Take a step back and the topping process since the start of July can be seen in RSI, money flow and MACD divergences:
The same divergence processes in 2007 and 2011 lasted around 5 months. From the start of July 2014 that would equate to a final peak around now.
We also see the same NAAIM manager exposure divergence as the 2007 and 2011 peaks:
Junk bonds double topped in July and September and are now divergent to equities, and previous divergences were leading indicators of where stocks were headed next:
We see peak mania at the inverted geomagnetic seasonal mid-year peak closest to the smoothed solar maximum peak, via sentiment and allocations, just like at the last solar peak in 2000:
The sunspots chart shows the waning since around April 2014, putting stocks on borrowed time.
Offsetting the October-November rally in equities, we see gold and miners advancing and treasuries too, with the yield curve flattening further (equivalent to inversion under ZIRP):
Plus we see various divergences in place since the turn of July contrasting with price, including bullish percent, volatility and breadth:
A peak across the pond at the Dax reveals a similar topping process in place as measured by true strength and breadth indicators:
To sum up, there is a ‘normal’ topping process occurring behind the scenes, yet most are oblivious. If your arguments are either that indicators don’t work any more or that central banks’ actions trump all, then history is not on your side. I’m no permabear, rather the evidence is far too compelling to be anything other than bearish on equities here. This remains a truly golden opportunity for ‘reverse value investing’ yet right now appears to be the point at which the least number of participants can see it.
If it seems like price can only go up and that all weakness is bought, then recall just a few weeks ago the situation was similar but in mid-Sept suddenly bears took control with several engulfing down days. The evidence above reveals this is going to happen again, and argues that this time will be definitive. The key point is that behind the scenes and cross-asset we can see that things clearly changed as of the turn of July and that this latest leg up in price is part of a topping process not a bull market trend. It’s just about the timing for capturing what should be the final peak.
Skew is back elevated like mid-Sept or mid-July, the last two times the market rolled over:
We can add to that recent readings in ISEE put/call and Nymo for evidence a roll over is imminent.
Allocations look truly exhausted:
We are heading into the negative lunar period this week, and the real geomagnetic trend remains down:
I am looking for the leading stock and leading index to roll over to cement the trend change, namely Apple and the NDX. Microsoft, the other main driver, has now broken, leaving Apple left to pop its parabolic.
And for the US dollar to break too. It shows the same negative divergences that marked previous peaks:
I believe gold has bottomed in line with October 2000, and that the break in both the USD and equities will send it soaring.