Short Term Clues

The Dow, Biotech and Junk bonds are all still flirting with double tops and are unresolved at the time of writing, though JNK has been the most repelled (Stockcharts):

9se18

In the last two weeks before yesterday, all the gains in SPY came out of hours (Fat-Pitch).

The best performing sector of the last two weeks was Utilities, in line with the YTD (Macromon).

Volatility reached new lows, and suggests complacency which occurred into and around previous peaks (J Lyons):

9se9

9se10

Rydex bull/bear assets at the end of yesterday are back up to near 12x levels, on a par with the 2000 peak and all-time extremes.

9se14

Investors Intelligence percentage bears is down to 13, on a par with the 1980s lows:

9se15

The Sornette bubble end flag has dropped to zero (Financial Crisis Observatory):

Screen Shot 2014-09-09 at 10.26.37If the July flagging was the bubble end, then it would fit with the model from 1987, which flagged and then several weeks later the market collapsed:

Screen Shot 2014-09-09 at 12.03.44In support of the July bubble pop scenario, cyclicals broke down around that time (UBS):

9se3

If July wasn’t the final peak, then the Sornette bubble should rise again and flag at a higher intensity in the future.

Evidence in support of the speculation/solar maximum being around March time and behind us comes from the current peak margin debt reading and the first of the double tops in biotech, but also seen here in peaks in social media, commodities, Russell 2000 and Nasdaq advance-declines:

9se20

Like US small caps, the relative performance of European small caps also peaked out at that time.9se1Today is the full moon. Let’s see what it brings.

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134 thoughts on “Short Term Clues

      1. Given the group is pretty quantitative, it would be nice if they told us the percentage of false positives for this indicator. No doubt this looks nice — could it go to 0.9? There is no upper limit.

      2. 0.9 is indeed the highest in their bubble records. Just as Rydex, margin debt, II sentiment, valuations could all feasibly go higher yet, collectively it nonetheless looks pretty compelling right now.

      3. John, my hunch is that a higher score would lead to little second chance, while a lower score gives a second chance. This means that SPX would give a second chance right now, but perhaps not tech,

    1. I second that. Great work!

      I agree with your viewpoints, but just try to play devils advocate here.
      Was that what you did for a living before trading on your own?

  1. The VIX is above 50SMA again. That was the sign on 9/2000. I am interested in the unwinding of levered longs as risk rises — which would fit with the Sornette flag.

    Answering my own question from before. Sornette shows dry firewood, but we need a spark.

  2. I’ve been thinking about the Sovereign Wealth Funds and their participation in the Private Sector Markets.

    NONE of the INDIVIDUALS running these things have personal skin in the game. They want/need to be seen to be ‘successful’ in their investment strategies.

    Now if there is a ‘smallish’ market correction AND these guys lose their nerve during it (remember they have no experience doing this stuff) and start yanking out their Sovereign Funds……THEN WHAT HAPPENS?

    Any one here got thoughts on that scenario?

    Thanks in advance.

    1. My personal view is all (CBs, PIs, institutions) are unwitting subjects of the solar max, and that is the overarching driver. If the market peaks close to the solar max then it will confirm that the sun subtly influenced participants to a speculative mania (confirmed) into the max and then to unwinding speculation post-max (yet to be confirmed).

      1. That’s a good a reason as any.

        I do believe that the SWF’s will unravel when their respective country’s ‘margin call’ is made.

        It’ll will have to start at the periphery as the main ones, Norway, China,…uhmmm strugging to think of others here are robust enough at the moment.

        Anyone got a list of Sovereign Funds that they consider to be at the periphery?

  3. As it stands dips are being bought back.
    It’s rinse and repeat.
    A couple of days minor weakness means little in my view.

    If we come off 40 + on the SPX then it has the potential
    to become more interesting.

    However even with August’s decline well below that level,
    buyers came quickly back in force.

    1. this dip IS NOT being bought but being used to exit…

      all indicators across all risk categories are showing the same thing

      1. agree. Also the Yen has 2 trend lines coming in around here which will put an end to the carry trade party – the one trend line is from 2013 and the other from 1999.

    1. CHS, I honestly couldn’t tell from reading the article earlier whether the author was sincere or his tongue was planted firmly in cheek. If the former, it was almost an oddball piece, and as one of the comments put it, best be dismissed wholly as “click-bait”.

  4. They said the same about gold going to $3000, when it hit just below $2000 in fact everyone was saying it.
    It dropped 40%’ most who most who preached this just disappeared.

    Same will happen again as it’s done decades.

    Not sure where the SPX will go this week but it’s illegal for it to close Friday below 2000. 🙂

    1. your post is confirmation of the top – the crime syndicate will appear to fail here as they position for the fall in the grand oligarchic zero sum outcome…

    1. On what basis does the author of this article make the assertion that buybacks are ebbing? Is he suggesting bond yields are set to move substantially higher and thus borrowing to buy shares will become less affordable/attractive? Not at least according to Jeff Gundlach today on CNBC. So while the author can state fuel for buybacks is ebbing, those are just words without meaning.

      “The boom in buybacks also owes much to the Federal Reserve’s suppression of long-term interest rates via quantitative easing and stagnant growth in Europe, an important foreign market for many S&P 500 global companies.

      Record-low interest rates in the corporate bond market have helped fund large buybacks, but with the central bank on course to conclude buying bonds under QE in October, fuel for buybacks is ebbing and non-financial debt issuance has slowed.

      Andrew Lapthorne at Société Générale says companies have exploited the generosity of financial markets to fund their share buybacks and as that fades, the equity bull market faces losing a key source of support.

      1. My point, Alexa, is not to denigrate the entire article but to try and understand why people think buybacks will ebb. I myself am looking for the answer to this very important question and, as yet, have yet to find a credible answer, or more correctly stated, a credible answer given current conditions.

      2. Gary,
        I have not seen any supporting monthly/quarterly figures of program buybacks from start to finish by company, although I certainly would be interested. I’m assuming the author is getting his figures from somewhere valid, and a drop from $159Billion Q1 to $120B in Q2 seems to be a pretty significant wind down.

        Even more worrisome is when the debt on those buybacks comes due, 2016 – 2020. If we sink into another recession, it’s going to get really really ugly.

        If I run across some info on buybacks I will post.

  5. I still cannot convince myself that gold is heading lower. Especially with USD apparently topping now. Support at 1240 cannot be taken however.
    This may be bear trap (fake breakdown from the triangle)

    1. $ topping out? On what basis are you saying that? It appears to be breaking out of a massive 6 year base. I believe a gigantic $/ credit squeeze and currency war has started in earnest. Japan already started and now € and £ getting into the act. A large scale trade war is hanging in the balance.

      1. I think this is right. The European authorities want the Euro lower. So will it be a race to the bottom? At a minimum, it will make U.S. corporations less competitive there.

    1. Agreed. I’ve started to buy some US stocks and will be looking to buy the indices during what I expect will be a volatile period until 6 October.

      Foreign investment in US equities has tripled during the past five years, and is likely to accelerate, pushing SP500 to its natural high around 3330 late 2015 or mid 2016. Anything above that will really be a bubble!

      The first weak solar cycle any of us have ever experienced; tetrad; war cycles; wealth confiscation especially from bank accounts – to name a few things – and too many people are looking to the past for forward guidance…

      1. I haven’t looked at the data in years, but at one time foreign buying was a top sign, Mark. But probably like all top signs, it would be high for a long time leading into the top as you said it has been.

    1. Not at all Steve 🙂

      Just happen to think this is another bear trap. Think we should be SPX 2015+ by next week. Bulls have lost support at SPX1991 but saved SPX1987. Would be concerning if that was lost too imo.

      1. technically short term trend is up as long as 1984 holds but every associated indicator on the elder chart including the 13ema is headed down – what conditioning the PTB have achieved when people actually think going long at the TOP of a cycle is prudent! lol

  6. What continues to impress me is the universality of a high level of confidence that the market cannot/will not correct here. This is the ideal psychological setting for a decline, as those holding long positions cannot believe a decline won’t be bought, and as a result they will only start selling after the decline requires a response, i.e. capital/profit preservation. That will set up panic selling. A VIX above 30 would suggest that panic has taken hold.

    1. Again, while everything in the article is true, all it really says is with the end of QE3, stock buybacks will slow. Maybe, maybe not. What I’d like to see is an article that gets takes the mindset of a CFO trying to determine whether it makes sense to buy back stock. If I can borrow at 3% and my stock is trading at a 20 multiple (5% earnings yield) it might still make sense to buy back my stock depending on how my balance sheet looks.

  7. I thought John this article would be of interest to you

    Macquarie is urging clients to watch the market and economic reaction to the Fed’s tightening cycle very closely and says it, rather than the Shiller PE ratio, will decide when the next correction occurs. Photo: Bloomberg

    JAMES THOMSON

    Macquarie talks down correction fears

    The four horsemen of a major market correction haven’t appeared on the horizon just yet, and investors worried about valuations looking stretched as the bull run continues have nothing to fear yet.
    That’s the message in new research from Macquarie Wealth Management, which argues that fears about Wall Street’s Shiller PE ratio – which measures price to earnings valuations but eliminates any fluctuations in profit margins caused by the business cycle – climbing to the point where the US market is set for a correction have been overdone.
    Many market commentators say a Shiller PE reading above 25 suggests the market is set for a fall, and Wall Street’s continued strength sees the index now sitting just above 26. The S&P 500 index fell 0.65 per cent in Tuesday night trade to 1988.44 points and is now up 7.6 per cent since the start of the year.
    Macquarie’s research suggests that the Shiller PE ratio is “not a reliable indicator of market declines, especially since the 1980s”.
    “Bear markets have started when the Shiller PE was as low as 7 and as high as 44 and anywhere in between.”

    Instead, Macquarie has focused on what it calls its “Four Horsemen of Bear Markets” in the US:
    1. When the equity risk premium suggests stocks are expensive relative to bonds – this has pre-empted five of the last eight bear markets.
    2. When the Conference Board leading indicator of future economic growth turns negative – this has pre-empted seven of the last 12 bear markets.
    3. When housing starts fall – this has led all five bear markets since the 1980s.
    4. When the yield curve turns negative – this has led five of the last 12 bear markets, with one false positive since the 1950s.
    Happily, none of the horsemen are in the saddle right now.
    Macquarie says the equity risk premium in August was 4.5 per cent, “which is in line with the average since 1973. US stocks are therefore fair value relative to bonds.”
    The Conference Board leading indicator suggests the economy is accelerating, housing starts are turning up and the yield curve is positive.
    “Bear markets usually occur in recessions (or due to the fear of a recession), and we don’t expect the next US recession until 2017 or later,” the report says.
    “The US expansion that began in 2009 could therefore last over 8 years, and this also implies a long duration bull market in stocks.”
    If there is one horseman to fear, it’s the rider who had a big say in causing the global financial crisis generally and America’s sub-prime problem particularly.
    “Housing is the key risk factor right now, as starts fell before all five bear markets since the mid-1980s.
    “We are positive on housing given stronger job growth, high affordability, easing lending standards and rising homebuilder sentiment.
    “But it’s possible a spike in mortgage rates due to Fed hikes or rising bond yields could lead to falling housing activity.”
    Macquarie is urging clients to watch the market and economic reaction to the Fed’s tightening cycle very closely and says it, rather than the Shiller PE ratio, will decide when the next correction occurs.

    1. Question, in all this analysis, is it all basically post-WWII?

      John mentioned demographic decline, which obviously is not in this series. Comparisons with 1929 or 1937 are also not in the data.

      Anyway, three out of four would say China is in danger, and China is so big now that it will pull the rest of the world down. So even if you ignore all but recent history, there is enough to worry about.

      1. winkinatu, I have several issues with this article which I read the other week but in particular:

        ” US stocks are therefore fair value relative to bonds.”

        Bonds ARE NOT fair value, markets are completely distorted.

        As far as the rest of it goes? Ignore something that has worked going back nearly a century and a half?………At every bull market top you get the prognosticators telling us why this or that no longer works anymore.
        “Bear markets usually occur in recessions”…….the last recession followed stocks, not the other way around. Nobody saw the last recession coming, most notably the US Federal reserve.

        IMO a very poor analysis.

    2. IMO, they’ve got it badly wrong.

      1. Equities are as expensive to bonds as they were at the 2000 peak
      2. CB leading indicators are coincident with the stock market (data shows stocks typically lead CB LIs by 1 month)
      3. Housing starts have never recovered in this bull and are at recession levels
      4. Yield curve inversion does not occur under QE and ZIRP – proof in 30s-40s USA and 90s-00s Japan

      And the Shiller p/e they are reading the wrong way: from the current level of CAPE only the worst bear markets in history have erupted, and nothing else.

      1. The “bubble” in real estate this time has been in very high end…in terms of location and price. London and San Francisco taking a hit as we speak…

  8. Breakdown in stocks and junk yesterday now looking for follow through. Very skewed positioning in FX suggests a Euro & gold rally and dollar fall ought to accompany and help fuel a pullback in equities.

    1. John I agree on USD, gold and equities. I feel that a broad US equity sell off will be exacerbated by foreigners liquidating, leading to a lower USD, meaning their loses will be compounded on unsold holdings, as such fueling further selling.

    2. Are you trading all three currency, metal and equities? Or is there a preferred? Yesterday, I almost threw the towel on gold before the nice pop at the end of day.

      1. John not sure if that is directed at me?

        If so, I don’t trade futures any longer since being burned by the MF Global collapse and that lower than a snakes belly John Corzine.
        I am looking to go long TVIX, currently long UDN as of yesterday. Long NUGT, GDX and have been since June.
        I am not worried about being long gold whatsoever and quite frankly I can not understand the fear surrounding gold at these levels.
        The ramblings and fear mongering from the likes of Mr Armstrong does not help.
        He was right to sound the warning in 2011, I too was selling in that huge run in silver and gold, but that was then. The PM market is a completely different beast now.
        Who cares if it drops another $100-150?……I certainly don’t. My aim is to buy low and sell high but in so doing I now tjat I am never going to always buy THE bottom or sell THE top. As far as I am concerned the major downside risk in PM’s has passed and the real risk now lies elsewhere.
        I am also currently sizing up other possibilties but won’t expand given that it is not the nature of this forum.

        Cheers

  9. This is not a biblical myth…. It is worth googling and researching….

    The bible says every 7 years God commanded for the Land to rest for a period of 1 year. The Feast of trumpets, 9/25/14 to Feast of Trumpets 9/13/15 is a Shemittah Year

    The last Shemittah year was from Feast of Trumpets 9/13/2007 to Feast of trumpets 9/30/2008. The Dow topped out just after the Feast of trumpets in Oct 07, and the crash came the same week of the FoT in 2008.

    The Shemittah year prior to 2007-8 was 2000-2001. The FoT started in Sept 30th 2000 and it was just right after that the SPX completed topping and started tumbling.The end of the Shemittah year was at the FoT in Sept 18th 2001, exactly 7 days after the attacks on 9/11/01.

    With that said, I will continue watching with great interest and extreme caution the market development from 9/25/14 to 9/13/15.

    1. thanks Not only i am a Christian I buy your idea but 7 do have special meaning = completion / done.
      I am always watching Oct 2014 would be a important turniug point coz we have (1) 2007 Oct 11 high + 7 years = 2014 Oct (2) 2011 Oct 6 Euro crisis low + 3 years /= 2014 Oct.
      According to your calculation – The last Shemittah year was from Feast of Trumpets 9/13/2007 to Feast of trumpets 9/30/2008, then by applying the high on 2007 Oct 11 (ie 28 days after Feast of Trumpets) then this should be 2014 Sep 25 +28 days= 2014 Oct 23, possible a important high there as (1) on that day we have new moon (2) our previous high was on 2014 Jul 24 (if you study Gann, you know 90 -92 days is a cycle as well)

      1. Thanks apple. Your analysis makes a lot of sense. Agreed wholeheartedly that end of Sep / early Oct is a turning point, not only for US stock, but also the whole world economy.

  10. If everything is about critical mass and points of change, then now we are at the start of very interesting times, financially, politically and in just about every way. If Scotland goes its way this could be a WW1 Sarajevo event – will states in USA secede to survive? The internet has given us a world brain and instant voting, but bloated governments will not give up their ill gotten powers without a fight. The world within my life may reform into clusters of small specialist countries cooperating worldwide beyond physical boundaries, a global economy without a ruling class – or it might lodge deeper in the toilet.

    1. If I remember my history correctly, the last time States attempted to secede we had the bloodiest war in our country’s history and they were not successful in their secession. So I think secession is a very very very low probability scenario. As you have correctly stated, government will not give up its ill gotten powers without a fight, and today’s Federal government is orders of magnitude larger and more powerful than it was in 1860. We are an empire and the empire will do everything in its power to maintain itself. (The capital of the empire was the only large metro are that did not have a housing crash during the mortgage crisis. Just goes to where the money and power is.)

  11. Aside from equity values the REAL danger in this market is in the pricing of risk. It is all but non-existant. This is what will ultimately blow-up the system.

    It is going to be fun watching all that capital flee to the only real safe haven that hasn’t been obliterated ie., PM’s, but only if you have a front row seat.

    1. Allan,

      My posts have been along your lines of thinking but I think we are coming to slightly different conclusions, or perhaps just slightly different timings. There is no doubt we are going to see some type of default, whether global, or regional at the very least in the near future. I am certain we will see all of this stem from a European collapse. How far it spreads I don’t know but it won’t happen overnight. They – governments – have kicked the can down the road for many years now and they’ll manage it for a few more still. And I believe there will be a scramble for assets as currencies are obliterated but I don’t see this happening quite yet. The Pound sell-off is down to a fixed event – Scottish independence – as we know but the Euro decline is much more serious. I think this will worsen this year and next but we are seeing a flow of capital out of Europe. This has to go somewhere. We have seen this enter UK Sterling but I would envisage, as we are seeing now, that it has been a temporary blip, or a temporary safe haven.

      I have no doubts that the US Dollar will get into serious trouble one day but I don’t think it will see difficulties just yet. It is the reserve currency after all and therefore, it serves two main functions. One of these is like all other currencies – trade. It is the currency of trade and it is unchallenged globally even though this is changing. Yes, Russia and China are challenging Dollar supremacy and they will, one day, bring it to its knees. But the Dollar offers something that no other currency provides. Not the Yuan, the Ruble, the Euro, the Pound, the Swiss Franc or any other. I’m referring to reserves. It is the only option when it comes to parking cash, whether it be from a stock market crash, a property market sell-off, fleeing to a safe haven etc. I simply cannot see the Dollar, with what we are witnessing around the world now, sell off. The trend has been down for some time but I’m expecting a break out to the upside. Where else can Europeans for example, whether individuals and corporations, park so much capital?

      Gold simply isn’t a big enough market to absorb the capital I think we’ll see continuing to flee Europe, and emerging markets in general. And as we can see, the metals are still not responding to the Euro’s demise right now. Gold and silver will have their day but I feel it will be further down the road after we witness a Dollar bubble. A stock market sell-off may even fuel the Dollar shorter term, if many of the posters here are correct. I simply do not know what will happen to stocks. But longer term I’m bullish. But I simply do not think we’ll see Gold and Silver rise until we see it rally against all currencies. And for now, the Dollar is beginning to outperform. I’m simply just trading what I see. The charts are painting the picture for us. There is Dollar strength against all currencies at the moment and it’s putting serious pressure on the metals. I hold silver but I think I’ll have plenty of time to accumulate more. Stocks are at a crossroads and may sell off in the short to medium term but where else is there to park capital if we are heading for some form of Armageddon? For me, at the very worst, the Dollar is simply the best of a bad bunch of currencies. Interesting times indeed.

      The other thing I have really pondered recently is this…. If everyone seems to think the markets are going to crash, will they? This does not feel like a market top to me. There is no hysteria. Just complacency. I may well be wrong but this feels like a consolidation phase before a final push to new highs. And I wouldn’t rule out parabolic highs such as those we saw in the Tech Bubble, but across the entire market.

      1. Jonathon, I respect your view point. There are some things in a round about way that we agree on. I agree that the dollar is not ready yet for complete collapse. Over the near term however I see it weakening substantially on the back of flight from US equities which have been attracting huge capital from Europe since around March.
        You can evidence the weakness in the dollar and strength in gold over the last several months when the US markets have sold off.

        I keep hearing the same story repeated that the gold market will not rally until the death of the dollar and I don’t buy that theory.
        I think gold began it’s rise against the USD months ago and all we are witnessing at present are normal corrections along the way.

        Forgive me if I am wrong but you sound very much like you read Martin Armstrong, he pretty much has the same views?

    2. Hi again Alan,

      Don’t get me wrong, I don’t believe there will be a rise in gold till the dollar collapses. I happen to think that gold, or metals in general, will start to rise significantly in the latter stages of a dollar bull market. They have tended to rise together in the past. That could be just 12 months from now. Or two years from now. With regards to timings I don’t really know.

      The number of dollar accounts being opened within the Barclays Banking group, across Europe, has rocketed and they are now stopping this service offering in many countries. This is being imposed by government, and most likely via the ECB. I have first hand knowledge of this. I also understand that HSBC are about to wind down their Dollar bank accounts in the UK as I was refused last month. Lloyds and Citigroup, with whom I have accounts, have informed me that they have never seen activity like it regarding the account opening spree they have at the moment, be it personal or business.

      This is momentum plain and simple as far as I can see and there will be a blocking of these types of accounts one day in the very near future. I am Middle East based and so I’m on the inside looking in. I don’t know if this impairs my feel of what’s going on or whether I am seeing things differently. I am pro metals make no mistake but they have to washout first. I don’t know when or what would bring this event but I can see them going lower.

      Alan, a question for you. If markets tank, say this or next month, and the dollar sells off, where do you see capital going? Into precious metals only? Where else can it go at this moment?

      I’m aware of Matthew Armstrong but no, I don’t follow him. I’m dollar remunerated in my work and so I just tend to follow dollar flows and similarly-denominated assets. I simply cannot see anywhere better for my money to be at present. Happy to debate the issue as I’m no wiser than the next guy 🙂

      1. Jonathon, there appears to be a misunderstanding here.

        I know you don’t expect gold to rise until the USD collapses. What I said was that I don’t expect gold to go parabolic until the USD collapses. So in that regard we are similar.
        You however said you don’t expect gold to rise in the mean time, I do however think that gold will still rise in USD’s from this point on, just not go n to make new all time highs until the dollar collapses. I think it can test $1500 fairly rapidly and if it the stock market tanks and if it breaks that level it will be a very quck trip to $1900.
        As I said from then on it will take a collapse of the dollar under the 2011 lows to propel it much higher.

        Everyone rushing to open dollar accounts tells me that the majority are usually wrong.
        Where does money go?…….that is the huge problem that has been created by papering over risk.
        Some WILL go into PM’s because it is the only sector that hasn’t been distorted, some will go to commodities in general, real etate I suspect will see flows and thus lead to an even bigger bubble, some will flow to emerging markets which are nowhere near as overvalued as the US. Some will inevitably flow to US bonds, however that will be offset by foreign holders of US stocks dumping.

        Mate I see the Euro GBP as the HUGE contrarian play here. I think people are going to be very surprised

    3. Thanks for the reply Allan. It seems that we, alone, form a market as we are on opposite sides of the currency debate.

      I spent 7 years based in both Rome and Madrid, prior to my relocation to the Middle East. I saw nothing but complete decline in those parts of Europe whether it be financial, social, political etc. Young people have emigrated in huge numbers seeking work elsewhere so those Southern European countries are suffering a huge brain drain also, and a demographic time bomb waiting to happen. I see nothing on the horizon that suggests the Euro will outperform from this point on, or relatively against the Dollar. I have witnessed at close hand the human costs of what has been an atrocious and failed political project – the Euro. The impact in Southern Europe is something I struggle to find the words to describe. As for Sterling, I’ve been away from Scotland for almost 12 years so I don’t have a proper feel of the UK. Instinct tells me our days are numbered and I simply don’t believe much of what our politicians tell us, north or south of the border. But something smells wrong to me. That’s all I can tell you. Not exactly scientific reasoning, I know.

      My take on the markets is that the public simply are not participating as I don’t know anyone who really contributes to a pension, never mind stocks directly. Most of the savings of friends and family I know are being used for just paying off their mortgages. Private participation seems to be low across the board from what I’ve researched. But central banks are participating in the markets and can it be that derivatives are sending this market higher? There are few market participants right now, but those who are active are clearly utilising huge leverage and I fully expect sub-prime 2 – the sequel – to raise its ugly head before long. And this may propel the market even higher. Warren buffet recently bough a home financing / mortgage company. So what does he know? I have an idea!…..

      …. Offer mortgages to Americans, the debt will be paid off over 20 odd years, or so it is implied. Therefore this debt the mortgage company takes on becomes reclassified as an asset. Repackage this asset into a derivative and use as leverage, investing in the stock market for huge returns. Unicorns and shooting stars I know but this is where they were heading last time.

      The problem with markets this time is that there are fewer players or participants. If one pulls out then there is disaster. Crash, bang, wallop I would suspect. But at the same time, fewer players means greater collective control. This latter point bothers me and leads me to believe this thing can just burn up for longer. Time will tell.

      Best of luck Allan. Cheers.

  12. The EU’s new “mega-regulator”, the Single Supervisory Mechanism (SSM) comes into being during November 2014 when it will be conducting new bank stress tests. Its Chair, Daniele Nouy, has already said “We have to accept that some banks have no future…I do not have any idea how many banks will have to fail…They may need resolution plans because they have to die in an orderly fashion…” Draghi’s comments have been similar.

    “Resolution” means all shareholders, bondholders and depositors will be treated as creditors. The new Recovery and Resolution rules mean that the deposit guarantee schemes (for small depositors) will pay the guaranteed money to the bank rather than the depositor.

    Its already too late to transfer sizeable EU deposits to other countries (see also Jonathan’s comments recently). Try travelling with a couple of thousand in cash and you’ll feel Barney the sniffer dog’s chilly snout.

    Buying assets is the only way to avoid bail-in now. Will Europeans, having tripled their investments in US equities over the past five years, start to sell them off and move into other assets like commodities soon..?

    1. Mark,

      Honestly, I don’t even think we’ve started yet. The Bankia consortium of banks in Spain is a dead man walking. Banco Espiritu Santo in Portugal – the largest in Portugal – is insolvent. France’s commercial banking sector is a complete basket case and there are rumours now that banks in Holland and Belgium have huge liquidity problems. Deutsche Bank are rumoured to be exposed to a total of €55 trillion worth of derivatives (http://www.zerohedge.com/news/2014-07-22/ny-fed-slams-deutsche-bank-and-its-€55-trillion-derivatives-accuses-it-significant-o). Perhaps I’m underplaying it by saying it’s a rumour?!

      What will come will make Lehman look like a picnic in the park. The euro is finished, in its present form. I don’t care what any European politician says. Wage deflation, economic contraction, declining demographics, brain drain, rising taxes, corrupt politicians, Russian sanctions….. all roads lead to Rome. Or bust.

      I witnessed peaceful demonstrations in Madrid and Rome in late 2009 and 2010 become violent clashes with police in 2011 and 2012. My Madrid neighbourhood of La Latina was on fire for nights on end with cars, bins, shops etc being burned out. Not once did it make the media, be it printed press, or television. It’s now started to be broadcasted as the frequency is rising markedly. It’s the same in Italy, the same in France and it’s worsening in Portugal.

      Europe is being strangled with such force that there is very little breathing space in which to operate. I give it 12 months until banks start falling.

    2. You stated ‘fleeing’ so do you mean my reference to brain drain? If so Allan, one answer: the young. There is very little employment for youth even in metropolitan areas. Spain’s unemployment is off the charts but youth unemployment is approx. 60%. This is not due to tax, it’s down to a lack of jobs. For three cashier positions in Madrids Puerta de Colon Mega branch, over 13,000 applications were received from people under the age of 25 alone. The emigration of young spaniards manifests itself in a lack of tax income for the state moving forward as the well educated youth (they are as well prepared as any in the UK, US or elsewhere) move elsewhere for jobs. Many Spaniards have headed to Germany where possible whereas other have gone to Mexico and Brazil. Jobs in Rio can pay 50% higher than in Madrid. China and Australia are also growing destinations. High taxes in Spain and Italy discourage entrepreneurialism and it’s almost impossible to get startup credit. Spain and Italy are graveyards for the young. Their futures are elsewhere. It’s like what has happened to Irish youth over the decades.

      Those who have money, such as my sister and husband, are desperate to get it out before any of the banks start folding. There are ways to get it out but it takes time. Perhaps too long. The other side is that they just take the 20% tax hit and accept the 80% remainder with a smile, and as a lesson learned.

      The problem with Europe now is that they are ring fencing it from the inside. They are trying to block capital from escaping, yet bizarrely, Italy are taxing income when entering. It’s a mess and it’s getting worse. The banks are out of cash and measures are becoming desperate. It’s a shame and it is now spreading from the periphery to the core. I would not be surprised to see Germany, Holland, Austria really start to show signs of weakness next year.

  13. I see the consensus as: the Fed will “save” the market yet again next week Wed. with more of the usual talk about “keeping interest rates near zero forever.” This may be supporting the market. But short-term rates have already risen despite the Fed’s “ZIRP forever” pronouncements:

    The market has yet to respond tot he Fed removing $600B in QE this year, and ending it entirely in Oct. The consensus is that the ECB and Bank of Japan have taken over the QE mantle, so the Fed’s exit is zero impact. Perhaps, but I wonder what the market will do if the Fed doesn’t “save” it next week with some new goody. The least likely scenario in the consensus view is a sharp downdraft. There is essentially no fear. A VIX above 13 is now considered lofty and due for a slapdown? The possibility of VIX at 30 is not even within the bounds of possibility in the consensus view.

    1. and that compares to 80 year average annual return volatility of large cap and small cap stocks of 20 and 33% respectively.

      Fed seems to be behind the curve which would be good news for the bear case?

  14. Hi all ! Honestly, I am tempted to give up on the bear case. It looks like there’s no end in sight for this historic bull market. Same thing for gold, it keeps going down every single day.

    1. oops – wrong chart – although the RTH shows the breakout and buy back a couple of weeks ago – THAT WAS THE BUY not now! lol

      stowell net line trading

  15. no confirmation of resumption of uptrend with 1999 holding and bear power below zero…

    oops I posted again. I hate it when that happens

  16. Bulls did well today. They closed SPX near its highs of the day. Vix is also showing a shooting star on the daily chart after testing the 200sma. Bulls now need to follow through tomorrow. Opex next week and the trend has been to slam down the VIX into next week. Imo the last two days have been a bear trap.

    1. possible. daily closed above 21 hourly to me it the line of least resistance is upwards.
      Tomorrow is September 11, most likely we’ll have a patriotic rally

  17. Honestly, I totally gave up on the bear case today. I closed a short position and went long AAPL and GILD. I don’t see any catalyst that will trigger a correction anytime soon.
    So, I decided it’s better to jump on bandwagon and ride the trend.
    Regards,

  18. X-FLARE: Active sunspot AR2158 erupted on Sept. 10th, producing a strong X1.6-class solar flare. Because the sunspot is directly facing Earth, this is a geoeffective event. HF radio blackouts and other communications disturbances have already been observed on the day-lit side of Earth. Stay tuned to http://spaceweather.com for more information and updates about the possibility of an Earth-directed CME and geomagnetic storms in the days ahead.

    1. This could provide quite a shock, especially as we’ve dodged most flare-related activity for many months now. It will be interesting to see how the markets react late tomorrow and early next week.

      1. Gary, the normal reaction would be a sell-off for US equities (especially given the sheer number of negative indications and divergences etc John has been showing).

        But if US equities remain supported over the next few days, then I’ll take that as evidence that they have become the go-to safe-haven asset.

        Also, recent CMEs have continued to be associated with sunspot groups, indicating that the sun is still around its maximum. At some future point CMEs will be associated with coronal holes (ie. with an absence of sunspots), and then we’ll know for sure that solar maximum is behind us.

  19. Can we really feel any effects until the geomagnetic storm? You mention radio blackouts. How is that possible if CME has not arrived?

    1. The radio emission from this flare was travelling at over 8 million miles per hour, so that noise would take only 11 hours or so to reach us.

      The CME mass should hit us during the US session tomorrow (12th).

  20. Further to the comments above about bank restrictions and Martin Armstrong etc, there are a couple of interesting experiences from Armstrong’s readers here: http://armstrongeconomics.com/2014/09/10/fatca-how-it-is-destroying-international-commerce/

    Some banks have been making withdrawals increasingly difficult for many months: http://news.yahoo.com/blogs/sideshow/prove-it–bank-blocking-customers-from-making-large-withdrawals-without–evidence–of-spending-need-222425920.html

    And now a “social experiment…to test consumer and business reaction to the point in the not too distant future when paper money becomes redundant”: http://www.handepay-cashless-street.co.uk/

    Fancy that – leaving your wealth in the total control of a bunch of sociopaths whose burning ambition is to accumulate and confiscate as much of it as possible!

  21. Oh I love it when I hear the despair creeping in and believe me, it IS creeping in.
    You know something is nearing an end, when most think it will go on forever 😉

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