Small range day for equities yesterday, on low volume, consolidating the previous day’s advance. Gold has paused at its first meaningful resistance level of 1350. Treasury yields decline also currently arrested. So are we to see precious metals and bonds reverse their 2014 trends here whilst equities break up and away? Let’s take a look at some charts.

1. We have a possible analogy from July/August last year, shown below. Then, the market appeared to be rolling over by the end of July, only for a gap-up candle to a new high, as occurred this Tuesday. In that 2013 instance, it represented exhaustion.

Source: Stockcharts (and next two charts)

2. Total put/call ratio is now 5 months under 1.0, which is a historical extreme:

3. Equity options put/call ratio yesterday moved back to historic extreme low:

4. ISEE put/call index 5 day average over 200 for the second day, other instances shown:

Source: Helen Meisler

5. Skew remains historically elevated for 5th month. Weekly Skew reading suggestive of another top, as per the beginning of Jan and other historic incidences.

Source: Keystone Speculator

6. Investors Intelligence %bears is beneath the level associated with significant market tops in 2007, 2010 and 2011. Also note those peaks occurred on the second spike down in %bears, which is potentially what we have now (with end of Dec dip):

Source: Willie Delwiche (My annotations)

7. Euro-USD is at long term resistance and has had a reasonable correlation with stock market performance. Break out or break down here?

Source: Ispyetf

8. The two measures of breadth of cumulative advance-declines and % stocks above MA are divergent. Which one is more reliable as a leading indicator? The below charts show that the former (NYAD) typically expands into market peaks whilst the latter (using a combination of 50MA and 200MA) typically diverges into market peaks and is more of a leading indicator. This suggests we should be looking at a market peak now, not a break out.

Source: Fat-Pitch

In short, the balance of evidence still points to the stock market reversing down here, rather than breaking up and away. Maybe tomorrow’s employment report will be the catalyst.

A surprising day yesterday. Russell 2000 up 2.75%, and all US indices popped strongly. Clearly nothing to do with Ukraine. If we look beyond price, not much has changed. There is still a momentum divergence on this new high. The Russell 2000 is up 15 out of 16 days, which is a record. Indicators suggest this is more likely to be an overshoot rather than a breakout. Put/call is sub 1 for 5 months now, and is 5 days away from an all-time record. Skew is is also 5 months at historic elevation levels. Investors Intelligence sentiment is back to extreme (see below). I remain confident a crash is ahead, but yesterday’s action has made the short term picture less clear. For that reason I did not add further short positions into the rip. So let’s see how today unfolds, I expect more clarity by tomorrow/Friday.

I leave you with a few charts, which are hopefully self-explanatory. At the bottom I looked to see how the Dow’s parabolic ascent into 2007’s peak terminated, which may give us clues about how the Nasdaq’s current parabolic could feasibly resolve if this short term action is an overshoot before renewed downside. The Dow made a higher high then a lower low, which was the definitive kill of the parabolic. The Nasdaq has made a higher high, but remains in the parabolic until we see a lower low.

Yesterday we saw a gap down in European and US stock markets on fears over Ukraine. Stocks then continued to sell off during market hours, but US stocks managed to recover some of the losses into the close. At the time of writing US futures are up on news that Putin ended military exercises near the Ukraine border. In fact, it had already been announced that those exercises would be completed today. News typically buffets the market but major trends and turns are set by other factors. If stock markets topped out on Friday then I suggest more relevant is the telling developments in indicators and the relevance of new moon peaks. If stocks have not yet topped out then it also won’t be due to news in the geopolitical arena, and we might point to the strength in cumulative advance-declines and renewed interest in cyclicals. So let’s put Ukraine to one side and see how things look after yesterday’s action.

1. SPY shows what looks like a bull trap. My suggestion last week was that the marginal new high on divergences would be the bait to lure in the last of the ‘dumb’ money. The rip in the overnight futures could set the scene for the gap left yesterday to be filled before downside renews. Volume and RSI divergence are bearish. Cyclicals repaired their January weakness, particularly in the last week, which is bullish, but there is a divergence with the higher high on SPY as shown. If SPY breaks higher again and cyclicals make a new high, then that top may be postponed.

Source (and other charts below): Stockcharts

2. The Nasdaq 100 (black line) has room to pull back further before retesting the January high, whilst the breadth divergence continues:

3. On the longer term view, the Nasdaq 100 is creeping along the top of its bull channel since 2009. If it can break up and away from here that would be a particularly bullish development, but I put higher probability on it being dragged back down into the channel, with the RSI divergence joining the breadth divergence.

4. The Dow and Nikkei continue to honour my 31 Dec top call, with their charts still mirroring the topping processes of the historical analogs. 31 Dec was 1 day from the new moon and at the inverted geomagnetic seasonal peak, and if Friday turns out to have marked the peaks in the other US indices then that was also one day from the new moon and at the turn into the seasonal lows of March and April.

5. My bull market peak call was also very much related to timing the solar maximum, and below are the updated sunspot charts of NOAA, SIDC and my own. It now looks more certain that the smoothed solar peak (blue line on NOAA, red line on SIDC) will turn out to be around now rather than the earlier peak of Feb 2012, which fits with speculation peaking out now rather than back then. Historically, markets tend to peak close to the smoothed solar maximum and on a monthly sunspot spike. A top at the end of December fits both, and we see evidence of accompanying developments as we turned the year such as Bitcoin peaking, trend reversals in treasuries and gold, and historically high trading volumes and insider selling in January. However, we actually made a higher monthly sunspot spike in February, and that could partially explain why other stock indices made higher highs in that month. NASA agree with NOAA and Solen in predicting the smoothed solar maximum to be behind us and waning from now, but SIDC still have that as one of two options, with the other being a mid-2014 smoothed maximum. If that turned out to be the case then that, for me, would be the strongest reason for bull market continuation until then. However, I consider this lower probability than the smoothed maximum turning out to be the end of 2013.

6. Gold and treasuries continue to outperform stocks and is supportive of the 31 Dec relevance:

7. Rydex cash levels and put/call 21 day average share similarities. They are not just at low levels consistent with market peaks, but at historically extreme low levels, that suggest high complacency, the kind of which could be a catalyst for the waterfall declines that I predict are imminent. The 2013 exuberance rally was key to generating these historic readings, whilst similarly postponing any meaningful correction into what I believe will be a super-correction. If we look at the the 2007 peak in the put/call chart we see less extreme complacency than now but also complacency resetting during the corrections in the topping process (the two spikes to over 1.2). This did not occur in the January 2014 sell-off and is another warning of an impending much deeper correction to come.

Source: Sentimentrader

8. Peak excess in equities is also reflected in these 3 charts. Retail investors have belatedly joined the party, as is typical at market tops, and global stock market capitalisation is back to 2007 peak levels whilst achieved on dwindling demographics in the major nations. We see lower overall trading volumes whilst investor net debt, real margin debt and margin debt to GDP (now at 2.72%) exceed 2007 and 2000 market top levels, i.e. less participants but more indebted and leveraged, and this fits with the historic complacency above.

Source: Ispyetf

Source: U KarlewitzSource: Scott Grannis

Yesterday the SP500 finally closed above 1850 with a rally in the last 15 minutes of the US session, and in so doing carved out a marginally higher high than December/January, in a club with the Russell 2000 and Nasdaq 100 indices. I do not see a bullish breakout that sets the scene for a new round of gains, because as per my note before yesterday’s session, it is indeed achieved on multiple divergences and is likely to be short-lived.

Volume on yesterday’s SP500 up-day was again inferior to the down-days, whilst treasuries had another up-day despite equities and continues to be a signal. Economic data was again poor and remains divergent. There is a momentum divergence in the SP500 new high versus the previous whilst breadth measures of % stocks above 200 MA and 52 week new highs continue their divergent downtrends. The VIX also shows divergence and the trend exhaustion indicator suggests any further gains will be hard to come by currently.

Current Skew reading:

Source: Barcharts

Current NAAIM reading:

Source: U Karlewitz

Current Investors Intelligence bull-bear reading:

Source: U Karlewitz

Plus ISEE equity only call-put reached an extreme yesterday. In short, the rally has lured back in the ‘dumb’ money and I suspect yesterday’s new high close on the SP500 will turn out to be the final bait for ‘all-in’.

The Dow and Nikkei continue to honour my 31 Dec 2013 top call, and are both several hundred points away from a challenge to that. They also both continue to carve out the ‘second chance’ peak of the historic analogs topping pattern. The FTSE, Dow, Russell and Nikkei remain at long term resistances.

I remind you of this:

Tomorrow is the new moon and that sets up the possibility of the other US indices now topping close to it: either yesterday, today or the first couple of days of next week. As March and April are inverted geomagnetism seasonal lows and another geomagnetic storm is currently in progress adding to the recent upswing in disturbances, I have additional reasons for the markets to top here as we exit February.

If we look behind the price action at internals, valuation, sentiment, leverage, technicals and fundamentals (all of which I have covered in detail in posts since the turn of the year) then the short opportunity is clear: this a rip to sell, and there won’t be many opportunities as golden as this.

Let’s see how today unfolds. I prefer to comment once the action is complete because there are many intraday swings currently, as evidenced by all the tails on the daily candles recently (another clue for a trend change), but I will comment intraday if I see something more decisive in progress. A reminder that some sharp selling into the close would set up the potential for a big down day on Monday, particularly with the geomagnetic storm aiding again.