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Guest Article: The U.S. Stock Market: It’s Not As It Appears! by Tim Wood
As equities continued to rise during the advance into the 2007 price top, I screamed from the roof tops that it was a bear market advance and that the efforts to prop the markets up only served to make matters worse. That certainly proved to be the case as those efforts resulted in the worst financial crisis since The Great Depression. Yet, as a result of the worst financial crisis since The Great Depression, the response to that event was the massive bailouts and even more of the same things that created that event in the first place. Seriously, think about it. Is it remotely reasonable to respond to the worst financial crisis since the 1930’s with more of the same actions that created that crisis in the first place? Does this really make sense? Ever since the rally out of the 2009 low began, I have explained that it is a bear market advance and that the longer the rally extends, the more dangerous it will become. The rally out of the 2009 low has now extended to the point that it is the longest cyclical advance since the inception of the Dow Jones Industrial Average in 1896.
On the surface, with the price at new highs and with this being the longest cyclical advance since 1896, how in the world can this be a bear market rally? Yeah, I know, that sounds crazy, doesn’t it? Keep reading. I’ll explain. First, let me say that every indication is that the economy and the secular bull market peaked in 2000. You will see proof of that with some very basic but indisputable evidence presented below. The bear market rally out of the 2002 low was pushed to new highs, simply as a result of the liquidity infusions and smoke and mirrors tricks orchestrated by the money masters. The advance out of the 2009 low is Take II on steroids. The confusing concept here is that of a secular bear market with price at a new high. Let’s now examine the supportive evidence that this is a bear market rally. I’m going to show you high level, very basic but indisputable evidence that further confirms this view.
First, let’s look at volume. In Technical Analysis of Stock Trends, Edwards and Magee write, “Volume goes with the trend. Those words, which you may often hear spoken with ritual solemnity but little understanding, are the colloquial expression for the general truth that trading activity tends to expand as price moves in the direction of the prevailing Primary Trend. Thus, in a Bull Market, volume increases when prices rise and dwindles as prices decline; in Bear Markets, turnover increases when prices drop and dries up as they recover.”
With these volume characteristics in mind, I want to walk you through history of the S&P 500 volume, starting back in 1982. The volume expanded with price as the secular bull market pushed into the 1987 top. As the 1987 price top was being made, there was a non-confirmation by volume, which led to the decline into the 1987 low.
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