Earth knew what to do. Well, everyone that knows about the DML. POW!!! An opening 300-point rally on the Dow put it safely above the 24k level. Whew! Was I worried? Nope.

As this get rather boring, like watching a WWE match in which the winner is pre-determined, or a Harlem Globetrotter game that is just entertainment, I have better things to do this afternoon. I suspect as the afternoon passes, Mr. Powell will leave his post at the NY trading arm of the Fed and go home early. Some of the morning’s gains might erode. But so be it. Mr. Powell will be back to work on Monday morning manipulating our world.

Now, one thing to keep in mind. Lower lows and lower highs are a downtrend. With the Fed setting the DML at Dow 24k, we have a series of lower highs and even lows. This is the technical ‘descending triangle’. It would be extremely bearish if the Dow were to breach this low. Are you reading this, Mr. Powell?

I’m sure Mr. Powell already knows this. The trick now is to set a ‘higher high’. That means the Dow needs to rise to around at least 25,000 to blow up the descending triangle. Come on, Mr. Powell. We know you can do it!

DJIA - 8-months ending 5/4/18

Chart courtesy

Barry M. Ferguson, RFC
President, BMF Investments, Inc.
Primary Tel: 704.563.2960
Other Tel: 866.264.4980
Industry: Investment Advisory

Barry M. Ferguson, RFC is President and founder of BMF Investments, Inc. - a fee-based Investment Advisor in Charlotte, NC. He manages several different portfolios that are designed to be market driven and actively managed. Barry shares his unique perspective through his irreverent and very popular newsletter, Barry’s Bulls, authored the book, Navigating the Mind Fields of Investing Money, lectures on investing, and contributes investment articles to various professional publications. He is a member of the International Association of Registered Financial Consultants, the International Speakers Network, and was presented with the prestigious Cato Award for Distinguished Journalism in the Field of Financial Services in 2009.

© 2018 Copyright BMF Investments, Inc. - All Rights Reserved
Disclaimer: The views discussed in this article are solely the opinion of the writer and have been presented for educational purposes. They are not meant to serve as individual investment advice and should not be taken as such. This is not a solicitation to buy or sell anything. Readers should consult their registered financial representative to determine the suitability of any investment strategies undertaken or implemented.

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