The major question of the year is whether the market is going to continue to ignore the plunge in interest rates, as it did in the thirties, or whether the law of averages is in play here and that now that the 52 week roc of IRX is in the lower zone, the market is an intermediate buy as it has been each the last six or seven times we were at or near the -60 area.
There are many similarities to the thirties, but a key difference is that the Dow and NYA are not mirroring the crash pattern of the markets then and the Nasdaq now. It could be that the Nasdaq is simply unwinding the excesses of the internet bubble just as other manias have been unwound in biotech, oil and gold, computers in the 80's.
The advance decline lines actually look healthy, although the weekly a-d line started turning up as the markets topped last year, so I don't know if we can trust it now just yet or not. It has never been this weird before - ever. It has always bottomed concurrent with the market, not
diverged a year ahead of a bottom.
There is something very eerie about the 43 year old trendline break in IRX, the 90 day t-bill. It may mean we have entered a new era in rates, where there is no borrowing demand, as in the 30's. Then again, it may mean something else. A logical expectation would be for it to rally back to the break, and then we take another look.
In the mean time, I think that the ratio 1 percent exponential moving average of up - down volume will probably hit zero, before any major decisions have to be made.
I just uploaded the chart:
geocities.com
Vitas |
