By rights, we should see a bounce here. We have a Volume Tunnel buy signal this past week, we have only 6 of the past 20 days in the Dow being to the upside (a number that rarely gets this low, most bounces occurring around 8 or so):
And although we saw more than 4% new lows last Wednesday, this quickly abated. Again, I cannot stress how important, historically, this rule has been:
Regular readers are aware of the track record of this rule alone, and it’s of paramount importance to follow it now.
Whereas technical indications are calling for a bounce (even HYG, which tends to lead stocks [notice its 1-week+ head start back in October last year, and at the recent top], is already into a little bounce):
We are reluctant to play the bounce at all, given the negative backdrop for equities now. If we look at the Dow weekly on the Vantage Point Software package (which I love and highly recommend):
We see projected cycles which don’t see any sort of serious bottom on the weeklies until mid-May, we haven’t had a weekly volume bar since mid-March (which might indicate an interim bottom when we do see one) and Red Compression has been picking up from a low level — all indicative of a continuation of trend, which has been DOWN.
Looking at the bigger picture, The Fed shows no signs of loosening yet:
and our longer-term projections, based on the cycle of the ten-year average rolling real total returns:
yields the following projections for the Dow (assuming 2% dividend yields and 3% inflation) to manifest a -7% on the chart just above, by a specified year of:
This is a very dire picture. Unless you believe we’re in some sort of “Roaring 20s,” or that the “Everything Bubble” dissipated with a mere, roughly 20% drop we recently witnessed, you’d be hard-pressed to try to play the current, expected bounce up in the short-term.
More as conditions warrant.