Graham Summers' Weekly Market Review

Phoenix Capital Research's picture

The markets are in a perilous condition today.

We’ve been noting for months that the markets were displaying signs of a top. Among other items, we recently noted:

1)   Margin debt (when investors borrow money to buy stocks) has hit new all time highs.

2)   The number of bearish investors has hit an all time low.

3)   Market leaders have peaked or are peaking.

4)   Market breadth (the number of stocks that are rallying) is falling.

5)   Earnings are falling at key economic bellweathers.

6)   Stocks have diverged dramatically from earnings and revenues.

Of course, market tops always take longer than one expects. The weakness of the S&P 500 over the last few weeks isn’t too promising.

A break below this line would open the door to a more serious correction, possibly to 1,700.

The key item to note would be if the market does correct in a big way while the Fed was engaged in its $85 billion per month QE plan. We’ve never had a correction greater than 5% since the Fed announced QE 3 and QE 4. A 5% correction from the most recent peak would bring us to 1,710.

That would be the key line to watch. I’ve drawn it in the chart below.

Is the market topping? It’s too early to tell. But for certain we are in a bubble. It’s just a question of when it bursts.

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Best Regards

 

Phoenix Capital Research