Who Left the Crash Window Open?

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Can stocks keep hitting new highs even as sales and profits fall?

 
Given that we live in a world where a modest 3% decline in the stock market triggers panicky demands for more quantitative easing (QE 4), few observers expect much a correction, regardless of the souring fundamentals such as sales and profits.
 
A correspondent notified me of a Puetz "crash" window (based on the analysis of Stephen J. Puetz) opening in late March-early April. (Since I am not a subscriber to Puetz's work, I can't confirm this.) As I understand it, while these windows do not predict a crash/sharp correction, such moves tend to occur in these windows, which are based on cycles and events such as eclipses.
 
So I decided to look for any evidence that a sharp correction might be in the offing.
 
One classic precursor of corrections is weakening market leaders and narrowing of breadth/liquidity/volume. When leaders who pulled the index higher roll over, the index is usually not far behind.
 
Consider the chart of Apple, (AAPL), long the engine that has been pulling the indices higher for years. Apple's chart is looking weak:
 
 
Another classic precursor of a decline is high levels of complacency, which is reflected in a low VIX or volatility index. When fear has been vanquished, the VIX declines to the 10-12 range. These levels reliably indicate market tops.
 
Interestingly, the VIX has been tracing out a descending wedge, a pattern that is usually bullish. (The VIX soars when stocks fall sharply and fear comes alive.)
 
 
The signs of a global slowdown are so plentiful that even the most ardent bulls should start feeling caution. Yet the central-bank-driven stock markets in the UK and Germany are hitting new highs, and the S&P 500 (SPX) in the US is within a few points of its all-time high.
 
But the S&P 500 is acting rather tired. Despite the declining VIX, the SPX has only managed a tepid 30-point gain in the past three months--months that are typically among the best in the calendar year for strong equity gains. This is characteristic not of a robust Bull trend but of a topping process--a process that typically takes several months to manifest.
 
 
Can stocks keep hitting new highs even as sales and profits fall? History suggests we've reached Peak Central Banking--the faith that central bank easing can push markets higher forever, regardless of fundamentals, has reached near-euphoric levels. Few fear a decline or an increase in volatility.
 
So it's all smooth sailing even as the global economy slides into recession? That is a disconnect from reality that beggars belief.
 
Perhaps the VIX will soon awaken from its slumbers, reflecting a "surprise" plummet in stocks.

 

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Truther's picture

Roses are red and elephants are blue. Let me send you another IOU.

Got Gold Bitchezzzz?

Multi's picture

... "which are based on cycles and events such as eclipses".

Did I hear eclipses? that sounds like solid financial advise. So, the sun says March-April correction. Should I go all-in selling the April calls?

Stuck on Zero's picture

The stock market doesn't have to crash.  If we all believe that it will go up forever it will.  It's just a matter of confidence. </sarc>

Tall Tom's picture

Do you remember Hurricane Sandy and how it flooded the vaults in the New York Financial District?

 

Do you remember how you were told that everything was electronically backed up?

 

Well do you really believe that?

 

They have lied about everything else. Why would they not lie about that?

 

Nobody really know who owns what...in stock, bonds or other paper assets.

 

If you do not hold it then you do not own it.

Which is worse - bankers or terrorists's picture

In a few years Vice President Dimon or Blankfein will hold a nationally televised press conference at 8pm and tell the nation

"Remember all of that money we printed....JUST KIDDIN!"

Arnold's picture

I don't see them taking the pay or prestige cut.

They both seem to run a self serving, manageable slice of the World now.

eatthebanksters's picture

You know a big correction is coming and we are getting closer every day. The more the Fed juices asset prices the more nervous and twitchy investors become...evryone is watching the market closely; greedy fuckers want to time their exit.  It won't happen that way.  The faser this market rises the sooner it will take a big tumble...mark my word.

JRobby's picture

WE MUST HAVE YIELD AT ALL COSTS!!!!

http://www.bloomberg.com/news/articles/2015-03-22/no-risk-too-big-as-bon...

OUR BONUSES DEPEND ON IT!

Why there is not a screaming howl that makes the skin crawl is just a reflection of the level of delusion.

 

 

Squid-puppets a-go-go's picture

no big correction, EVER. They will 'declare self help' on any drop. the wheels of industry will fully stop before they allow it to crash, if ever, and if it does it will be an orchestrated harvesting of equity by the 0.01%ers

We have to stop thinking about the economy in terms of stock prices. Venezuela and Zimbabwe show us perfectly that an incredibly high stock market is a function of nothing but toilet paper money. (thats why theres no toilet paper on the shelves in venezuela - its all at their stock market)

KnuckleDragger-X's picture

Stock prices and company value are completely disconnected and the Fed completely destroyed value discovery. We're approaching an inflection point and things will gradually crumble till there's nothing left to hold the economy up, then we will get to rediscover survival at the subsistence level. Over-population will no longer be a problem when half the people are dead.

Luckhasit's picture

A lot, if not most was destroyed.  Servers, bearer bonds, deeds.  Definitely a visit to the most skilled restorer, they can afford the best. 

SilverDOG's picture

 

 

 

Tall Tom

 

 

"Nobody really knows who owns what"

 

The ones who truly do, only have belief of the masses as proof.

 

Arnold's picture

Dog................. We need a man with a plan and scuba gear!

BLOTTO's picture

I can't wait for the flood to hit and wash all this filth and horseshit away...

.

Its inevitable - so lets get on with it before im using a walker or wheelchair.

spankfish's picture

In 2003 Hurricane Isabel flooded downtown Baltimore.  Part of the flooding involved the Baltimore City Police Departments Evidence Control section which was located in the basement of the building... take a guess what happened to evidence?

http://caselaw.findlaw.com/md-court-of-appeals/1560279.html

Urban Roman's picture

The crash will begin when Pluto enters the constellation Flapdoodle.

Arnold's picture

Ignore Sheema and Shmita at your everlasting ignorance.

winchester's picture
winchester (not verified) Truther Mar 23, 2015 8:28 AM

bs graph porn, senseless.

 

do not wake me up until the media open on -20% dow with full panic and cities in flame with mass riots and baboons looting every possible stuff.

JRobby's picture

I can't think of anuthing that I need or would like to buy. Been like that for some time now.

plane jain's picture

Times seem to be tough for children's/youth clothing retailers.

Besides Aeropostale and Abecrombie & Fitch on this list, Ruum has closed all stores and gone online, Delia's has closed all stores/out of business, naartjie U.S. closed all stores/out of business.

Gymbocorp (3 brands) seems to be struggling and their product quality has tanked.

Gap stores (3 brands) ditto; not just children's clothes, but a big drop in quality and selection. 

I don't even bother with Gymbo or Gap brands...not even worth my time to browse.

The Children's Place seems to be well managed. Their marketing and promotions are strong and they have a steady stream of new product.

From a mom who is active on a message board with a few thousand other moms.

Handful of Dust's picture

Three Staples just boarded up in my city. More closures on the way...yet i see new strip malls being built like crazy, usuallywith the three American bedrock businesses; donut shop, nail/hair salon and a car wash.

BringOnTheAsteroid's picture

Roses are red

That part is true

But violets are purple

Not fucking blue

Farqued Up's picture

Yep.
In what wampum are stocks priced? It's not gold, it's priced in USD, a toilet paper fiat that is plummeting in value. How do we know, quantitatively, that this is so? Gold will now buy 1100 of the $$, so I ask, why should a drop in sales, profits, ratios matter if the pricing numerator is going to shit?

The answer is that the stocks numerator must continue UPWARD or the value of the companies also goes to shit. That may be, but the buying public believes, or perceives, that the oil price has to rebound, forget supply demand, but the wampum used to buy oil is going to shit, too. The value of the companies are also going down somewhat in real terms but not falling off a cliff. It's the price, or worth, of the wampum that's the real prime factor in this 4 dimensional dilemma.

The prices have to keep going up, the USD will end up on the bottom with the other fiats in short order. IMO, that's a given.

What would I rather own, a stock backed by oil, pipelines, and refineries, or, the $$. The only way I will hold $$ is for expectations of buying gold and companies cheaper than they are presently. A double cross of middle America guarantees fire sales of some undefined magnitude. The companies pay dividends, the King USD pays Jack.

I'll have to flip a coin to determine if I believe in the Big Apocalypse when it comes to quality companies. The wartime German bunds went to shit but Mercedes and Volkswagen corp bunds survived and recovered.

I'm heavy in both $$ and Au but won't hold out much longer for Armaggedon. In fact, I'm wading now, itching to plunge.

mtl4's picture

Capital will always look for the safest place in times of uncertainty so hate to say it but the "toilet paper fiat" USD is it right now and not only that but there is distrust in the US gov't so it will be the stock market that will see the capital flows.  It won't matter if the company sells diapers to martians it will go up because scared capital doesn't use fundamentals as a gauge.  Sure eventually the top will blow off it all (crash everyone and his brother is predicting now) but we are in for one hell of a stock market ride in the next 2 years or so.  Once you see the market from the other side of the pond you will understand why the US stock markets will defy gravity for a while longer.

Farqued Up's picture

Thanks for the simple clarification, mt14, you put that into concise eloquence.

mtl4's picture

PMs and commodities will both have thier day again at some point in the future, but you'll be punished for holding them in the meantime (ie they should continue to fall).  The problem will be that people assume that demand for product (thus profits) are always linked to stock prices because in a normal market usually they are, but scared people do crazy things and the concern now is to get return of my capital far more than a return on my capital.  

 

Obama LaForge's picture

I disagree, actually. The second shit goes haywire, gold is going to spike. Because as bankruptcies start happening, well that was money loaned out from the Fed. The only way this excess money gets destroyed is if it gets paid back to the Fed. None of these companies are going to be paying any of these loans back, and when that happens, the central bank becomes insolvent. Hyperinflation.

Also, remember how many bonds (and stocks) the Fed has bought. As it raises interest rates, it's really destroying the worth of what it just bought. Isn't that insane? And isn't a dollar an IOU from the Fed?

Still, keep dollars on you, since it is really the only (legal) tender.

mtl4's picture

When you are the central currency of the world and people have not yet lost faith in your markets, then you can pretty well print money with impunity (ie no risk of hyperinflation).  This is why even with all the QE already in the markets, they still can't seem to kick start inflation.  The issue historically is that eventually the politicians try to halt the fleeing of capital to other markets by raising interest rates and often overshoot (remember the punishingly high rates during the early 80's?!)  The reliance on the USD as a world currency reserve now is even greater than back then so corrections will grow in amplitude but market will continue higher for a bit.  Capital needs a place to flow to and US markets are considered "safe" for now.  I'm not saying PM's are never worth holding, just that timing is everything and in the short term they will continue to fall until confidence in all governments builds sufficient momentum.  You may get a few gold spikes here and there as volatility rises but you won't see it challenge the 1980's high (in todays dollars) until the lack of gov't confidence peaks too.

Fun Facts's picture

"Anything is possible with an infinite printing press and fiber optic access to the CME" - the FED

Scoobywan's picture

Now CHS is doing charts?

 

CrimsonAvenger's picture

You can only talk about cargo cults for so long before you have to find something new.

Debugas's picture

Yes they can

if factories produce enough consumable goods one does not need to create more factories

but if one continues to print more money it will keep increasing the price of the existing factories without affecting the price of the goods being produced

this can go on up until it becomes cheaper to build the identical factory from scratch rather than to buy the existing one

NoDebt's picture

"such moves tend to occur in these windows, which are based on cycles and events such as eclipses."

I see your endlessly printed FRNs and raise you a solar eclipse, bitchez.

 

Semi-employed White Guy's picture

We can't blame Mr. Yellen or The Bernanke for anything. So, yeah, let's blame it on an eclipse.

B2u's picture

Blame It On the Rain (another scam from Milli Vanilli)

https://www.youtube.com/watch?v=hFWngq2L99o

 

 

blindman's picture

https://www.youtube.com/watch?v=2hSh3859ZzA
23. Tom Waits - Jesus Gonna Be Here (Live, Atlanta 2008)

BadKiTTy's picture

I have been visiting this site regularly for over 4 years (some not with an account before you feel inclined to check). 

 

I buy the ZH 'perspective', I really do, but I would have bet the farm on the wheels falling of this 'market' ages ago. Instead I have watched rabbit after rabbit after rabbit being pulled out of this manipulated pos, and I am even thinking now this could go on, a la Japan, for another 10 years.......say it 'aint so!!!!!

 

K@

 

 

GetZeeGold's picture

 

 

It's never a bad idea to be early.

 

I bought gold at $273......yes......I was highly criticized for doing that.

 

Glad I did though.

new game's picture

ah, i remember those days. livin in vegas, gold was 250-97/98.

Arnold's picture

@M. BadKiTTy, most rational and even moral reticent people feel the same.

Unfortunately, that is a small slice of the general pop.

We are currently applying for an oppressed minority status and a checkmark on the 1040a./s

 

geno-econ's picture

I bought gold at $ 500 but that was over 20 years ago----not such a good investment over time

winchester's picture
winchester (not verified) BadKiTTy Mar 23, 2015 8:46 AM

it will, until it cannot....

 

fyi, why such circus with russia over ukrain...? decoy.

war is the economic reset boutton.

 

in this era of time, be in economic chaos send bad status of a nation to the world, in conflict time it means " i'm weak, fist me bad " so prior to pull down the trouser on the knees, better to piss in someone else's boots.

 

you only have one thing to do, stack, equip, secure, train, and wait.

we cannot do anything to change that, it is too late.

GetZeeGold's picture

 

 

until it cannot....

 

I had a dog.....his name was Bingo.