Many charts and indicators say equities finally topped out at the start of July.
1. European stock indices peaked out at that time and have since made a lower high and lower low.
2. US small caps and the Dow Jones World index show likewise:
3. Whilst Dow Industrials shows a megaphone formation since then, Dow breadth and Vix (inverted) reveal a similar decline since the start of July.
4. The SP500 shows a megaphone too, however its breadth followed the same declining pattern since the dotted line. NYSE advance-decline volume and the high yield to treasuries ratio also reveal the start of July peak.
6. Nasdaq breadth significantly diverged at that point.
7. Oil took on a deflationary track at the start of July and leveraged loans made their peak.
8. And lastly, the Sornette bubble end flagged on the SP500 at that time:
Why the start of July? It is the mid-year geomagnetic (inverted) seasonal peak, falling close to the June 27 new moon (2 trading days away) and the first such double optimism peak following the April smoothed solar maximum. If we think of the idealised speculation peak being the triple confluence of solar, geomagnetic (inverted) and lunar peaks, then 27th June would be the closest to that.
On which note I’d like to point out the increased recent actual geomagnetism which has caused a declining cumulative geomagnetic trend over the last couple of months, aligning with action in most of the above indicators and indices. Here shown with the Dax:
In short, the ‘red herring’ is the higher highs in price in the SP500, Dow and Nasdaq. They appear to the untrained eye to still be in bull market uptrends, but analysis says otherwise.
By various indicators, November 2014 should be equivalent to the two monthly arrows shown in the last two major SP500 peaks here:
The previous month in each case was a large hanging man candle (long-tailed). November should be a down month in price and the large price megaphones in large caps resolved to the downside.
Bullishness and allocations are back to their invisible limits at this point:
Whilst it is mathematically possible that they could both reach further extremes, these levels – which are absolute historic extreme levels – have so far acted as a cap, so the next move in equities should be down.
We can add to that the diminishing fuel over the last few months from put/call ratios and NAAIM exposure (a smart money indicator), as well as the number of stocks that are serving to rally the markets and the number of stock indices participating, plus the risk appetite proxies such as junk bonds and cyclical sectors versus defensives, all suggesting the rug is being gradually pulled from underneath stocks.
Friday’s gap up in price was a potential exhaustion gap. Add to this that Nymo reached over 80 for the second time in 5 days and previous instances from recent history that suggest a reversal should be swift and decisive. Yesterday’s candle has the look of a reversal candle too. The second chart below shows such combinations of exhaustion gap plus Nymo>80 from 2011, and what happened next.