Is The Market Consolidating Or Topping?

Tyler Durden's picture

Submitted by Lance Roberts of STA Wealth Management,


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Yen Cross's picture

   Earnings aren't doing any better! Look at Capex, Top line revenue, and buybacks for your so called better earnings.

DoChenRollingBearing's picture

Agreed, Yen!  But, Jim Rickards sez that as long as they keep printing, stocks will go up.  

This may indeed work, until it no longer does.

Yen Cross's picture

   I don't doubt that DoChen. But it sure as hell isn't from earnings. Apparently the person that junked me missed this chart.

kliguy38's picture

they will continue to print until the price of essentials break the back of the average peep....until then the market CAN and probably will continue its trend

dontgoforit's picture

kliguy38 - you're right on.  And I do believe our backs are bending a bit already.  As we know, backs will only bend so far and then, 'snap!' and it's done.  Very hard to put 'em back together again - takes a long time and a lot of physical therapy. 

eclectic syncretist's picture

Didn't you guys hear about the taper?  That's why we've been topping here.....distribution.  Old money going into old (Dow) stocks and out of tech.  Tech is dead.  QE is winding down come hell or high water so they can push back the inevitable collapse of the dollar as long as possible.  It might take a few more months but this bull is losing it's legs.

max2205's picture

Sorry to mention this but it'll rip till the fed doesn't want it to.


I can tell you this seems to be constructed so that the next crash or correction never gets below 1700 or so.   Buy for the long term

aVileRat's picture


Hate to be debbie downer but unless you are a biotech or gogo tech stock, the median sector cash flow multiple is around 5 to 7x vs. the S&P 12.7x. On average the SPX industrial sectors have a 8 to 9x mulitple, so for your generalist mutual fund, there is enough solid ROAC not priced in and since they still are at break even to 2009, those generalists will continue to push higher.

Heavily skewed bull run since 2010. Bear case for reduced capex and margin compression is very much in effect in retail, but in industrial sectors such as oil, transport and related facility industries the capex + ROEC story is still intact. Market priced in 5% growth in energy alone, 1Q14 showed on average 15% growth rates (ex-Exxon, which has Imperial Oil issues). Metal consolidation will likely lead to the kickoff in the metals run. Those CapEx ramps will be the life raft for the macro-generalists and federal policy makers who must hang their hat on anything green shoot. So the short term trend, in an election year, where they do NOT want the economy to be a republican speaking point signals to "bullish" breakout.

India's new election rally and the natural gas price restructuring could offset the slowdown in China.

Goldman is likely correct that the 2015 ECB lines will not be opened until they have due reason to push the French and Spanish/Italians for common tax structures (which will piss off some very rich dudes). Until then, notice on Friday the Fed made reverse-Repo's a perma fixture of the fed window. Tyler1 has done plenty of work on this and their critical importance on providing quality collateral to the overnight and 5-day liquidity facilities in the past 2 years.

If that word soup is too much for you: just look at the historical trend in post-May election years. In fact I suspect if "they" exist, everything matters in keeping the recovery story alive until October.

Overbot RSI tends to work in multiple expansion rallies, but discounts earnings or cash flow growth. So while the RSI would have made you cash as a forward signal in shorting the 2009 run, it breaks down in late market rallies where the generalist overlays do not evenly deflate all sector rallies when yields bear-curve.



GernB's picture

Earnings cannot continue to improve without topline growth. What the establishment wants is irrelevent unless they have the power to make it happen. They have expanded the money supply to an extent never seen in human history and at some point they will hit a wall where they cannot do enough to keep the markets up and the market will reassert itself. Easing has not been able to keep interest rates down; signs that central banks are loosing control of interest rates and with them the market. History releats itself, until it doesnt.

aVileRat's picture

I do not disagree GernB that the general "sustainable" rate of M3 is impossible, however we are talking near term trendology based on RSI and top down vs. understanding what the SPX and individual subsectors were and are performing at. If we are looking at consumer discretionary; auto, clothing, beverages, retail food then yes: you are correct.

You mention that "they" can not keep up market rates, ok fair enough. I have never argued against this, and speculative money is propping up momentum stocks and sectors (ie Biotech 40x P/CF, Social/Tech 89x P/CF) yet the general sectors which do not operate on speculative cash plugs and loans on average have seen multiples grow by 35 to 50% earning growth, with less than 3x multiplier expansion in 12 months. So where is the beef if this is a fully inflated bull ? Until those sectors which do not require inflationary money to prop up their capex programs falter, I'm reluctant to call the top.

GernB's picture

I'd agree. This is not "the" top. Rotation out of momentum stocks is normal. Manager will find a new set of "favorite" momentum names. IMHO people are still too cautious, sentiment has not yet gotten to extremes, and I think we'd have to see a reversal of tapering along with rising interest rates before faith is lost in the idea that stocks can only go up if the fed has your back. That is not happening in the near term. That's not to say this couldn't be a short term top and we see a selloff before a rally to new highs.

rosiescenario's picture

Weimar stock market might be a good example of this.

Jayda1850's picture

My guess is it's going the Zimbabwe and Venezuelan route. Up, up  and away as the country becomes poorer and poorer.

dontgoforit's picture

Well, he said he wanted to "fundamentally change amerika!"  Methinks he's too successful.

kahunabear's picture

Good to hear a runaway bull market isn't in the cards, ha.

Dr. Engali's picture

One word...... Rigged.


That is all.

q99x2's picture

You just BTFD and don't worry about it.


Osmium's picture

Markets don't top anymore.  It must be consolidation.

...out of space's picture

consolidating for another mounth, until the fed start a taper taper

Charles The Hammer Martel's picture

This isnt what CNBC wants us to know. That must mean my reading level is above 5th grade.

fonzannoon's picture

I have to agree that it is hard to have a runaway bull market within a runaway bull market.

Dr. Engali's picture

"Stock prices have reached what looks like a permanently high plateau."

~Irving Fisher

NDXTrader's picture

Are people rioting over runaway inflation? Are there still printing presses (or Control-P)? No and yes? Then I'm voting for consolidation

ebworthen's picture

The "Market" will continue to suckle off the teat of the public treasury while choking the middle class to death.

The "Market" is a fucking LIE!

The "Market" is anything but.

The "Market" is a propaganda tool.

The "Market" will do whatever the FED and the Banks want it to do.

Sticky Wicket's picture

OT: Look how Reuters is framing the economy.

"Rising U.S. economy could help Democrats stave off election loss"

This propaganda comes out weeks after Carville said not to use the term 'Recovery' at all while campaigning. Note that this article is not in the Opinion section

Duke Dog's picture

What a complete fucking total waste of time.

toros's picture

At these levels it takes ~$8B to raise the S&P 1 point.  Printers are running @ ~$ 1B/day for the whole market.  Where's the rest of the money coming from?  Insiders? GLWT

wmbz's picture

Perhaps the markets are getting a little frothy, just blow the froth off, drink up and party on!

Pareto's picture

DJIA hits 20,000 before it hits 10,000, and the SnP 2500 before 700.  Especially and as long as they keep talking inflation doesn't exist.  As long as the $USD is the cleanest dirty shirt - market will continue to "consolidatingly" (new word) rise.  Nothing else really matters.  Especially fundamentals.

Market Rage's picture

Hopefully there's a fakeout over SPX 1900 and a hard reversal.  At this point it looks like 1900 is in the bag.  Never would have believed it though.

eclectic syncretist's picture

at the rate that volume is declining as the market rises the banksters can't make money going up from here.  They need the volume of a down panic.  and they'll probably get it.  Sad to see so many good people here still tying themselves to the train tracks.  good time to get safe for a while until the taper mess resolves.

Obama_4_Dictator's picture

The FED better damn well hope it's not topping.....better make another sacraifice to the printing God's Yellin.....

eclectic syncretist's picture

Why?  The banks make money on the way down.  They need a scapegoat though, and I'm not seeing it yet.

pragmatic hobo's picture

pattern have been for sometime to dump on high-volume and pump on low volume ... hardly looks like a top ... i'm waiting for chinese stimulus announcement or eu announcement of qe for a final blow-off top.

MFL8240's picture

This is not a market, it is a goddamn circus!

CHX's picture

True that, but is the circus going higher, or coming down from where it is?

GrinandBearit's picture

Using TA in a rigged market.



buzzsaw99's picture

yeah, funny. could just consolidate in the same range for the next ten years. it's called rigging.

orangegeek's picture

Really cool tech analysis - compelling arguments.


We are heading higher for institutions to squeeze the shorts.


The institutions are squeezing the shorts because the have too much inventory and retailers aren't buying.


PS: Yes I saw that BOA chart that showed retailers are all in - I call bullshit.  It's BOA and the like that are all in - that's why they have to short squeeze - and there is less to squeeze each time they do it.


How to counter??  Keep your positions small.  You can also do small counter trades to short to lessen the squeeze - go long or write puts - but again do it small.

Midnight Rider's picture

Are all the recent charts showing Instituationals as net sellers of equities not correct?

I Write Code's picture

Ask me again in 30 days.

Or ask Yellen now and she'll tell ya, it can't go down so consider other options, "Watson, when you have eliminated the impossible, whatever remains, however unlikely, must be The Truth!"

buzzsaw99's picture

magic 8 ball says ask again later

gatorengineer's picture

I think repeated trotting out of the ECB easing pony is good for 5%....

Jstanley011's picture

Gotta love it...

Discerning which process is currently "in play" is critical for investor decision making. Unfortunately, as is always the case with investing, we will never know with certainty in advance.

What's critical for decision making is unknowable? Really? If that's true then investing -- say, via some particular "wealth management" firm for instance -- would be an irrational act. Roflmao.

Kreditanstalt's picture

Hello, stock "markets"!  Is anyone...there?  Hello in here...anyone at all...?

khakuda's picture

Let's face it, with interest rates at zero for almost 6 years and counting as bonds and equities haved ripped through records and even the most recent bubble area (real estate) has caught a bid, the action of central banks shows every intention of having the S&P be at 3,000 - 4,000 or higher within a year or two.  Remember, as Greenspan told us, they see no bubbles until long after they pop.  Big moves end vertical.

Bernoulli's picture

markets bla oversold bla bla graph trading range bla percentage change graph bla correction .... index ... graph
sharp correction .... momentum graph graph graph... ratchet higher bla ... runaway bull market...

Hate to step on anyones toes here and I'm sure that a lot of work went into this article, but sorry: Does technical analysis really matter at this point? Did it ever matter? Did anybody predict the internet bubble bursting with technical analysis and trading bands? September 11th? Lehman? Fukushima? any major correction? ANYTHING?



Kreditanstalt's picture

Well many "Hindenburg Omens", "oversolds", "buy signals", waves, violated moving averages, &c., &c., mean anything in markets that are completely and thoroughly ARTIFICIAL and MANIPULATED???