Timing And Assessing The Top In Equities

A compilation of indicators at historic extremes, together with other current major flags, and an aggregation of their forecasts from history, which have generally reliably played out. Individually each signal is just a guide, always at risk of printing an anomaly, but collectively they are offering something united and compelling, particularly as we see signals across valuations, euphoria, exhaustion and technicals.



15 thoughts on “Timing And Assessing The Top In Equities

  1. Hi John
    December is over, and it is soon to bring back that bearish feeling that was put on wait by the New year pump.

    I have a setup similar to March and September 2012 (and many more). In essence a sell-signal that only produces a pullback, and then a higher high 4-5 weeks after the first top… and new sell signal that produces a deeper correction.

    At the moment the sell signal has not yet occured, and it may be some days away, depending on what SPX does the next days. So waiting for the pieces to fall in place…

    My cycles however are bullish… unless they fail (bearish left-translated). So could be that we make a new big topping formation this winter, before the major reversal.

  2. New norm competitive central interventionism appears to dilute the behavioral historical. Relatively weak solar effects appear swamped by the man-made noise of ongoing, albeit hitherto (exponent ‘n’) unprecedented expectations. The dichotomy continues to show itself in failed TA. This ongoing scenario seems to be long since out of bounds and free from any form of “gravity”. We could have entered interstellar space.

  3. Hi John
    You know my planetary work on the sunspot cycle, and the long term cycles suggested a Sept-Oct 2013 top, while the shorter tidal cycle has a major peak here early January 2014. So my work suggest a ~Oct 2013 top, possibly stretching a bit into 2014.

    Concerning triggers… sometimes the market is just exhausted, and is very overbough by some measures, like number of days above 100MA, 200MA, days since last death cross 50/200MA and so on. And as these numbers get extreme, there begins to be an edge for some kind of large correction.
    And when the correction finally comes, there is perhaps no real trigger, and news try to find some kind of story. But if there is no real story, it is just a reset of the overbought condition, and a buying opportunity.

    My work for Norway shows that the death cross 50/200 MA can either be a sell signal, or a buy signal… depending on whether it is just a reset, or the start of something worse.

    One variation is when the market is exhausted and rolls over, with some parameters on extreme that needs to be reset. BUT if there is a bearish trigger at the low of the correction… we have the “bottom or edge of cliff” situation.

    Anyway… IF there is a major top in the first half of 2014, my cycle work tells that it must set up a bearish (left translated) 6 month cycle. And that means weakness/breakdown sometime in Jan-March, and downtrend to the summer.
    If the uptrend extends to March-April++, it is a bullish cycle, and should continue with the next cycle into the fall…

  4. Stratfor. 2014 prediction…”The underlying stresses of the economic crisis will be made visible in the gradual rise of nationalist and Euroskeptic parties. As these groups rise in Europe, the deeper structural reforms that the European bureaucracy is attempting, to manage this and future crises, will hit walls.”

    Traders start the year by selling with gusto. May be a nice buy opportunity is coming when people panic once more and Mario comes to the rescue again.

    I have just 2 X my shorts.

  5. For your interest, last Investors Intelligence reading, the most optimistic reading -If I am mistaken, tell me, please- since at least 1987-1998- 2000 (99) and 2007.

    61,6% Bullish / 15,2% Bearish ( 46,4)> -21/-54% Dow Jones corrections after past bullish redings.


  6. John, one to add to your list / table, new U.S Fed Reserve Chairs typically see markets with declining values in their first 1-2 years.

  7. “I wasn’t there, but I recall something similar at the March 2009 low – there was no catalyst, it just started going up.”

    There definitely was a “event” that lead to the beginning of this way over extended fictional rally, John, is was the passing of FAS 157 by the FASB (fair accounting standards board). This allowed the banks to not have to write down losses on the trillions of dollars of OTC derivitives on on their balances sheets. From CDO’s, Cdo’s,CMBS’s,CDS,s and the like of other toxicity, instead of writing down the losses per quarter (which had sent the DOW below 7,000, they suspended the rules. So, as long as the bank doesn’t sell the OTC derivitive “products”, then they never have to report them as losses and place them at “full valuation” on the balance sheet.

    So, the market has been reflated (stocks, bonds, real estate, etc) to more insane levels that in 2007, due to legalized accounting fraud.

    At the time of suspension of FAS 157, there was around 750 Trillion dollars of OTC’s, now there is 1.1 QUADRILLION in toxicity in global banking balance sheets! Clock is ticking!

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