Today's stock market is not your father's stock market. For over a century, the Dow Theory has asserted that when the Transport and Industrial sectors of the stock market were breaking down, and making lower lows, it was a non-confirmation for a further advance in the broader stock market.
A potentially bearish omen.
In today's stock market environment we have substantial underperformance from a number of areas of the market including: small caps, transports, industrials, materials, and regional banks. It is virtually unheard of for the broader stock market to make a meaningful advance while the transports and industrials are not only not confirming the advance, but actually making lower lows.
Dow Jones Transportation Average (Daily)
Meanwhile, the tech giants continue to swallow up an increasingly large piece of the GDP pie. I guess it's possible that in today's world we don't need to actually move goods and people, or manufacture stuff. We could all just sit around scrolling and posting on Instagram and Twitter. Sounds like a robust economy to me....
While 2023 is certainly a unique time in the history of the World, it seems exceedingly unlikely that this time is different. At least not different in terms of the laws of physics, and something as fundamental as mathematics.
I am reminded of the great John McAfee and one of his quotes during the crypto bull market run in December 2017:
"Those of you in the old school who believe this is a bubble simply have not understood the new mathematics of the Blockchain, or you did not care enough to try. Bubbles are mathematically impossible in this new paradigm. So are corrections and all else..."
As it turned out, McAfee was probably on a bath salts fueled bender at the time of penning that Tweet. No doubt about it that McAfee was a brilliant man, but he was also a Promoter of Promoters. A legend in the art of enrolling others into his view of the world, and bending their will.
The new mathematics weren't different from the 'old mathematics', and bubbles were not only mathematically possible in this new paradigm, they were more likely than ever before.
And so it is today exceedingly unlikely that tech giants AMZN, TSLA, NVDA, and MSFT can drive the US stock market to new highs all by themselves. Like a man dragging an iron ball and chain up a steep hill, it is more likely the current stock market bounce will fatigue and tumble back down the hill.
Turning to precious metals, I must say that this time is a bit different. Today, we have precious metals bulls beginning to cheer for a move lower in the near term, because in their analysis this is what will set in place the final bottom from which gold and silver will rally. I see nobody out there calling for an imminent rally in precious metals, and most agree that the perfect recipe for a rally in PMs is some combination of a recession and credit event.
In fact, the conventional wisdom has it that gold must decline to ~$1700 in order to catch up to the recent rise in real yields:
Gold vs. Real US 10-Year Yields
While I do not profess to have a crystal ball, a test of the rising 200-day moving average at a time when nobody believes gold can rally presents an intriguing bullish setup for the yellow metal.
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