The Truth Behind All-Time Highs

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The Rude Awakening Thursday, March 7, 2013 | 0930 Hours The Truth Behind All-Time Highs Is the market signaling a top? The Dow disconnect and crisis thinking... Plus: a prescient reader weighs in on gold... Greg Guenthner coming to you from Baltimore, MD... Greg Guenthner I have a secret to tell you about the new all-time highs the Dow recorded this week. It's not about an impending market crash. It's not about panic or a disconnected economy, or any of the other themes the media has bombarded you with this week. No, the secret I want to share with you is simple. Yet it has been almost completely overlooked since the Dow Jones Industrial Average posted fresh highs Tuesday and Wednesday. The truth about these new highs is that they don't matter--at least not the way you think they do. It is all too easy to look at this week's market milestones through the lens of crisis. Folks want to know why the markets are rising while the economy feels stagnant. Jobs and income aren't back to levels we saw before everything got out of control. Europe is a mess. Need I go on? Investors continue to replay the financial crisis carnage. And they expect the markets to do the same. Their wallets and psyche remain damaged. They do not trust the stock market anymore--and many of these same investors have fled to bonds. They have yet to participate in the cyclical bull that emerged in 2009... Of course, the stories surrounding the newest Dow milestone reflect this mood. One of my favorite comparisons is these new highs signal that the Dow is heading for a crash that will mirror the 1987 panic. If this is true, the market will need to punch it into overdrive, considering that the year-over-year gains the overheated Dow posted at its 1987 high were a whopping 44%. Looking back to more recent market tops, it is important keep in mind just how different the sentiment picture is today than it was in 2000 or 2007. During the dot-com boom, consistent moves higher were never questioned. Stocks could not possibly lose value. Even smack in the middle of a secular bear market, the 2007 highs were also met with little scrutiny from the mainstream press. Americans--flush with cash from an unprecedented housing boom--had yet to feel the pinch of a sharp recession. Most investors were in a position to take risk. That's a very different sentiment picture than we're experiencing today... Remember, new highs aren't market tops. In fact, hundreds of highs registered during the bull markets of the 50's, 60's, 80's and 90's. Tops are only visible with the aid of hindsight. Once the market slogs through the final legs of the lost decade, the idea of constantly announcing new highs will quietly disappear. Rude Numbers Targets, Predictions and Wild Guesses 14,296 marks Wednesday close of the Dow industrials. All-time high... 6,110 is where the Dow transports closed yesterday. The transports confirmed the industrial's new highs earlier this week... 2% higher is all the S&P needs for a push to new highs... $1,581 buys an ounce of gold this morning... 65% of all stocks trading on US exchanges remain above their 50-day moving average. Rude Trends When to Buy... When to Sell "I started buying gold just before it got to $300 per ounce," writes a perceptive reader. "As it pushed through $580 per ounce, I ran out of money.  I only bought little bits, now and then, as continued up to $800.  Then, it was 'too expensive'.    "The 2008 financial crisis took the price of gold down, and I started buying again as it fell below $840.  I bought too soon, since it bottomed out in the mid-$600's.  Later, when the price topped $1,900, the 'too soon' didn't seem to matter that much anymore.   "I have not added to my gold position in over four years.  I would certainly enjoy it if the price would fall below $1,200 sometime in the next year or two.  If it does, I will most likely scrounge up every dollar I can get my hands on, back up the pick-up, and load it with both hands as fast as I can.  I do realize how much it will pain the investors who bought recently above $1,600, but it is up to them to hold on, just like I held on through 2008, if indeed they think precious metal prices will be better after they are worse." There's not much I can add here. As a long-term investor, I think you have it all figured out. [Ed. Note: Follow me on Twitter: @GregGuenthner — E-mail me here: rude@agorafinancial.com] Ignore At Your Own Peril Today's Must-Read Links Finally Revealed: the Proven Wealth Secret of a Reclusive Vegan How to Get 33 Branches of the U.S. Government to "Pay" You Rent DEBT-PROOF Your Wealth Now... or Risk Losing a Bundle By This July* Additional articles and commentary from The Daily Reckoning on: DR iPhone APP To end The Daily Reckoning’s Rude Awakening e-mail subscription and associated external offers sent from The Daily Reckoning and The Rude Awakening, cancel your free subscription here. Please Note: If you unsubscribe from The Rude Awakening, you will also be unsubscribed from The Daily Reckoning. If you are you having trouble receiving your Rude Awakening subscription, you can ensure its arrival in your mailbox by whitelisting the Daily Reckoning. Copyright 2013 Agora Financial, LLC. 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