Permabears turned bullish, normally reliable analysts ignoring a flood of warning signs, a united view that the US and world economy is returning to solid growth this year which is based on little other than hope, and mass complacency. Just the way it should be at a solar-maximum-inspired speculative finale, and great to see it first hand.
Don’t lose sight. Each of the warning signals that I compiled HERE (to which we can add insider selling, Rydex buying power, RSI divergences, and money flows out of consumer discretionary equities and into gold miners and treasuries) has been a reliable historic indicator of either a correction or bear market. To have them all in congregation is rare indeed, and a trader’s opportunity.
The sentiment extremes persist:
Put/call ratio extremes persist:
Historic elevated Skew persists:
Contrarian global equities allocations persist:
There is no doubt in my mind that this will all look obvious with hindsight once a major correction kicks in, but for now the majority don’t buy any other scenario for equities other than up. Which brings us to the near term action.
The stock market since the turn of the year has been a bull-bear battle and an overall sideways range on US indices. The Nasdaq and Russell have been edging up to new highs, whilst the SP500 has tracked overall flat and the Dow has been in a downward bias. At this point it remains to be seen whether the bulls will resume control and break the markets upward further into steepening parabolic, or whether the bears are about to become the dominant force and begin the correction.
My case for a 31 December top remains, as per the mutli-angled case I put together. The Dow and Nikkei and SP500 (which double topped) are honouring it currently and the action for the remainder of this week will be telling. If I am correct about that top, and the relevance of the 1929 analog, then I see us here:
Underlying Charts: Barcharts
The bull-bear battle should continue but the bears should overwhelm from here and drive the action.
If I am wrong and the market breaks upwards, then we have the lunar positive fortnight to support this, together with low forecast geomagnetism, and I would look to the next new moon of 30th January to potentially mark a top. But for now, I remain optimistic that the bears will take the edge here. We have seen recent signs in gold miners and treasuries holding up and advancing, even as equities have been rising. We have also seen a breakdown in the consumer discretionary sector which has been a key leader of this bull.
Below are daily charts since 2009 for Google, Amazon, and Biotech, all leading stocks/sectors in this bull. The parabolics are clear to see, and Biotech has particularly gone vertical, which suggests a blow-off top is likely before the month is out.
I end with the SP500 monthly chart which shows the difference in the technical shaping of the 2000 and 2007 tops to now.
These last two peaks saw a gradual loss of momentum give way to multi-month topping ranges, whereas the last 12 months of the current bull has become a parabolic bubble, set to pop in a similar way to the club below: