Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

US Stock Market Top Forecast

Stock-Markets / Stock Markets 2013 Dec 27, 2013 - 11:23 AM GMT

By: John_Hampson

Stock-Markets

Time for another run through the checklist of typical cyclical bull tops in stocks.

1. Market valuation excessive

Second highest market cap to GDP valuation outside of 2000, the 4th highest Q ratio valuation and 4th highest CAPE valuation in history, last two years gains more than 80% multiple expansion and less than 20% earnings growth – CHECK


2. Evidence of overbought and overbullish extremes

II bears highest since 1987, II bulls highest since October 2007, CS Risk Appetite US model into Euphoria; Citi Panic/Euphoria model into Euphoria; Put/Call ratio at extreme low; Second highest ever Skew reading; Greedometer at extreme; Margin Debt at all-time record; Twitter up 80% in a month to a $40bn market cap despite zero profits – CHECK

3. Major distribution days near the highs

In total in 2013 we have had just one major accumulation day and seven major distribution days, which is divergent and atypical for a bull year; We should see further distribution days once the current melt-up breaks – WATCH

4. Rolling over of leading indicators

ECRI WLI is in a downtrend, OECD-derived leading indicators and narrow money point to a topping out at the turn of the year, whilst CB and Markit leading indicators still show strength – MIXED

5. Excessive Inflation

No, we are instead flirting with deflation, in line with demographics trends, which is a potentially bigger threat to a stocks bull but historically atypical. However, commodities remain on the cusp of a potential breakout and a potential typical late cyclical outperformance, whilst the US dollar is potentially flirting with breakdown, which together could provide a short inflation shock; If commodities instead break down, then that should ensure the drop into deflation – WATCH

6. Tightening Of Rates

We see this in the recent sharp rise in treasury yields, touching 3% yesterday; This development is echoed in bond yield rises in both developed and emerging markets globally; Plus China is actively trying to reign in its credit excesses by tightening, which led to the recent cash crunch issues – CHECK

6. Cyclical sectors topping out before the index top and money flow into defensives

This bull market has been dominated by flows into low-beta, dividend paying defensives, which again reflects demographic choices, whilst cyclicals have been more shunned, thus making this indicator less potent – so more N/A

7. Market breadth divergence

We see some breadth divergences in stocks above 200MA in place now for several months, whilst similar divergence in Advance-Declines has been reset by the strong rally of the last two weeks – MIXED

8. A Topping Process/Pattern – I want to focus on this, so:

We see evidence of a ‘blow off top’ pattern. Parabolic shape on the indices long term view. Corrections increasingly shallow. Permabears capitulating and converting to bulls. Perception market can only go in one direction. Euphoria.

Blow off tops increase the likelihood of a crash, rather than a more leisurely ‘topping process’ range. There are some well known examples from history, and they display a similar technical unfolding to each other.

Source: Financial-Spread-Betting. Their labelling, but others might recognise the pattern as a kind of wedge-overthrow-top, or a blow off top, where the final rally beyond the consolidation range is the blow-off part, characterised by euphoria and capitulation.

We see a similar pattern unfolded into the Nasdaq’s 2000 peak, and also on the Nikkei’s 1989 top:

On a longer term view, we see a parabolic rise and collapse, but it’s in the Daily view action prior to the collapse that we see the clues in the pattern.

The Dow today:

The pattern is there, the euphoria is there. A little more breadth divergence would be more compelling, but this could potentially accumulate into the ‘second chance’ point.

So increased chance of a market crash ahead, and if we draw on history again then the combination of a sharp sell-off together with the record high leverage extremes currently in play (margin debt, Rydex), suggest an episode of forced-selling and margin-calls similar to 2008 or 1929, where little will be spared.

Here is the bigger picture for the 1929 crash. Note that all assets sold off together in the crash down to where I have marked a blue circle. After that, gold stocks took off and diverged from the bulk of equities which progressed into a bear market.

Source: Financial-Spread-Betting

Therefore, although I expect precious metals and miners to return to a bull market as equities top out here, we have to be aware that a market crash could see EVERYTHING sell off due to forced redemptions (1929, 1987, 2008), before PMs can take off in earnest.

John Hampson, UK / Self-taught global macro trader since 2004
www.solarcycles.net (formerly Amalgamator.co.uk) / Predicting The Financial Markets With The Sun

© 2013 Copyright John Hampson - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in