Evidence of Market Tops Continues to Mount

Wednesday Sept 26 2012 7:00 AM Central Time

Evidence continues to mount that the rally from June 1 in stocks, oil, and metals is ending. 

The indicators on  daily price charts for stocks, oil, and metals  all exhibit topping patterns. Conversely those same indicators for the Dollar and Bonds indicate double bottoms increasing strength. 

Internal indicators  such as Bullish Percent on the shortest time frame have turned down. Finally this past weekend  we noted the patter of higher lows for the VIX. We suggested this is how bottoms are made when no one is looking. On our recommended exit last Tuesday on the market open we commented that it was a lot easier to exit a quiet market while prices were still up. That was in sharp contrast to yesterday's action. 

We offered readers a copy of Ed Carlson's report. Using completely different methods he called for a top between last week and yesterday. He even mentioned yesterday Tuesday Sept 25  as a potential low. He allowed for a weak rally from that level. This argument has gained considerable strength over the last few days. We are not in the habit of basing our opinion on someone  else's work.But in this instance it is notable that things are falling into place. 

Now let's take a look. 

TLT Bonds and the Dollar

In the top frame the Dollar has put in a slightly higher low than in April and May. 

TLT overshot its 200 day MA, typical, and closed strong over its 125 day MA yesterday. It also bounced off its former resistance at 118 ash shown by the horizontal support line. Money is moving back into bonds. 

In the lower panel MACD exhibits a double bottom pattern and is turning up as is the histogram. 

NYSE A/D Volume

Last week I felt it was just too much to expect a higher move in NYUD. And sure enough it sharply reversed. The only bull argument left here is that it may find support at an uptrend line from the June low. But even then matching the high of last week may be the best we can expect. 

SPX Daily

Stocks are still in an uptrend but the daily MACD as we have observed ceases to be of any informational value  once it tops out. This is why we looked at the hourly and two hour charts. Gold and silver exhibit these same patterns. The VIX advanced sharply yesterday adding to its pattern of higher lows. 

 

Gold, SIlver

Again we see the same patterns as in stocks. 

Speculation - Commodities and risk on assets may be putting in lower highs compared to February. This would be appropriate for a lead into a gigantic deflationary collapse around the world. The deterioration of the Shanghai Index which made another new weekly low last week is broadcasting just that. With nothing really new in Europe, the rush for Dollars to pay debt may be on. 

A Short Term Low In Stocks SPX Hourly

THe SPX has shed over 30 points in the last two weeks. It may well bounce off the 125 bar MA. MACD in the lower panel argues for a low. We know maximum mood occurs at the end of a move. That typifies yesterday when stocks reversed and sold off hard in to the close, note the last two hours.  Now SPX is right at the former high of 1440 recorded earlier in the month. Interestingly Elliott Waver Ramki had suggested 1475 for a top some months back. 

Crude Oil Non Confirmation

Without question the Transports and Crude Oil are falling fast. The Transports are a negative for the stock indexes and crude oil is a huge negative for the rest of the commodity market. Crude was down yesterday and as I write at 7:00 AM CST it is down over a dollar again today. The MACD in the lower panel is clearly turning down as is the histogram. 

Bottom Line

This blog is intended for investors seeking to maximize their returns in the current 18 year cycle of stagnation. This requires moving in and out of markets over month and weekly time frames. We cannot call the market ona day to day basis. Our recommendation was to move out of stocks and metals last Tuesday. We hope you did. We put on some bets for higher prices of commodity producers using calls  and puts in bonds. That greatly decreased  overall risk exposure.

With so many potential unknowns on the horizon, the election, a falling oil price, Mid East chaos, and the worst month of th year for stocks, October just a week off....as we have repeatedly said, the negative news is there, all we need is for the social mood switch to go negative. Then all these things become worrisome which turns the whole shebang into a bear market. We cannot know exactly when that happens but this past week suggests mounting evidence of a serious downturn in positive mood. That results in a rush to the exits, exactly where an investor does not want to be. 

Socionomics

And, recall our reference to the Harmonic Convergence of 1987?  We noted that the market pattern is just a few days off the pattern thn. The idea was that the Harmonic Convergence marked the best of all worlds in August 1987. After that there was nowhere to go but down. Now the markets are doing the saem if in fact we converged  with an optimism peak this past week. As Mark Twain remarked History may not repeat but it sure rhymers. 

Last week the richest man in Saudi Arabia announced that the financing for The Kingdom Tower, a proposed one kilometer tall building, had been completed. That would be a fitting wildly optimstic  comment at what may turn out to be the very top of the market since March 9 2009. Headline

Social Mood Peaks at One Kilo Elevation!

What an ESP moment, I just opened this morning's WSJ after writing the above paragraph. In a great socionomic echo, the Kingdom Holding Group has an entire one page ad boasting that it is diversified around the world. The ad cites investments in aviation, real estate, health care on multiple continents. And that crowning, pun intended, achievement, is a depiction of the 1,000 M Kingdom tower. 

In fact Kingdom Holdings is not diversified at all. All these holding will collapse as a group versus the scramble for dollars to pay down world debt. Our Hourglass Theory holds that social mood moves from one Chamber to the other. Since March 2009 the financial sands have embraced risk. The Hourglass is now empty on the defensive end. Such bravado and confidence amid a return to the previous twelve year high in the markets (stocks, gold, real estate, you name it)  is precisely what one expects at market tops. 

 

If you are new to the blog we suggest reading the last two week updates to get a feel for our overall view. 

Again we hope you are pleasantly in Cash. 

Thanks for reading The Market Perspective.

 

Comments

[nikeboy2008]

Great Daily updates. Thank you so much for your work.

The part that baffles me is this: We have open-ended QE. Why would anyone want to be short (and not be long) under these circumstances. I agree that sentiment needs to cool off. But if the market tanks/crashes with open-ended QE, the Fed might start buying treasuries as well..don't you think?

[Dennis Elam]

I don't think Bernanke will experience the happy ending that Volcker enjoyed no matter what he does, this might be a good time to announce victory and retire