The Latest Red Flag - The Market's Rate Of Melting Up

Tyler Durden's picture

Some more first derivative perspectives, this time focusing on the market's rate of change, via Financial Armageddon's Michael Panzner.

Based on data going back 90 years, whenever the 12-month rate of
change (ROC) in the Dow Jones Industrials Average has exceeded 40
percent, it has generally signaled trouble ahead.

In three cases, a 12-month ROC above that level has only marked a short-term pause, after which the market traded higher.

But on 11 other occasions, similarly rapid advances have been
followed by notable corrections, including the collapses that followed
the 1929 and dot-com era peaks, as well as the 1987 crash.

Given those odds, increasingly exuberant bulls might want to have a rethink.

50-50 odds, with GETCO now controlling the market, AND fully capturing the administration by hiring former Fed governor Randy Kroszner? We are better bid all day every day.

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macfly's picture

I've lost so much money on this damned short squeeze that its been my worst month in 20 years. I feel very uninclined to follow the wisdom of all the charts and analytics anymore, because no one can chart or predict the scam that is being played on the market by the market makers at this crazy moment in time.


We all know it will end in tears, but they could keep levitating till the printing presses fall apart.

perchprism's picture


It is not possible to make informed decisions based on fundamentals.  Or, it is possible, but it's all for naught.  The market is being jiggered without regard to fundamentals, so nothing adds up right now.  I'm on the sidelines.  Can't play when I don't understand the rulebook.


fuggetaboutit's picture

sure but how do you think that is different from any of other periods in which markets were badly overextened?

Another stat - the relative strenght index (RSI) of the Nasdaq 100 is ~ 6 points higher now vs where it sat in late March 2000.

I remember that period being pretty frustrating to people who didnt think 100x revenue made a lot of sense


erik's picture

the data point which seems to fit our context closest is the 1938 data point where the ROC hit 30% or thereabouts.  this was after the 1937 crash so it fits our present post-crash scenario, and also fits our two crashes in 8 years scenario (1929 & 1937, 2000 & 2008).  our post crash has been longer duration-wise and higher percentage-wise, but that is understandable due to the obscene amount of intervention so far.

this suggests that our next 3 years will be tumultuous, with large drops and large rallies.  eventually finding our way back down to the S&P low at 666 or potentially below it.

whacked's picture

difference between 1937 and now ??


difference relates to what US was back then debtor / creditor ??


simplistic attitude to state that the 1937 'fits' that scenario.. the US now owes huge sums compared to 1937 .. totall reversal.

DavidC's picture

Sang Lee, managing principal at Aite Group said: “They have gone from being a mysterious prop shop to a more public liquidity market maker. Becoming part of the NYSE is another step towards legitimising their business model.”

Does that mean it was previously an ILLegitimate business model? Oo-err..


non-anon's picture

I concur with macfly, my sentiments are this market is so distorted, rigged and unchartable by technical means. Of course I could be wrong!

I thought this of interest from Mish's blog, noting taxpayers will be on the hook for years to come, if we last that long.

“Our worst fears have been surpassed,” Finance Minister Brian Lenihan said in the parliament in Dublin yesterday. “Irish banking made appalling lending decisions that will cost the taxpayer dearly for years to come.”

Hansel's picture

As long as the people who lent apallingly don't have to suffer in any way...

While bending the people over and entering from behind, the government says "I'm doing this for your own good".

Cognitive Dissonance's picture

I suffered terrible beatings as a child and I heard that same line of bullshit. It's the swan song of tyrants and phycopaths. In their mind, it's their one and only way of showing empathy to their victims. In reality, they use it to explain away their sadistic soul and rationalize that which can not be rationalized or justified.

fxrxexexdxoxmx's picture

I suffered terrible beatings as a child and I heard that same line of bullshit.

What finally made sense to me, twenty-five years later, was when a friend said " No human being ever treats a child that way".

I let go of all the conflicts in my head that day.

Honestly, that one idea, that what was done to me was not done by another human being/ not a man/ person/ but someone who has given away any right to be called a human.

Cognitive Dissonance's picture

Interestingly I found relief 20 years ago after extensive conversations with a survivor of Auschwitz. He said the same thing, that those who tormented him and his fellow captives were not humans but rather monsters, unhuman and unsane.

Over the next few months of visiting with this very wise and compassionate man, I began to learn to forgive what I hated the most, my tormentor. In doing so, I learned that I had not died but was wonderfully alive.

What a relief to find that I could live and breathe again, that I was among the living and not just walking dead.  It was the start of an amazing and continuing 20 year journey of self discovery and growing awareness. In retrospect, the only other choice I had was the seductive embrace of insanity and self hatred.

Bryan's picture

I must say that yours are the most interesting and troubling comments I have seen on this blog.  I am so glad you survived and have lived to propser in spite of your past.  This is much more important that any discussion about markets or economies or politics.

Cognitive Dissonance's picture

Thank you for your kind words. But why do you find my comments "troubling" or am I misinterpreting your word?

BTW, my past is precisely why I often talk about things other than the markets when I talk about the markets. For we are the markets/economy and our own insanity is manifested in our leaders, be they social, business, political or military. I see in my fellow man the same tormented insanity that I flirted with for many years. The parallels are remarkable and I remain convinced that only when we turn within and begin to examine the monster that we are all capable of being will we begin to solve our problems.

Our public monsters (leaders) aren't dropped on this earth by malicious aliens as they pass by on their way through the solar system. They are us, or at least a manifestation of what we expect our leaders to be, which is of course a completely psychopathic personality. Our leaders are home grown sociopaths and we will do everything in our power, no matter how absurd, to deny acknowledging that fact. Just as I did everything in my power to deny what had happened to me.

Since we don't wish to grapple with our own personal demons, we create them externally in a macabre public dance that mimics our own private struggle. As it is with so many survivors of domestic child abuse, I was on a path of self destruction and only when I acknowledged that I was just as capable of doing everything my tormentors did to me, that I was a victim but could also have been the victimizer, did I disarm and make impotent the power my tormentor had over me, that I gave to my tormentor to torment me with decades after the fact. We are our own worse enemy. 

We as a human race, as neighboring nations, must do the same if we are to survive our own maturing process, if we are to survive the PTSD we have inflicted upon ourselves. As I look around, I see no difference between my struggles and that of our world, other than the fact that my initial tormentor was an intimate and the world has the potentially terminal luxury of denying the same, thus shielding our eyes from the emotionally destabilizing knowledge that our tormentors are our neighbors, our friends and possibly our family. It's so much safer to pretend it's the boogeyman under the bed rather than the body beside you in bed.

RunningMan's picture

An honest, personal commentary in times where deception prevails. You are right that unless we grow up, and fast, and stop the slippage towards every man/woman for themselves, we are in big trouble. Our government (a collection of people, at its simplest) is behaving as if they know better than we do, and ramming 'change' at us without transparency. Our financial markets (us, but at the end of the day, maybe just machines programmed by us), are being moved by people seeking to profit from the carnage before the next bubble. Are we looking for solutions as a group/team/nation, or is it just survival of the richest?


The Roman Empire took hundreds of years to crumble. Maybe our 'personal best' will be that we found a way to quicken that process.

perchprism's picture


yeah, what the hell?  Irish banking made appalling lending decisions that will cost the taxpayers dearly for years to come?  WTF??  Ireland needs to do an Iceland, and tell their gubmint to stick it.  We should likewise march on DC and demand that heads roll.  Since when do shitty banking decisions fall on the necks of the taxpayers?  I can't fucking believe this anymore.

Bob's picture


It's an alternate universe.

chindit13's picture

Put twenty bankers "who cost the taxpayers dearly" up against a wall in a public square, hack them apart Kano, Nigeria-style and have all the networks carry it in prime time, and I doubt any banker for the next thousand years would risk "costing the taxpayers dearly".

Or we can just pay and keep quiet like the meek sheeple we are.

N Rothschild's picture

thing is these statistics are pre crash scenario. we are post crash here..

erik's picture

i think the only data point that fits in our current context is the one near 1938, where it didn't make the 40% change but instead 30%+ and then went sideways to downward for a couple of years.  only this data point followed a secondary crash (our primary one was in 2000-2003) so this is probably the only one we can trust as being within the same context.

outstanding credit is still declining at a sharp rate.  they can manipulate the market and supply-side economics for only so long.

Al Huxley's picture

I'm just glad we got through that correction this morning.  Those crashes are pretty nerve-racking, but you just have to grit your teeth and buy the dips.  I'll be telling the grandkids about the crash of 31-Mar-2010, when at one point the DOW was down over 60 points.

Cognitive Dissonance's picture

Keep a stiff upper lip and wipe those tears away. If we all pull together, we can get through this moment of terrible national tragedy. If nothing else, do it for the children.

cougar_w's picture

How can you be so sanguine? 60 points off for 30 minutes ... I was looking for a window to jump out of. And I'm not even invested.

Cognitive Dissonance's picture

Thank God my office is on the first floor. But I still sprained my ankle and tore my pants (don't ask where) when I bounced off the air conditioner/heat exchanger on the way down.

Cognitive Dissonance's picture

I have come to the somewhat depressing conclusion that any significant "corrections" or even crashes will be engineered rather than "naturally" occur for whatever reason. With the various Fed stooges and lackeys plugged directly into the Matrix via Cray super computers running HFT algos, the market ain't gonna do what it isn't planed to do. This is the ultimate in (market) central planning.

Yes I understand that nobody is bigger than the market. But the circuit breakers have been removed and the fire hose of liquidity is hooked directly into the market artery. Liquidity is being mainlined in ways we can't even imagine, let alone see. So for the most part I sit on the sidelines with a slight bullish bias until I see real movement otherwise.

But never ever let the memory of a 1987 style 25% one day crash leave your consciousness. It will happen, if for no other reason than to drive preplanned changes in social and national policy.

cougar_w's picture

This has been on my mind a lot. The PTB are clearly using market pricing (on no volumn) to jigger around with public opinion and consumer confidence. That's a new trick. They won't soon let that one go. It started about 20 years ago when people started acting on the quaint notion that "equities == the economy" and their 401Ks were growing 12% a year. They didn't give it much critical thinking then, and they are not now. The idea that "What is good for General Motors is good for America" really has become public policy.

Hey, I learned a new word yesterday that really rocked me; agnotology, or the study of deliberate creation of ignorance or doubt. It is the study of why and by what means knowledge does not come to be. I am darkly pleased that there is actually a study of the epic fail.


chumbawamba's picture

MOPE: Management of Perspective Economics

I am Chumbawamba.

cougar_w's picture

And to your point that the PTB could schedule a market down turn to manipulate public opinion even further and toward a desired goal ... absolutely and 100% probability of it happening eventually. I'd only add that GS and their brethren are at least as likely to do that as a sitting President, and could do so expressly to influence who gets to be President next.

Influencing elections does not stop at giving money. At some point a "free election" held in the US will  become the last one. That point may even rest in the past, not the future.

poor fella's picture

Exactly CD - just like the 9% correction a month ago because even cnbs was questioning if things were toppy. Not enough to freak out the computers, but a 'timely' correction to bounce up to new highs. I would expect all new 'corrections' to be an orderly 9% down, followed by new highs.

UNTIL, it's curbs down on multiple days when they lose a grip on those damn greasy facts (and ZH starts hearing the whir of vengeful black helos).

Double down's picture

Dead on.  Alpha and beta risk no longer matter, it is all structural. 

RSDallas's picture

Well Cog.  what is one to do in the meantime?  I'm with Macfly (except for the loosing money part). 

Cognitive Dissonance's picture

"Well Cog. What is one to do in the meantime?" 

March in the streets.

But that will only happen when the pain is the greatest and the effect gained from the marching is the least. In other words, the leverage we gain by marching in the streets is at it's highest now and lowest when we actually march, thus guaranteeing futility.

This is the nature of the herd. Until we begin to act like we have nothing to loose, we will be stripped of everything we have to loose. And just because we might not be invested in the markets doesn't mean we have nothing at risk. The currency we withhold from the markets is the least of our worries and least at risk now. At some point, we will throw our currency at our captors in a futile attempt to hold back the rising tide of tyranny. It will be the last battle we loose.

This is all voluntary folks, it's entirely voluntary.

chumbawamba's picture

Self-delusion is by definition voluntary.

I am Chumbawamba.

tj3's picture

but to be deluded casts one on the determinist's path

cougar_w's picture

I think it was Aleksandr Solzhenitsyn who wrote that when the wolves come you give them what they want, thinking they will be satisfied and go away. But they keep coming because you won't fight them. So you keeping giving, waiting for the wolves to be satisfied and go away ... until in the end they take it all and you end up with nothing. And then you don't even have enough to fight the wolves if you wanted to, or had to. Even if your very life depended on it.

Common people do not know how to deal properly with wolves because they are not wolves themselves. So the wolves win.

Until they don't. Wolves burn.

Cognitive Dissonance's picture

"Common people do not know how to deal properly with wolves because they are not wolves themselves. So the wolves win."

I've been trying to write a short story about a person who decides to fight the system by thinking like the system. For me, this thought experiment has been extremely disturbing. Insanity isn't just a disheveled wide eyed man drooling into a cup while babbling about long lost relatives and little green men.

Insanity is your next door neighbor and your elected official, your local police chief and the commander in chief. I stopped writing when I began to feel the fingers of insanity grab hold and I began to accept the embrace. There is a fine line between inspiration and insanity. Just ask any genius or other gifted artist, musician etc. The tentacles of sanity are fleeting and flimsy. 

chumbawamba's picture

Our previous local police chief was a pedophile.

No kidding.

I am Chumbawamba.

poor fella's picture

The Ninth Configuration is a pretty good movie if you haven't seen it. Like a modern day Hamlet (still a little dated by today's standards). You should continue to work on it while staying grounded by reading comments on ZH - everyone here will keep you sane ;)

Cognitive Dissonance's picture

Just dialed it up, clicked on it and then moved it to the top of my Netflix queue. Thank you for the suggestion.

This is what I love about ZH. Enlightened but insane fellow ZH'ers always ready to spread the wealth. :>)

chinaguy's picture

Start thinking of others as gnats & you are 1/2 way there.

There are generations of kids being brought up this way....and they become "your next door neighbor and your elected official, your local police chief and the commander in chief"...........

Cognitive Dissonance's picture

"Start thinking of others as gnats & you are 1/2 way there."

That's exactly what I'm talking about. When you begin to believe that those around you are less worthy than you, not equal, of no more value than that bug you stepped on during your morning stroll, when you loose all empathy for your fellow man, you've crossed over into the Twilight Zone. There is rarely an opportunity to reverse course. Why would you return to the old ways. You are the master of all you survey. The power of the self deluded is infinite and absolute.

No More Bubbles's picture

I genuinely love your posts, but it's "LOSE" with one O. 

Cognitive Dissonance's picture

I flunked spelling in high school. :>)

I rely on spell check too much. I spell phonetically because of a speech impediment and sometimes what looks right is wrong. Because I visualize the words in my head before speaking them, I do the same thing mentally when writing. You should see my raw posts.

Hulk's picture

My apologies for hijacking the  thread, but just listened to kingworldnews interview Andrew Maguire and Adrian Douglas.Its a must listen


trav7777's picture

Years ago I said the Rogue Wave that precipitates the final collapse would come from the Fed's loss of control of the POG.

However, they seem to have total lock on the futures markets via their proxies.  They manage the prices.

So, perhaps the sudden break will come from the oil markets.

YES, they can affect nominal prices through the futures markets, but they CANNOT fudge real oil behind the paper.  Unlike gold, oil is something that is bought to be almost immediately consumed.  If you don't have it, and you have a paper claim, you cannot CASH settle an oil delivery because your car can't run on futures contracts.

The declining supply curve looms overhead.  The paperbulls over on TF think that OPEC has "cut."  I doubt it..they PEAKED.  Everyone assumes they can just ramp back up to whatever they were at in 2005; they cannot.

At some point, oil will call bullshit on these paper games.  Right now gold "appears" to be swappable for cash...they are both nominally "wealth."  Oil has altogether another function.  And it cannot be cash-settled or leased out or any of these other BS operations that the CBs and MEX's use to bail out naked shorts.  If a long does not get oil, things stop running.  THAT is immediately apparent in systemic shortages or inventory drawdowns.

They can still obfuscate gold by use of paper games, leased vault bullion, forward sales of gold still in the ground, and tungsten.  Can't be done with oil.  Put some tungsten in an oil barrel and see how long that lasts.

Rusty Shorts's picture


You hit the nail on the head, oil has peaked. OPEC "cut production" my ass, they're sucking every drop out of the ground, as fast as possible, when this becomes apparent...well you know.


Professor Kenneth S. Deffeyes, a long time geophysicist for many of the MAJOR oil companies, predicts a 90% drop in oil production over the next 10 - 12 years. We are about to run of a cliff.

Stu's picture

agreed...peak oil hit around 2005

oil is true currency, not paper


oil is the lifeblood of the global economy


wind turbines wont save us

trichotil's picture

hey where'd all that oil on saturn's moon come from? dinosaurs? they can of course turn off the spigot at any time but peak oil is a joke. "The great French chemist Marcellin Berthelot particularly scorned the hypothesis of a biological origin for petroleum. Berthelot first carried out experiments involving, among others, a series of what are now referred to as Kolbe reactions and demonstrated the generation of petroleum by dissolving steel in strong acid. He produced the suite of n-alkanes and made it plain that such were generated in total absence of any “biological” molecule or process. Berthelot’s investigations were later extended and refined by other scientists, including Biasson and Sokolov, all of whom observed similar phenomena and likewise concluded that petroleum was unconnected to biological matter."

Hulk's picture

As I have stated before, we have an EXPONENTIAL increase in the number of oil wells and flat output.....That should freak everyone and their mother out........production has fallen off a cliff in both mexico and now, Venezuela, our 2nd and 3rd biggest suppliers of crude. yet all we hear are crickets. Absolutely stunning......

Hulk's picture

thanks. have to wonder when the money gets put on the table...

and by whom... asian takedown!