1. Commercial positioning in the EuroDollar is extreme, suggesting a significant reversal should be at hand:
2. Gold positioning is not at the same extreme. The positioning of the various groups does not reflect other significant lows yet, so perhaps a little more washout may first come to pass.
3. Dow commercial positioning is extreme, echoing the 2011 peak:
4. The smart dumb money confidence spread is also now at an extreme matching the 2011 peak:
5. Note that both the above two charts show a lead time into the true market falls in 2011 of 2-7 months. Meanwhile, the divergence in ECRI leading indicators is now 8 months old, and compares with the previous lead times of 2-8 months before the true falls:
Source: ShortSideOfLong + my dotted lines
6. Sunspots have fallen away, mirroring early 2001, and removing the support to speculate:
7. Valuations and price accelerations in the US line up with the two biggest ever: 1929 and 2000:
8. Meanwhile, earnings and economic data continue to be highly suspect, particularly in the US.
Drawing together with data from other recent posts, logic and history would argue that the correction that began last week ought to have legs and that we are at the end of a 12 month topping process. Failing that, then a sideways range into mid-year before a collapse in earnest.
Leading indicators and economic data for Europe are more promising than the US, adding to the case for the Euro to reverse fortunes. The rising dollar continues to add to the deteriorating earnings picture in the US. Looking further out, the leading indicator picture for the US improves again. But recall that evidence reveals that the stock market leads the economy, not the other way round. As long as stocks hold up, the weath effect prevents major economic problems. However, we are seeing all-round fragility in the economic data, meaning sharp falls in stocks would likely to tip us both into recession and deflation. Therefore, it comes down to the stock market. Those pointing to benign recession models as supports for the stock market have it the wrong way round: when the stock market begins to fall, the recession models spurt upwards.
With a focus on the US, the scene is set for such sharp declines. Sentiment, allocations, leverage, valuations, money flows and positing are all flagging a major top. The dollar and oil have severely dented the earnings picture. Economic surprises and leading indicators have both moved sharply negative. The speculation thrust from the sun has ebbed away and Fed balance sheet expansion has drawn to an end:
Conventional analysis would argue there is nothing missing. If conventional analysis is lacking then ZIRP-enabled large player leverage could defy. But at some point, that has to reverse hard as the ponzi scheme collapses and surely now the case is comprehensive for one or more such parties, if applicable, to pull the plug in self-interest.