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7 Signs That A Stock Market Peak Is Happening Right Now
Submitted by Michael Snyder via The Economic Collapse blog,
Is this the end of the last great run for the U.S. stock market? Are we witnessing classic “peaking behavior” that is similar to what occurred just before other major stock market crashes? Throughout 2014 and for the early stages of 2015, stocks have been on quite a tear. Even though the overall U.S. economy continues to be deeply troubled, we have seen the Dow, the S&P 500 and the Nasdaq set record after record. But no bull market lasts forever – particularly one that has no relation to economic reality whatsoever.
This false bubble of financial prosperity has been enjoyable, and even I wish that it could last much longer. But there comes a time when we all must face reality, and the cold, hard facts are telling us that this party is about to end. The following are 7 signs that a stock market peak is happening right now…
#1 Just before a stock market crash, price/earnings ratios tend to spike, and that is precisely what we are witnessing. The following commentary and chart come from Lance Roberts…
The chart below shows Dr. Robert Shiller’s cyclically adjusted P/E ratio. The problem is that current valuations only appear cheap when compared to the peak in 2000. In order to put valuations into perspective, I have capped P/E’s at 30x trailing earnings. The dashed orange line measures 23x earnings which has been the level where secular bull markets have previously ended. I have noted the peak valuations in periods that have exceeded that 30x earnings.
At 27.85x current earning the markets are currently at valuation levels where previous bull markets have ended rather than continued. Furthermore, the markets have exceeded the pre-financial crisis peak of 27.65x earnings. If earnings continue to deteriorate, market valuations could rise rapidly even if prices remain stagnant.
#2 The average bull market lasts for approximately 3.8 years. The current bull market has already lasted for six years.
#3 The median total gain during a bull market is 101.5 percent. For this bull market, it has been 213 percent.
#4 Usually before a stock market crash we see a divergence between the relative strength index and the stock market itself. This happened prior to the bursting of the dotcom bubble, it happened prior to the crash of 2008, and it is happening again right now…
The first technical warning sign that we should heed is marked by a significant divergence between the relative strength index (RSI) and the market itself. This is noted by a declining pattern of lower highs in the RSI as stocks continue to make higher highs, a sign that the market is “topping out”. In the late ‘90s this divergence persisted for many years as the tech bubble reached epic valuation levels. In 2007 this divergence lasted over a much shorter period (6 months) before the market finally peaked and succumbed to massive selling. With last month’s strong rally to new records, we now have a confirmed divergence between the long-term relative strength index and the market’s price action.
#5 In the past, peaks in margin debt have been very closely associated with stock market peaks. The following chart comes from Doug Short, and I included it in a previous article…
#6 As I have discussed previously, we usually witness a spike in 10 year Treasury yields just about the time that the stock market is peaking right before a crash.
Well, according to Business Insider, we just saw the largest 5 week rate rally in two decades…
Lots of guys and gals went home this past weekend thinking about the implications of the recent rise in the 10-year Treasury bond’s yield.
Chris Kimble notes it was the biggest 5-week rate rally in twenty years!
#7 A lot of momentum indicators seem to be telling us that we are rapidly approaching a turning point for stocks. For example, James Stack, the editor of InvesTech Research, says that the Coppock Guide is warning us of “an impending bear market on the not-too-distant horizon”…
A momentum indicator dubbed the Coppock Guide, which serves as “a barometer of the market’s emotional state,” has also peaked, Stack says. The indicator, which, “tracks the ebb and flow of equity markets from one psychological extreme to another,” is also flashing a warning flag.
The Coppock Guide’s chart pattern is flashing a “double top,” which suggests that “psychological excesses are present” and that “secondary momentum has peaked” in this bull market, according to Stack.
“All of this is just another reason for concern about an impending bear market on the not-too-distant horizon,” Stack writes.
So if we are to see a stock market crash soon, when will it happen?
Well, the truth is that nobody knows for certain.
It could happen this week, or it could be six months from now.
In fact, a whole lot of people are starting to point to the second half of 2015 as a danger zone. For example, just consider the words of David Morgan…
“Momentum is one indicator and the money supply. Also, when I made my forecast, there is a big seasonality, and part of it is strict analytical detail and part of it is being in this market for 40 years. I got a pretty good idea of what is going on out there and the feedback I get. . . . I’m in Europe, I’m in Asia, I’m in South America, I’m in Mexico, I’m in Canada; and so, I get a global feel, if you will, for what people are really thinking and really dealing with. It’s like a barometer reading, and I feel there are more and more tensions all the time and less and less solutions. It’s a fundamental take on how fed up people are on a global basis. Based on that, it seems to me as I said in the January issue of the Morgan Report, September is going to be the point where people have had it.”
Time will tell if Morgan was right.
But without a doubt, lots of economic warning signs are starting to pop up.
One that is particularly troubling is the decline in new orders for consumer goods. This is something that Charles Hugh-Smith pointed out in one of his recent articles…
The financial news is astonishingly rosy: record trade surpluses in China, positive surprises in Europe, the best run of new jobs added to the U.S. economy since the go-go 1990s, and the gift that keeps on giving to consumers everywhere, low oil prices.
So if everything is so fantastic, why are new orders cratering? New orders are a snapshot of future demand, as opposed to current retail sales or orders that have been delivered.
Posted below is a chart that he included with his recent article. As you can see, the only time things have been worse in recent decades was during the depths of the last financial crisis…
To me, it very much appears that time is running out for this bubble of false prosperity that we have been living in.
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No. Get outta here! Janet has my back!
I have heard: This Bull has a LOOONNNGGG way to Go Yet Baby... from people on Wall st who ASSUME it will Never end. Because (as we all Know) IT"S FUCKING DIFFERENT THIS TIME!!!!
JUMP MOTHERFUCKERS
sign number 8
monkeybone-semen cauldren signals point towards a decline
#9 pauxintauney phils nephew stuck his head out of matt lauer's glory hole. very ominous.
#10 my uncles aunts brother in law makes 234234235 working at home
#11 learn how to save on your monthly auto insurance by this neat trick
2008 charts are irrelevant however useful as the behavior of 2008 parallels 1998 which means the past two years reminds me of 1937.
"...the past two years reminds me of 1937."
Two Questions:
1) Do you really remember 1937?
2) Does this mean the Germans will begin bombing Poland in two years?...
No, but Merkel and Putin will be signing a treaty that will make some adjustments that will affect the current Polish borders.
When a hamburger at McDonalds costs $10,000, buying the S&P at today's prices will look like a steal.
When you have to hunt, kill, and butcher your meat everything will look like a steal. Just be careful not to be the main course....
No crash will be allowed until the lameduck session between the 2016 election and the new bagholder taking orifice. Then we'll have a few years of "bad president" and a new messiah will decend from the heavens after that.
If the fed doesn't step back in, YES we are going to have a crash, let alone if they raise rates. Will they allow that, I doubt it, but if they don't, one of these times when they try to stop it with QE, ZERP or NERP they are going to go a little to far and money velocity and thus inflation will take off. Great explaination here:
http://www.debtcrash.report/entry/history-and-introduction
No, but they will strike Pearl Harbor.
Over the past 5 years, zerohedge has published a half-dozen different graphs promising the market was again at a peak.
IT'S DIFFERENT THIS TIME, right?
All charts with data pre 2008 are meaningless. Pre 2008 markets were a little bit less rigged/manipulated.
exactly, if money is printed to pump up stock markets, why would this ever end.
you can only win with hard assets or to be more leveraged than the other guy.
unfortunately, the only way you dont lose is to know when the music will stop.
Markets dont peak in the abscence of retail - they must be the sucker left holding the bag!
Also, market tops dont give you multiple times to sell - you get a single isolated peak.
I wish Market Tops were as easy to spot as Muffin Tops.
pods
Well, concealed in a burka they are more visually palatable. Just don't raise that covering and all is good. Perhaps we should thank those who are waist challenged for, at least, being honest.
I'm suspicious about market top pronouncements having heard it proclaimed so many times. Even if true and I were participating I would be unable to exit in time and those with more inside information and power would take my meager sum in a flash. When the moto is Gotta Play to Win, I tend to run in the opposite direction.
Miffed
Do you know anyone that doesn't own stocks? Every 401k, pension plan, and retirement account is full of them.
I don't. Don't have a 401k. Have been part of an ESOP for 2 years, but that's a little different.
Retail is 'in'. Just because they aren't 'in' like they were in the late 1990's doesn't mean they are out. The few who have resources to be 'in' are 'in' through 401k's, IRA's, and other passive vehicles. Your normalcy bias that a top necessarily requires 'everyone' to be in is fallatious. Everyone who has any means is in.....Sad, but true. Looks to me like most of the 'suckers' to be holding the bag this time will be corporations, pension funds, insurance companies and other government entities. Maybe retail will deservedly have the 'last laugh'....
The Welfare Queens (Obama & Yellen) have the Welfare Kings (TBTF, TBTJ) covered in all trade positions....
Cowgirl, Reverse Cowgirl, Doggie... Lots of liquidity all around.
Too bad for the non-chosen and the Plebs though. /sarc
Hohum, just be damn glad Janet does not have your front!
the appeal of her in front depends on whether she still has all her teeth or not....
Im sure the Bernank will lend Mr. Yellen his helicopter.
A better article would be 7 signs the Fed is losing control.
Or 7 things you can do while holding your breath while you wait for things to burn.
1. Tweeze hairs from your finer parts.
2. Count ammo.
3. BTFD
4. STFR
5. Make $23k in working only a few short hours on the computer.
6. See therapist for what you did to earn $23k for a few short hours on the computer.
7. Last but certainly not least, START AN ALPACA FARM.
pods
quick, pods, write a book.
Don't want to start an alpaca farm. It is too subject to market forces.
See point #1 above. There will ALWAYS be hair to be had.
damn sorry pods i didnt see your equally prescient fool proof market crash guide. alpaca farm LMFAO
What was that recent post about the Japanese propping up their stock market?
I know little about econ/markets. But - don't you think rising USD has been the cause of this fall? When markets start to go down, FED will weaken the "strong" dollar and the boom continues the same as the last X years that ZH has been reporting immediate doom.
Correct. The only question is how far the "markets" need to fall to give the fed enough cover to QE4.
QE4 will commence when Draghi has shot the last of his trillion euro load.
QE 4 will have to be ETF's and other equities, corporate bonds as relative to '09-'11 there isn't nearly enough Treasury issuance or MBS to make much of a splash...
correct. and a month after qe4 shots off, japan will print, and then china. then it's back to euro and then bank of england, and yellens turn again. get goes right around the globe - it's musical chairs and everybody loves it and it will never end until somebody stops playing. and it has been this way since 2008. doesn't anybody get it?
yes, i love looking at my 401k. 200k in cash that earned $60 in interest last year. that's good? no. it's bad. i lend them my money and get nothing for it.
i should at least enjoy it like they do, hookers and blow. /sarc
until we the people make it stop, it will continue.
CB's can't stop the natural economic cycle... they can extend it etc. but eventually the overpproduction created by cheap credit causes a recession. See: oil etc etc.
You are right because the final killer of this cycle is always the same. Overproduction leads to credit risk = failure of debt. You can mark to market a bond for 100 but not when it really defaults. That is why the negotiations with the Greek are all about that. CB cannot control that.
Hard to convince brain-washed Pinko Fascist Commies of simple facts such as you present. These 'boys' will learn the hard way...
How do they weaken when they are hinting at raising rates? Or are they merely setting it up to look like they were before X happened?
They need to raise rates so they can lower them later.
Ready...
Set...
Print!!!
Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print, Print...
Clearly the stock market is a matter of national security. It cannot be allowed to go down. Apple Watch will become DHS issue so they can keep track of how many of thier 2bln rounds of .40 hollow points they use on us. Gives a new meaning to "double-tap."
"If in doubt, empty the magazine".
Rule of thumb from Viet Nam days.
Please make the bottom fall out on Obamanama's watch
If I had made investment decisions based on ZH articles I would have been in cash for the last 7 years waiting for the real bottom.
ZH has been dead on. The problem is they have underestimated the power of those in control.
So they've been right except for the times they were wrong.
so was there a housing bubble? Were the people that stated it was a bubble for 4 prior years wrong? Or were they right once the market started to plummet? ZH isn't an investing site....have you seen one stock recommendation? Mr Muppet you need Cramer or Goldman for that. ZH has pointed out the absurdity of the CB's giving printed wealth to the very richest while piling up DEBT and the outright fraud of the mega banks with complicit governments! Debt hasn't worked in Japan for 30 years and they are beyond the point of any return....yet we architect the same. In recorded history there has never been such financial treachery beyond maybe just outright confiscation by a dictator!
This will categorically end very bad! Saying the Mafia is corrupt doesn't have to wait for the arrest!
In the end, isn't that all that really matters?
exactamundo my friend...,ZH is like the Jim Cramer of the internets...
pointing out how f'ed up markets and the economy are is not investment advice
Every one should be freaked out based on all the bubbles out there.
Here are 2 hidden in the last Fed report.
http://michaelekelley.com/2015/02/20/fed-warns-of-two-bubbles/
Here CDOs are back to 2008 levels. Also known as tranches.
http://michaelekelley.com/2015/01/28/remember-cdos-theyre-baaaack/
Here is the leveraged loan bubble.
http://michaelekelley.com/2014/12/20/leveraged-loans-predict-crash/
This does not include the dollar bubble or the bond bubble.
Here is how to prepare.
http://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/
Good luck.
Bubble blowing and popping ever since we unhinged from the Gold standard and off-shored production and career employment.
Remember the late 70's when interest rates were at 16%? Can you imagine? Now at a practical 0% savers are forced to chase yield in the casino markets.
Wall Street just sits back and skims, then rakes the chips in when the time for the pop-crash comes.
Lather, rinse, repeat. Sorry workers, savers, plebeians; but Brutus is a good man.
et tu Brutae?
It's only the peak if the Central Wanks stop buying S&P futures with money out of thin air, and if they do that the pitchforks will come out, so they won't do that.
Why do I think we are near to a major downturn?
Most of my customers are contractors.
Hard working, intelligent, blue collar guys.
But you would be hard pressed to call them
"well informed savvy investors".
More than one over the past few months has given
me unsolicited investing advice regarding various
companies having nothing to do with sheet metal,
construction or HVAC.
Number one source for their 'tip'?
You guessed it: Cramer.
It might not be the shoe shine boy, or the
elevator operator, but it's
ringing some bells with me.
When the everyday Joe is firing up their
Ameritrade account, look out below.
...with that info in hand, SELL! Reminds me of a shoeshine boy storey...
Once QE4 starts, stocks will be off to the races again.
it's different this time
It has to be different this time because Obamacare is going to extend all of our lifespans by 100 years. We need that 100% annual stock appreciation to maintain our incredible standard of living during our century of retirement.
we were bearish until this article. ugh
You say this like its a bad thing?
I hope you have lots of cash on hand, it's time to keep the powder dry and buy, buy, buy when the valuations get back to reasonable PEs.
Yum, yum, it smells like chum!
Wasn't this same article published here three years ago?
It's been the end of the run for a long time, it is only still up due to the fraud that props it up!
Go ahead Fed, raise rates, and stop your asset buying, roflmao!
Bunch of dinks.
Good work, two points for getting the NYSE margin debt peaking (before the market does) from DShort. That is 1/2 of my favorites.
But missed my number 2 /2 - and that is unemployment bottoming before heading up (and the resulting recession) - again a DShort chart suggesting we are bottoming on unemployment...
http://www.advisorperspectives.com/dshort/commentaries/Unemployment-Clai...
Good luck out there.
Couple of other things not mentioned.
1 - Q 1 GDP gonna suck big time. Atlanta Fed forecasting 1.2 %
2 - Q 1 & 2 Earnings gonna suck big time. Factset numbers show as much
3 - $ Rocket ship to the moon. Where's Alice? Oh ... at the Fed. This is gonna further cream S & P earnings and Exports further!
4 - Weather and West coast port strike not yet fully accounted for
5 - General disarray in all the Zombie markets - it IS different this time. Something is gonna come unwound!
6 - For all of the above we will likely be in a recession a year from now. The Stock market is a Leading indicator.
7 - Oh I forgot. Consumer confidence is gonna go to hell in a hand basket as the stock market crumbles since the average American identifies more with DJIA than GDP.
And all the while the Fed has itself painted in a corner. Look for more QE - not rate hikes in the next 6 - 9 months. There is NO other Ammo left.
besides margin there is a brand new game in town to propel investors to sell AFTER a 12% delcine....Non Purpose Loans. from zero to $300 billion in 5 years. Its not margin b/c its a bank loan, you know from those new 'banks' Morgan Stanly, Goldman, and BoA Merrill Lynch. first a little, then all at once.
http://fortune.com/2014/12/10/securities-based-lending-banks/ this one says MS clients have $45B in 'liabilities'. so figure $300billion perhaps.
check out Investment News for securities based lending too, they have several articles but cant seem to see the forest for the $.
one upper level mgr suggests retirees borrow any shortfall in a given year instead of reducing spending....just add these to the list of happy dreams from the top when negative outcomes just seem so implausible.
even if there's a crash, so what, it will V-reverse the very next day for yet another save by the fed.
I maybe wrong but I'm calling the top at 2000.
You mean you are still with fundamental analyses in deformed markets. This time is different in that no where in this century has there been so much debt sustained by printed monies.
Only shudder you get is the chart of margin. Leveraging on ongoing and increasing printed currency pools that have gone global.
Markets may just stay spinning on its own orbits so detached from the real economies that it is difficult to understand with years of indoctrination how the real and financial economies are linked. eg Las Vega and its successor WS is not America).
Blah blah blah.... And Jesus is coming back very soon, too.