What Is Not Seen

Well, almost.

Im currently on vacation in Paris, with limited internet connection I thought it be appropriate to comment on the recent market development.

The Dow Jones Industrial Average is by many seen as the back bone of the U.S economy. Looking at the “leading” blue-chip stocks today, they all seem quite tired. With the Dow down 9.4 % so far this month, we have to go back as long as to the Great Depression for a larger intra-month drop in June.

I have on many occasions mentioned the Bullish percent indicator, an indicator (contrarian) that gauges the current level of risk in the market, and has a great track record. On the 19th of May I wrote in “A Stock Market Correction” that we were in for a correction. The same date the Dow Jones index peaked at 13136.69 and the bear market rally was clearly over. Since then the index has plunged13,63 % to 11346,51 today.

Soon after the peak, the Bullish percent indicator switched to a column of “O’s, indicating that demand, once more had weakened and supply was taking over. At the moment we see the NYSE Bullish percent stands at 38 %, meaning that only 38 % of the stocks in the index is experiencing some positive momentum.

This development was also captured by the VIX index that some market analysts like to keep an eye on. The VIX index measures investors risk appetite by deriving 30 days expectations on market volatility from option prices. Since the middle of May we have seen a steady increase in the index, moving almost inversely to the broader market indices.

According to the often cited maxim, we are in a official bear market when stocks have fallen by 20 %. Even if we technically are not there yet, its only one tick away. Since the absolute bull market peak in October 9th last year when the Dow hit 14164.53 stocks are down 19.9 % of today.

However, official or not, there should be no doubt that both the U.S economy and the stock market both has been in a clear bear market for some time now.