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Is This “The Top”?
Is This “The Top”?
Parabolic moves end when the confidence that the parabolic move can’t end becomes the consensus.
The consensus seems to be that the stock market is on its way to much higher levels, and soon. The near-term targets for the S&P 500 (SPX, currently around 3,235) range from 3,500 to 4,000, with longer-term targets reaching “the sky’s the limit.”
The consensus reasoning goes like this:— Central banks can print a lot more money– Stocks rise when central banks print more money.
The history of the 2009-2019 era strongly supports this simple cause-effect, and so just about everyone is on the same side of the boat, the “don’t fight the Fed” side of ever-higher stock multiples and ever-higher prices.
Simply put: sales and profits no longer matter, the only thing that matters is whether central banks are printing more money. And since we all know they’ll have to print more money to keep the flying pig (the stock market) aloft, then it follows as night follows day that stocks will rise essentially forever.
As soon as the consensus has settled complacently on one side of the boat, contrarians take notice as history has a perverse habit of foiling any overwhelmingly complacent consensus.
The contrarian asks: what if this is “The Top”? Not just the top of the current rally, but The Top of the Bull Market that ignited in March 2009? Impossible, say the Bulls; there’s cash on the sidelines, Uber/Lyft drivers aren’t yet touting obscure stocks, i.e. “everybody” is not yet in the market, central banks haven’t even warmed up their digital printing presses, corporations are flush with cash/credit to continue their decade-long gorging on stock buy-backs and the global economy is back on track for another decade or three of tepid “growth.”
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Kass: Tops Are Processes & We May Be In That Process
Kass: Tops Are Processes & We May Be In That Process
The Yield Curve Will Likely Invert by November, 2018
- Economic growth is less synchronized than the consensus believes
- On a trending and rate of change basis the economic data is slowing down
- The Fed’s continued pivot to tighter money will likely lead to curve inversion – which will likely stoke fears of recession
“China, Europe and the Emerging Market Economic Data All Signal Slowdown: It’s in the early innings of such a slowdown based on any realtime analysis of the economic data. The rate of change slowdown (on a trending basis) is as clear as day. A rising US Dollar and weakening emerging market economic growth sows the seeds of a possible US dollar funding crisis.” – Kass Diary, Investors are Not Being Compensated For Risk
At economic peaks everything on the surface looks Rosy (except to some observors like myself and Rosie (David Rosenberg)!) – until it doesn’t.
Towards that end, here is what I wrote yesterday about US and overseas economic growth in my two part opener:
“Global Growth Is Less Synchronized as the trajectory of worldwide growth is becoming more ambiguous. I have featured the erosion in soft and hard high frequency data in the US, Europe, China and elsewhere extensively in my Diary – so I wont clutter this missive with too many charts. But needless to say (and seen by these charts and here), with economic surprises moderating from a year ago and in the case of Europe falling to two year lows – we are likely at ‘Peak Global Growth’ now. (The data is even worse in South Korea, Taiwan, Indonesia and Thailand).
…click on the above link to read the rest of the article…
Why One Trader Just Called It – “Today Is The Start Of The Market Changeover Process”
The record-breaking streaks of un-dipping gains; the “epic” bull market (Morgan Stanley’s words, not ours); and the total and utter collapse of all risk premia (equity and credit alike) is all about to end according to former fund manager Richard Breslow: “as the long running debate about lack of volatility in the markets continues, I’ve got some good news for you. As long as you promise to be happy with what you wish for. It’s about to change.”
Investors are fearless…
And reaching for yield, no matter what…
Even as real uncertainty soars…
Sure we have momentary bouts of hysteria which people get all excited about and extrapolate to eternity – until they run out of steam forthwith, but as Bloomberg’s Richard Breslow writes:
“I’m talking about good old fashioned two-way flow and nascent trends galore. And I’m officially declaring today the very start of the entire change over process.Wouldn’t it be ironic if future generations of traders celebrate this epiphanic moment of a return to volatile markets by shutting the exchanges and sleeping in?”
Via Bloomberg,
So what’s the big news? I’m glad to say it isn’t war or some other catastrophe. Those have become anti-volatility events, for better or worse. The big news is the release of the FOMC minutes. Now before you get excited, or derisive, I don’t expect any profound surprises. I’m not even all that consumed by the inevitable wrangling over why inflation isn’t showing up in the measurements they’ve chosen. It’s that this is the true start down the road to tapering. Which I expect to start very tamely, orderly and with many pats on backs.
…click on the above link to read the rest of the article…
This Bubble’s Days Are Numbered—–Market Tops Are Sprouting Up Everywhere
This Bubble’s Days Are Numbered—–Market Tops Are Sprouting Up Everywhere
I have an important update regarding how far we could see the market drop in the short days and weeks ahead…
I’ve been warning for months that it looks like this bubble may finally be peaking.
I’ve warned that it’s best to get out of stocks a little early rather than a bit late. That’s because, when bubbles finally break, they burst rapidly – as much as 40% in the first few months. It can make markets very volatile, up and down, hence harder to predict and adjust to. If this is indeed the end, we’ve only taken the first step down a long ladder.
In retrospect, the odds keep going up that we saw a major long-term top on May 19.
The first warning sign was that, as stocks made little progress from late December into May, we saw a series of major tops around the world. And that to me is no small matter.
Dow Transports peaked in late November and are down 20% since.
Dow Utilities peaked in late January and are down 18%.
The German DAX and British FTSE both peaked in April and are down 24% and 19%, respectively.
The Dow and S&P 500 appear to have peaked in late May. The Dow’s down 16% since then.
Then in June came China’s Shanghai Composite index – one of the leading dominoes to fall – and it’s crashed 42%. The Russell 2000 index also peaked in June and is down a little more than 12%.
And finally, our Nasdaq, which peaked in late July, is recently down 21%.
Four of those are undeniably in bear territory. The Shanghai, DAX, Nasdaq and Dow Transports have crossed that 20% threshold that literally defines a bear market. A drop like that only raises the chances that a bubble is finally over. But thus far technical indicators only show that the Shanghai and DAX have peaked for good.
And all of this is just the first warning sign…
…click on the above link to read the rest of the article…
When the Herd Turns
When the Herd Turns
Once market participants realize the top is in and the only possible result from here on is a loss, the herd will turn and follow the leaders who are selling.
A funny thing happens when the stock market herd turns–all the usual central bank tricks no longer push the markets higher.
Though the mainstream financial media reports on central bank policy as if the policies move the markets, the actual mechanism is not policies per se but their effect on the belief structure of market participants.
If market participants believe the markets are going higher, for whatever reason, they will buy more stocks to reap the anticipated gains.
If market participants believe the top is in and markets will decline, they will sell, i.e. liquidate positions rather than build them. This is called distribution, as the smart money distributes stocks to the greater fools who have yet to get the memo that the top is in and from now on, stocks will only lose value.
When the leaders of the stock rally dwindle to a few names, that is evidence that the herd is losing its momentum and confidence.What causes the herd to turn? The process is not entirely mechanical or predictable. Those in the front of the herd tend to lead those following, and so we look to the leading stocks, sectors and players for clues as to what the herd will do.
When those leaders no longer make new highs but instead notch lower highs despitegood news, that is further evidence that the herd’s direction is becoming increasingly uncertain.
When the herd’s leading edge veers first one way and then the other, this lack of coherence is also evidence that the herd’s leaders are no longer confident in which direction to take.
…click on the above link to read the rest of the article…
Market Tops In! Why Buy-The-Dippers Can’t Get It Up
Market Tops In! Why Buy-The-Dippers Can’t Get It Up
I am sure some chart reader can explain the S&P 500’s laborious struggle since September 2——the day it crossed the 2000 barrier—-as a classic “wall of worry”. But that event occurred nearly seven months ago and the market has dipped 15 times since then and has actually plunged six times (by more than 3%). And all it had to show for its exertions going into today’s opening was a 50 point or 2.5% gain. In this bull market, that’s a rounding error.
So we have arrived at a precarious place. After the Fed has spent six-years inflating a new and even more stupendous financial bubble—-the third this century—-the market top is in. And after five-and-one-half years of so-called recovery from the recession’s end in June 2009, the bottom is now falling out of the economy—-both abroad and here, too.
In that context, a new form of danger arises. The Keynesian pettifoggers at the Fed have painted themselves into an epochal corner. After 78 months of ZIRP they have no idea about how and why they got here; and now, mired deep in the lunacy of free money, they are clueless about where they are going next.
But here’s the thing. During its long descent into ZIRP, consensus at the Fed came from the Easy Button. Once they got to the zero bound in December 2008, it was always possible to find one more reason for delaying the day of interest rate normalization and to persuade any reluctant members of the FOMC that the economy had not quite emerged from its slump, even if “escape velocity” into full employment was just around the corner.
…click on the above link to read the rest of the article…
