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US Stocks Final Higher High before crash?


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I would have expected a turn earlier than where we are on US Stocks if October 2018 has been the top of the market and while a double top remains a possibility the profile of the long term waves since the 2015/16 retrace leads me to a different conclusion.  I have been wondering for a while now whether the previously annotated EWT 3-4 in 2015/16 was in reality a Flag.  "The Flag flies at half mast", or so the saying goes in stock market lore, which means this kind of Chartist formation marks the halfway stage in a rally phase.  The Oct 2018 Top, if a wave 3 end rather than a wave 5 top out, is a similar distance from the Flag as the Wave 2 end (Oct 2011) so this certainly fits.  The bearish move to Boxing day 2018 does seem to conform more to an A-B-C, although so did the the 2007 first stage drop but that turned out to be a retrace rather than a trend change, this may be the similar.

If this be the case then the Bulls who have been calling out for a Bull run end much later, maybe 2021/22, will be in full voice, that is their bias.  So much the better for contrarian Bears as one of the hallmarks of a Bull top out is positive sentiment off the scales, which it isn't quite at just now.  I remain Bearish for many reasons, previously posted, but the overarching reasons are that;

  1. the Bull is running on the fumes of Central Bank intervention; a return to money printing will be a signal that all the intervention in the world cannot change the fact that the economy has not responded to this massive and unprecedented accommodative policy.  For all that intervention the worlds' economies remain perilously weak and the inflation Central Banks have been aiming for hasn't materialised.
  2. the air is too thin up at these levels, prices are too high in most asset classes (just look at house prices!  No one can afford to buy.)
  3. the slightest Bearish shift results in very significant drops to 10, 20% is a matter of a few months.  The markets are overall very skittish.  The risk to the downside is too high.
  4. The upside is far less appealing than the downside and higher risk.  Buy low, sell high is the single truth of the markets, something most people ignore, often on the advice of money managers in whose interest it is to keep their client money in the market.  Talk about a conflict of interest...

The current ATH was only a fraction above the previous one and I anticipate another such event.  Why?  Let's look at the technical picture over the long term.

My monthly chart on the SP500 shows the extent of the Bull run since Bretton Woods in the late 1970s (this is when Nixon removed the USD from the Gold standard and in so doing ushered in a period of unprecedented "money" creation through debt).  Black Monday in 1987 was a blip by comparison to where we wound up, though that was not what it seemed like at the time.  There followed the 1st Tech boom, Credit Crunch and now the mother of all manias, the Central Bank fueled bull run since the Credit Crunch.  Along the way we have also seen Peak Oil and Peak Commodities (Copper and precious metals at any rate but other commodities show similar peaks too).  All of this has been encased in an expanding Wedge (some like to refer to this as a megaphone).  The upper line has proven to be significant for resistance of late and it may be noteworthy that this line intersects with 3000 in the near future.  This analysis holds only for US Large Cap markets.  The European and Japanese markets (and the Russell 2000) are showing a much weaker profile and a different technical set up such that market tops having already been posted for these is more likely, unless a major rally occurs in the next few weeks.  If we see this then it is the kind of divergence between markets, otherwise in lockstep, that would be indicative of a trend change.

So if Oct18 to Christmas 18 was a retrace what about the subsequent rally?  Well it has been almost vertical in nature but not as vertical as the preceding bearish move and latterly it has been running out of steam as negative momentum divergence builds and builds.  If we look at the Daily chart we can see an EWT 1-2 and 3-4 (probable) have been posted so that just leaves a final wave 5.  The wave 5 is typically shorter than the wave 3 so I don't see the potential for this to carry on and on as the uber Bulls do.

Short term I expect a few twists as the market approaches the upper trend line and the 3000 mark.  I will look to other more lucrative and safer markets for now until I see evidence of a reversal and keep stops on my Longs at a sensibly near level to maximise gains.

SPTRD-Monthly_130419.thumb.png.3ffb26e48fd7d51a8c87e92bd26e118b.pngSPTRD-Weekly_130419.thumb.png.b4696ae6d1969c83869eaa2e190becf1.pngSPTRD-Daily_130419.thumb.png.69c0fdb106715100fbe65c0b570e464d.png

 

 

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  • 2 weeks later...

US large caps continue to seek fresh ATHs, except for the Nasdaq which is already there, unsurprisingly as this has been a Tech led bull bubble.  The Daily chart on the Nasdaq is interesting to watch therefore and here I see a clear narrowing channel together with a building and strong NMD.  The EWT count put us in a final wave 5 of 5 and with overhead very long term (since the 1970s) resistance trend line over head it is looking good fro an 8000 top.  Whether this actually happens or whether there is a spike and drop above 8000 or an early turn just short the key here is a breakout of the channel.  Such a breakout id to the Bearish side promises to mirror (or more likely to be more ferocious than) the later 2018 Bear move. If it does I anticipate a 20-25% loss from the top.  Regardless of whether the market then sets yet another ATH or follows the road map I have outlined the next drop will be very lucrative to those or the right mind set.  Those hanging on to buy, buy, buy the dips will get wiped out.

 

Very similar set up for SP500, coincident?  I don't think so.  I expect both SP500 and Dow to make new ATHs and top out at similar points to the Nasdaq (3000 and 27500 are my current targets).  However, and this is very important, I do not see the FTSE, Dax, Russell 200 or Nikkei to make fresh ATHs.  Such a divergence would be a significant indicator of an end to the Bull.  For the record I am currently Long SP500 and Dow but stop protected below the channel breakout zone.

I have included the FTSE100 chart to show the divergence, although the same type of channel exists, which when broken will be a strong Bearish indicator.

NASDAQ-Daily_270419.thumb.png.3ed57d070b8a081c4c5b4e4e05100e22.pngSPTRD-Daily_270419.thumb.png.d87139ae68962a8616fb6d674175ab56.pngFTSE100-Daily_270419.thumb.png.4429cffe222471303154782e9c358523.png

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