The implicit narrative of the latest rally in stocks is that this is just another normal rally in the ongoing 10-year long Bull market. Nice, but do these three charts look “normal” to you? Let’s take a quick glance at a daily chart of the S&P 500 (SPX), a weekly chart of TLT, the exchange-traded fund of the US Treasury 20-year bond, and silver.
In other words, let’s look at three different assets: stocks, bonds and one of the precious metals.
Even the most cursory glance reveals there is nothing normal about any of these charts. The recent action in the SPX is anything but normal: yet another announcement of yet another (low-level nothing-burger) trade meeting opens a gap big enough for a semi to drive through, punching through the upper Bollinger Band, and on the heels of a previous big gap up, also on no fundamental news.
A relatively reliable measure of complacency/euphoria in the stock market just hit levels last seen in late January, just before stocks reversed in a massive meltdown, surprising all the complacent/euphoric Bulls.
The measure is the put-call ratio in equities. Since this time is different, and the market is guaranteed to roar to new all-time highs, we can ignore this (of course).
You know how to get into crash positions, correct? Here’s your guide:
Very few punters expect a real downturn here in stocks. The reasons for confidence are many: the Fed has our back, buy the dip has worked great and will continue to work great, the Fed won’t raise rates until December (if ever), the Powers That Be will keep the market aloft lest a plunging market upset the election of the status quo candidate, and so on.
It’s interesting to take a longer-term view of the S&P 500 (SPX). Looking at a 10-year chart, the decline from almost 1,600 to 667 in the Global Financial Meltdown of 2007-2009 doesn’t look like that big a deal, given the incredible 6-year uptrend since March 2009.
If fundamentals like profits and sales no longer matter, then all that’s left is faith that central banks will never let stock markets fall ever again.
Is this the chart of a healthy stock market? The consensus view is either 1) yes, by definition, as charts don’t matter because the central banks will never let markets fall ever again, or 2) the market has been choppy due to a “soft patch” in the economy, which is about to start growing at 3% instead of .3%.
Nice, but this chart says distribution to me: beneath the jolly surface of new highs, the smart money is selling to greater fools who believe the consensus.
The central bank high is euphoric, the crash and burn equally epic.
Just out of curiosity, I called up a few charts of key markets: stocks (the S&P 500), volatility (VIX), gold and the U.S. dollar (UUP, an exchange-traded fund for the dollar). Interestingly, all of these charts displayed some version of a wedge/triangle.
In a wedge/triangle (a formation with many variations such as pennants), price traces out a pattern of higher lows and lower highs, compressing price action into the apex of a triangle as buyers and sellers reach an increasingly unstable equilibrium.
As price gets squeezed into a narrowing band, the likelihood increases that price will break out of the triangle, either up or down, in a major move.
So which way will these markets break–up or down?
Tagged with: dollar
, technical analysis
Can stocks keep hitting new highs even as sales and profits fall?
Given that we live in a world where a modest 3% decline in the stock market triggers panicky demands for more quantitative easing (QE 4), few observers expect much a correction, regardless of the souring fundamentals such as sales and profits.
A correspondent notified me of a Puetz “crash” window (based on the analysis of Stephen J. Puetz) opening in late March-early April. (Since I am not a subscriber to Puetz’s work, I can’t confirm this.) As I understand it, while these windows do not predict a crash/sharp correction, such moves tend to occur in these windows, which are based on cycles and events such as eclipses.
So I decided to look for any evidence that a sharp correction might be in the offing.
So this megaphone playing out again is just plain crazy.
Back on October 13, when the stock market was in free-fall, I prepared this chart showing a potential megaphone pattern. With major indicators (such as the MACD and stochastics) looking decidedly bearish, the idea that a rally would soon return the S&P 500 to the 2,030 area seemed crazy:
This is what happens when the Status Quo is incapable of reforming itself or recognizing reality: propaganda and bogus statistics are substituted for actual solutions.
The most heavily touted statistical “proofs” that the U.S. economy is “recovering” and “growing” are the unemployment rate and the stock market. Both are completely bogus. Yes, bogus, as in phony, wrong, rigged, misleading, carefully crafted propaganda.
Earlier this month, we showed that In Terms of Real Stuff, the Dow’s “New High” Is Pure Illusion (January 6, 2014). Another way of adjusting the nominal new high to reality is to adjust it for inflation, as measured by the producer price index (PPI) or the consumer price index (CPI). If we adjust for inflation, we find that the recent new highs are considerably lower than the stock market peak reached in 2000: