More Red Flags

1. Spike in SP500 Bullish Percent over Put/Call Ratio:

24dece1Source: Stockcharts

2. Spike in Skew:

24dece3Source: J Lyons

3. MACD and RSI divergences versus Dow, courtesy of Karni:

24dece8

4. Parallax SP500 topping signal:

24dece2Source: Larry Footer

5. Greedometer at extreme:

24dece4Source: Greedometer

6. Margin Debt for November at new record high:

24dece5Source: Greedometer

7. Second highest ever short position in treasuries:

24dece6Source: Sentimentrader

8. Corporate profit margins may be rolling over which has been a precursor to a recession in the past:

24dece7Source: Business Insider

9. Spike in China repo rate and Shibor. Liquidity issues in the credit markets (which have ballooned in the last couple of years to 220% of China’s GDP) led to a spike in June and a spike now. China is trying to deflate it again by pumping in liquidity today, but analysts suggest there are danger signs. It is a potential trigger that needs watching. More here: http://www.businessinsider.com/patrick-chovanec-on-the-spike-in-chinese-interbank-rates-2013-12

24dece9Source: Shibor

 

 

 

 

 

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66 thoughts on “More Red Flags

  1. Happy holidays John 🙂

    We did after all get a strong secondary peak in the sunspot cycle. At the first top it was the Northern hemispere that had a max, and at this second top it is the Southern hemisphere. And the monthly sunspotnumber peaked in October, declined in November, and looks to be declining in December as well. So the secondary top seems to be done, but have to see what effect my short term strong tidal peak around New year gas in Jan-Feb.

    So far the sunspot number daily peak was mid-Nov, and comparing with year 2000 there was a sunspot peak in July, and markets topped out 2 months later in September.

    Over to my pattern recognition for DOW monthly. It identifyes a common ABC-pattern, where we are near top of C.
    Here is compared with the scenario/averages per December

    1. when adding extremes, it looks like this

      So my pattern recognition is waiting for a confirmation/weakness. Most likely to come within 1-2 months, unless we have an extreme…

      1. Thanks Jan. So John, for those who aren’t professional day traders, where did money get parked in 2000? I got back in only for the holiday rally and was planning to sell and go away at the new year despite that I think 2014 will still end higher.

    2. This is just a very WILD guess; but persuant to my questions to Mark on SC24;
      (which I should have probably addressed to the group for feedback)–it was written in haste–it would appear that we may have to wait until the May/June 2014 time period for any bull market in the precious metals. This is calculated by simply adding 18/19 months to the monthly SN peak in 2011. Commodity/gold prices bottomed 18/19 months after such peak during SC14 and SC16.

      1. Hi eclectic,

        Your June 2014 period for a gold/silver low, and your other comments about the progression of SC24 all make sense to me. I am personally cautious about trying to determine exact dates, and am mainly looking for clues as to the overall timescale of SC24, and how that relates to previous low sunspot cycles and the performance of the prevailing asset class at the time.

        For high sunspot cycles, the SSN peak has been very distinct and very closely associated with the asset peak. For low sunspot cycles, the asset peak has been after the right-hand shoulder of the SSN plateau started to markedly diverge downwards from the asset price. For SC24, this is most likely to happen 2015/2016.

        I agree that it is difficult to determine exact dates from that MGI Commodities chart I posted, and I am more interested in how commodity prices are following their typical behaviour – ie. a big rally, a loss of about half of those gains, then a final more parabolic rise. And we all know that medium and long term investing success depends on buying cheap, so my view is that it is unnecissarily risky to ignore commodities and buy equities at the moment.

        Seperately, gold has been accurately following a timescale (courtesy of Milan) which indicates major changes now, and then July 2014, with a conclusion to this timescale during May 2016. July 2014 is the natural conclusion to the current correction, but whether it will be lower then than now is uncertain. $1033 is also a strong natural level for gold, but of course it is not certain to reach that far.

        1 January and late July 2014 are also huge Bradley turns, so market sentiment is likely to change at those times.

        For me, the next few weeks wiil give a clue as to whether January or July will be the ultimate low for gold. So I am waiting for possible lower prices before considering the purchase of any more metal, but have started to accumulate some positions in the miners.

        I’d be interested to see any charts you might have of prices during the 1850s and 1860s..?

        Regards,
        Mark

  2. Norway has been doing many extremes last year.
    Right now we are making a new record for number of days without a -4,5% retracement (the December pullback was -4%)

    For Norway my scenarios favor a double top around New year. Closed yesterday just below the November top, and the scenarios allow a marginally higher top around New year or a bit into January. Breaking significant above the November top will probably cancel the double top scenario…

      1. I invite you to state your case against indicators.If you are saying that trading a single indicator as an overbought oversold measure is financial suicide… then I agree… But that is not what the computers that run the markets are programmed to do.. They trade patterns in indicators over multiple time frames.The patterns they favor are public knowledge to any trader who observes and records which patterns work repeatedly.

      2. Oscillator on extreme means strength… expect a pullback and another higher high or buying opportunity.
        On the subsequent high look for a divergence. If there is one the possibilities are two – only correction or trend reversal. Go through the charts and see what has higher probability. Oscillators do not predict trend reversals.
        I have not seen this explained in the books about TA and there is a lot of confusion and most of the traders do not know how to use divergences or extremes… my own experience.

        Lets look at your chart with RSI as oscillator and MACD/MA50 for trend following – the result is exactly what I have written.

        http://stockcharts.com/h-sc/ui?s=UNXL&p=D&yr=1&mn=6&dy=0&id=p24939067220

        1. Dec 2012 – extreme/pullback/buy… – CHECK
        2. Jan 2013 – divergence but no MACD divergence and price above MA50 means only correction… – CHECK
        3. Apr 2013 – divergence but no MACD divergence and price above MA50 means only correction… – CHECK
        4. May 2013 – divergence with MACD divergence / trend reversal – CHECK

        Have I passed the exam:)

      3. I admire you that you trade for living. That is my goal too, but I am not there yet.
        But trying to ironize indicator does not mean that it does not work. 99% of the time when I here this it means some one do not know how to use it.
        I have heard this for TA/EW/Cycles/TomDemark Sequential… I would say they all are valuable tools when you know how to use them.
        If you do not believe me I have analyzed your chart – see my previous post:)

      4. 95% of traders use squiggly lines. And 95% lose money long term. Ask yourself who introduced you to squiggly line indicators? Fooled by randomness…

      5. No one has introduced me squiggly line indicators. I have chosen them, because they fit to my trading.
        Every trader has his own style and different technique/trading system fits to different traders.
        That does not mean that your system or my system is bullshit – yours fits to you and I am happy with my trading system.
        You see randomness I see patterns:) I have proved it with your chart 4 of 4.
        I does not look random to me. I do not understand why you can not accept it:)

      6. Karni: you have not passed any exam. Your approach is discretionary and equal to curve fitting. In real trading you blow up with that approach. You are changing the indicator to fit your purpose. I do not use indicators. I went through yale of testing them all and it is a loosers game and waste of time. Sometimes oscillators or squiggly get maximum and it is a reversal signal and sometimes it is a break out signal. It is neither bullish or bearish. Then some TA wil start to talk about divergence and other discretonary nonsense. I am glad people do this. I do not think there are many traders that survived a very long time with this approach however. At the moment you get overbougt readings in the indicies but it does not mean that it will not stay that way for a substantial amount of time before you get a retrace and there need not be a retrace either. In a trending market you get overbought indicators for a long time. Price can just slow down and oscillators will fall back to oversold reading and the trend can continue. What is that magic number for your squiggly? Indicators are created by traders that can not support themselves tradeing and need something to sell =). In the old days there were no indicators packages and still the great traders made money. They all just use a horizontal line on their chart. You do not need anything else.

      7. We do not choose ourselves… we gravitate towards something. If we are lucky and keep on trading long enough we may gravitate towards profitability but most people are not able to stay in the game long enough. Squiggly is not the way to success. The reason I am sure of that is that squiggly is on every trading package, every trading coach or blog talks about it but few or none of these people keep on trading… We want to learn and we learn and when we know it we do not want to let it go as it hurts our soul to accept we wasted our time. If we suffer hugue losses and are able to come back trading we may change. Squiggly is not your friend…

  3. In a phone conversation with Tom Demark in 1984 he shared an insight that i still value..’ Prices move not because buyers or sellers step in but because one side capitulates”

  4. I have found it much “easier” to pick a bottom than the top. Here is my set-up on stockcharts: Symbol($NYADV:$NYDEC); Period(Daily),Type(Invisible); Overlays(EMA 2); Indicators(ROC-7; William%R-21; Price-$SPX).

    Watch divergence, the EMA “hooks”, the ROC tower(s), and price confirmation. I also use fractals to access probability.

    There are only 4 buy signals this year including the latest one from last week as indicated by the ROC tower spike (1000%+). Not too strong but it suggests that a top is not imminent as the EMA 2 curve would need time to weaken.

    1. I am watching TLT if it breaks its current Darvas box and it may be the cause for the next stock correction.

      I am short TLT via “TBF” (no leverage).

  5. Mark: Many thanks for your valued feedback. I feel this is very valuable information.
    During the Bicentennial; Securites Research Corporation published a chart which was effectively called “200 Years Of American Stock Prices: 1776 – 1976”. Someone skilled in internet research may be able to locate a copy.

    The following might also be of some help. I was amazed when someone was able to locate the chart on Page 41.

    http://www.foundationmember.org/members/cycles-magazine-members/cm-pdf-members/1984%20V35_2%20March.pdf

    I really appreciate your taking time to respond; along with the detailed substance of the discussion. Cheers.

  6. Couple of points to support John’s article/thesis:

    1. Only 2.9% of the time dating back to 1951 (when the data became available) has the Market Cap to GDP ratio been higher. These all took place in 1999 and 2000.

    2. Never in recorded history has the the Market Cap grown at such a greater rate versus Nominal GDP growth in a year time span than in 2013.

    3. Equity Mutual funds and ONE MONTH OF INFLOWS in 2012. This was worse than 2008. In 2013, EVERY MONTH HAS SEEN INFLOWS. The rapid, seemingly overnight, sentiment switch is concerning.

    This isn’t new ground with respect to valuations levels as measured by Market Cap to GDP. We’ve been here before. In fact we are higher than 2007 and nearing that of 1929 (per Minn. Federal Reserve data). The question is, what happened the last (3) time this occurred? History tells us that story as well.

    1. Exactly it is not only the technicals which I am talking about…. the herd is excited again. They are jumping on board for 6 months. The indexes have stalled in May and the dumb money pushed them higher…
      Last chart – https://solarcycles.net/2013/11/26/new-secular-stocks-bull-market/
      Record inflows in EU Mutual fonds, the best run in the last 11 years.
      Forget the charts and ask yourself how long will last everybody making money in the markets? – at least 4-6 months the time the smart money to offload their positions and the dumb money to get full in.
      The big boys need volatility to make money the herd must be scared once again, so they can make money. It is always the same game.
      If this is the top or the bull will continue… I do not know.

  7. Here’s the SRC link I referenced earlier; but I don’t see that the 200-year chart is available. Perhaps a telephone call?

    http://www.srcstockcharts.com/stock-charts/wall-charts/

    Also, regarding the circa June, 2014 time period; this would fit the TIME (not price)
    analog for the bear in 1975-76; using EWT.

    http://thedailygold.com/precious-metals-bear-is-in-its-final-throes/

    The C wave from Jan, 1975 to August, 1976 lasted some 20-months. Simply adding 20 months to the current C wave from the recorded highs in October, 2012 = June, 2014.

  8. Hi John!
    I have been following your site off and on for a few years, since someone sent me a link to it (I think it may have been you 🙂

    always very interesting stuff. I don’t know a ton about sun cycles, my work is based upon static time cycles. I am particularly interested at time when your work lines up with mine.

    with that, I have a few observations I would like to make, in regards to what the various time cycles that I track are currently suggesting.

    both the 9 and 18-month cycles have been seen as pointing higher into around mid-January of next year, at minimum. the last 9-month low was the 10/9/13 bottom, while the last for the 18-month was the 11/16/12 low. In terms of price, I have an open upside target from the larger 18-month (i.e., 360-day) wave to the 1892.53 – 1970.56 region on the SPX. These targets will often act as a major resistance zone, and with that I won’t be surprised to see this larger upward phase topping at or into this range:

    http://www.stockindextimer.com/page31.html

    In terms of time, a low-end rally with the smaller 9-month (180-day) wave has taken around 76 trading days before topping, which favors this cycle not to top out prior to mid-to-late January.

    The KEY with both of the above is this: with both larger waves moving into topping zone into mid-January (or later), the market should not take out the most recent bottom of 1767.68 on the SPX. That is, should that number be taken out at any point going forward, then the odds will favor that both cycles have peaked – and that a decline in the range of 18-35% is underway. With that, I won’t attempt shorts until that 1767.68 figure is broken south – or until the higher target zone is reached on diverging technicals.

    be interesting to see how this whole thing plays out in the coming weeks.

  9. I am sharing a trading tool.

    One of my best trades in 2013 actually started in August 2012 when I read George Friedman’s (stratfor) article on the Euro Crisis when he said “…..Germany would constantly bluff and back off. The entire Greek drama was the exemplar of this. It was Merkel who was trapped and, being trapped, she was predictable…..”.

    This article gave me the courage in ignoring the noise at the time and bought European stocks. The risk and the unknown are too high for a EU breakup and the solution bias means bailout and money printing if needed.

    Check out George Friedman,…his background and his work.. …He pointed out how demographic is one of the 3 major forces shaping this century. The fun part is to take advantage of the implications he has identified and trade accordingly.

    http://www.stratfor.com/weekly/financial-markets-politics-and-new-reality

  10. Hi John and happy hollidays!
    I’ve been following your blog for a few years now, my question isn’t too much on your predictions as on what to actually do with your money. I’ve realized that one actually LOSES a lot more money in the long run going short on the market rather than going long, mostly because there always seems to be a delay of a few months between the technicals showing that the market should go down and when it actually does. On the other hand, in the long term, even the most vicious of downtrends ends up looking as just a dent in an overall up-trending market (look at the 1987 crash, or the tech bubble burst, or even 2008-08), so even if one is completely wrong on the market going up, it eventually still goes up anyway after a while, so as long as you don’t get into some complicated leveraged investments all you have to do is sit and wait.
    So my question is this: in the long run, is it really worth bothering with all these statistics and fancy models and so on? Isn’t one better off just doing the “stupid way” of buying stock and sitting on it untill they make a profit?

    1. Hi lemmi and thanks. My view: generally speaking, positive demographic trends brought about equity ‘secular’ bull markets and inflationary demographic trends brought about inflationary secular bears which therefore held up nominal prices well. We have now switched to collective demographics that are both deflationary and secular bearish, so I believe we have a period where it’s no longer safe to cost average in on the long side for stocks.

    2. Many of us here trade for a living… our family’s well being depends on our ability to be on the correct side of the market during any given time period so that we may take money out of the trading account…we can not afford to wait

      As a corollary to
      John’s demographic work….many who have in the past dollar cost averaged over decades are now reaching the age where they will have no new money to add to their accounts … rather they have planned withdrawals scheduled ahead…

      1. Sometimes choices made for private reasons have consequences we never envisioned. At $ SPX 1500 IN 2000 I moved a small untaxed retirement account to all cash.. As one thing led to another and the account became a smaller and smaller part of net worth I just left it in all cash.Despite the ZIRP of the past 5 years where the value of the account is unchaged, the previous compounded interest added up to an 83% gain of the 2000 value…. the equivalent today would have the $SPX at 2745 almost 900 points higher than it is today….no thought, just chance

    3. Great question lemmiwinks and great answers John and slater9,

      As a lifelong investor attempting to add trading to my skill set this is my dilemma. I believe buy/hold can still be profitable but one must have a long horizon and be able to ignore the dips both financially and emotionally, however prolonged. Also, I have found that the two disciplines require quite distinct frames of mind. For me, the verdict is still out as to whether I can accomplish both.

  11. INVESTORS INTELLIGENCE (25/12) 59,6% Bullish / 14,1% Bearish -40%
    2000-54% Dow Jones. The unique obstacle, two first cases the plunge was delayed, but I bet we are on the way that in jan´13, even before, w see the top. Must see the ascendng trend-channel touching in the 30-years-t bonds and TLT tf, 20 years Bonds.

    Must be tuned.

    @apanalis

  12. Reposted from the “2014” link. My apologies.

    John:

    Could you possibly provide a fast track for one to learn about how to apply Sornette’s theory? In the link you posted; the scale used on the left of Hussman’s chart looks arithmetic to me; but you state that Sornette uses a ‘log-periodic graph’? Can you either explain or pehaps guide me to a simple tutorial or explanation? Tks in advance John on any feedback; or from any other poster.

    1. Don’t know much about it beyong what Hussman has written, maybe it’s valid, maybe not, but if it isn’t then the parabolic on the US indices says something similar, so does the SP500 being at a higher deviation away from its 200MA than any time in the last 25 years bar the acceleration in 2009 – namely that this is likely a blow-off top raising the likelihood of a crash rather than a topping process range.

  13. $copper and its ETN (“JJC”) is doing some time I don’t expect given the deflation bias. Could it be the play for 2014? and a China bounce?

    Lets see where it close for the week.I am watching.

  14. John: always value what you write. Can John Galt III possibly weigh in; who claims to be a student? One other point re the MACD/RSI controversy. Maybe this can be reconciled by monthly’s? Much of what Robert writes is actually true about indicators. Joe Ross coined a term: indicatoritis. But maybe that term has been around long before his time.

    1. 50 years ago I read this somewhere” In important matters we understand not as we simplify but as we tolerate the paradoxes inherent in the question”’.. my friend Joed is the best indicator trader i know(traderjoed.blogspot.com) and yet his most famous saying is in agreement with Robert….”MOST traders would be best served by drawing a line across their chart and trading against it.”Note he did not say ALL. Years ago he showed me how to look for specific patterns across multiple time frames and to ignore all else..SO 99% of the time I ignore indicators….. but I am always aware when a pattern shows up that my archived examples show the computers that run the makerts have hit repeatedly….

      1. i.e. the computers have scanned every swing in every market in all time frames with every combination of indicators imaginable….they”know” what has worked and not worked… what i did and do is a simply thing… i ask” what is and was the configuration of the indicators across multiple time frames when price turned”’ i collect the examples… after a while if i get hundreds of examples that work 80% or better( work being defined launching price to a minimum target before stop is hit) then i add it to my tool box… so far i have only found 3 setups that meet my criteria. that does not mean there are not more….just that i have not collected a large enough sample base.

      2. I believe that taken enough data most patterns are random… Horizontal line is key and cutting the losses and letting the winners run. Every trader need to condition his brain to make it work for him/her. Given psychological problems of the past or your psychological setup various styles of drawdowns will make or break a trader. Focusing on the horizontal line and skipping prediction, indicators and everything else makes you focus on what is important. Position sizing and cutting losses… and working on your psychological flaws more than trying to find some magic entry method. What matters is where you CUT not where you enter. 95% traders lose money and most traders talk and focus on some wizzbang magic entry indicator instead of talking about when they CUT and how much to BET. So start thinking about how much you BET then where you CUT and finally about where to enter and a horizontal line is good enough. Ochams Razor.

      3. Cutting losses and letting winners run…. KEY. Yes everybody says this BUT have you really understood it… There is no wizzbang indicator that tells you the optimal place. You need to work with your brain and your soul and all your psychological imperfections to get this right. The place for Astrology in trading is using for example a Carl Young approach to understanding your psyche.

  15. Today’s updates – Antonio has covered a few of them.

    Investors Intelligence bulls up to 59.6% from 58.2%. Highest since 62% in October 2007

    Investors Intelligence bears down to 14.1% from 14.3%. Lowest since March ’87

    The S&P Index today is farther above its 200 day moving avg then at any time in the last 25 yrs — with the exception of mid to late 09

    AAII Investor sentiment now at a 3-Year high, after a jump of 7.6% bulls to 55.1% this last week (but not a major historic outlier like Investors Intelligence)

    Credit Suisse Risk Appetite US has now entered Euphoria

  16. Hi John
    Had a look at the very long term situation, DOW since year 1790
    There is a clear cycle/oscillation of 40-50 years.
    I have two approaches
    -either it is a fixed cycle
    -or it is an oscillation that can contract/stretch in period

    IF it is a fixed cycle, then it has a low in ~4 years (2017) and another in ~13 years (2026). The second low can be a higher/lower low in DOW.
    Further the current situation looks similar to before 1929, meaning that we may overextend this bull, and then crash.

    OR it is an oscillation, that suggest two alternatives
    -either the worst is over, and we need to make a higher low bear, similar to 1937-1941
    -or the real bad period is ahead, similar to 1929

    Either way we have something unfinished to the downside 🙂

    1. the fixed cycle is estimated to be 43 years

      The analysis also suggest that every two cycles are severe, like ~1850, ~1930 and ~2010

      In the 1970-80s the second low of the cycle was “ignored/neutralized”.

  17. I watch and trade a group of index etf’s as a unit. Five years ago they would setup at the same time with predefined trade signals…. not the same signal in each one but all recognizable..A few years ago there was a shift.. the computers with their ability to distort price over very short periods of time began rotating the best signal through the etf’s ..at the last turn up there was something i had never recorded before… a split bottom… on 12/13 half the index etf’s give signals…but it was not until the small spike down on 12/18 that the others(spy,qqq,xlf) gave their signals before the huge ramp up… it is to be expected that the computers will endlessly try to change the game ,,, all we can do as traders is observe and adjust….

  18. Hi John

    I noticed you’ve removed some of your previous highly interesting studies, short and long term models, etc.
    One earlier (pre-demographics) study is seemingly fulfilling right now, most world equities have levitated far out of the ”secular bear pentagon” you outlined over a year ago.
    So I don’t get it that you remove such gems? They’re good to go back to and reevaluate, IMHO.

    Ofcourse I also agree that next year doesn’t look too promising. An almost 5 year old S-curve, topping above any mean line we care to draw. COT-data pointing to a sharp decline during all of 2014, etc.

    And now everybody’s talking about such a depressing subject as ”the demographics winter”.
    Hmm, makes me want to step back and ponder.

    A cleverly named piece about extremes here (Margin Debt: Move Along, Nothing to See Here):
    http://philosophicaleconomics.wordpress.com/2013/10/25/margin-debt/

    At the end it outlines how bleak it seemed in the 1970’s, just as today.
    Who would have thought there was a 25 year rising tide ahead?
    Admittedly the demographics looked better back then, so logically it should be a few rough decades coming now, but aren’t there also other forces at work today?

    One of the first economists to point out the unprecedented inflow of wagelabour into the global economy since the 1990’s was Richard Freeman:
    He calculates there’s around 1.8 billion wagelabourers in the world today, more than double from the 1990s. Like the workforce-expansion in the west after WW2 with women entering the labour market, a similar process on a much bigger scale is in progress worldwide.
    Humans have always worked ofcourse, but never before have such a large percentage been wagelabourers. Labour cost percentage of the worlds total GDP has continously fallen for decades, and no apparent end in sight anytime soon.

    Simultaneously there’s an extreme rate of urbanisation across the globe.
    So labourcosts are decreasing, efficiency of production is rising, and urban demands are also rising (alot). All in an unprecedented manner.
    Might this negate the effects of declining young/old ratios?
    I don’t think anybody can say for sure, no experts can model the outcome.

    Logically it ought to give increased gaps between rich and poor areas within countries, and a rising total global GDP. At least as long as the worlds population is still growing (as it is until 2050, according to scientists).
    So seemingly the wheels are spinning ever faster, and financial markets ”might” reach extremes never seen before, who knows? Ofcourse the wheels might also come off for any number of reasons.

    This rant is only for sake of discussion, and I’m eagerly awaiting the day you’ll start slicing and dicing baskets of select equities and indexes, since I have a strong belief that timing is best derived from real priceaction across many assetclasses (moneyflow).

    But I miss the blog-parts you removed, especially the long charts with the pentagons.
    They might still be right you know. We shall see.

    Cheers!
    Sigge

    1. Hi Sigge. Do a site search or a google search and you’ll find that – I’ve not removed any posts. I just tidied up the ‘pages’, the left hand menu, as some stuff on there is contradictory to how my research this year has developed.

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