Forget 20k - This Is The Stock Market Level To Watch

Tyler Durden's picture

Via Dana Lyons' Tumblr,

An approaching level in a lesser-known stock index is, in our view, much more consequential than the widely anticipated Dow 20,000 mark.

With the Dow Jones Industrial Average (DJIA) nearing the 20,000 level, anticipation on the street has become palpable. At our firm, we’ve been putting in late nights all week,   fielding calls from anxious clients. If you’re picking up on sarcasm, it’s because I’m laying it on pretty thick. The big, round 20K number means very little to us from an investment-decision standpoint. There is another, lesser-known index, however, that is approaching a level of major significance, in our view.

The Value Line Geometric Composite (VLG), as we have explained many times in these pages, is an unweighted average that tracks the median stock performance among a universe of approximately 1800 stocks. Thus, in our view, it serves as perhaps the best representation of the true state of the U.S. equity market. Additionally, it has historically been very true to technical analysis and charting techniques, which is quite remarkable considering there are no tradeable vehicles based on it. And, as noted, the VLG is testing a monumental level at the moment, going back several decades.

In 1998, the VLG topped out just north of 500 before getting cut in half over the next 4 years. In 2007, the index once again climbed back over the 500 level. It subsequently again over the next two years – this time by 70%. After a five year rally, the VLG finally made it back to the 500 level again, as we noted back in July 2014. For a third time, the index was rejected at that level dropping hard into the fall of 2014. Finally, in the spring of 2015 the VLG was able to surpass the peaks just above 500, rallying as high as 523 In April 2015. The rally proved short-lived however, as the index proceeded to lose nearly 30% over the next 10 months.

Candidly, it was our view that that false breakout marked the final blow to the post 2009 cyclical bull market.  As such, we expected any subsequent bounce to be a mere bear market rally, falling far short of the previous 3-decade peaks. Up until the election, that notion still appeared on track, as the post-February rally in the VLG fell some 6% shy of its previous highs, even as the large-cap indices went to new highs. The “Trump Rally” has forced us to re-think that view, however.

That’s because the VLG has shot up some 14% since election day and has now arrived in the vicinity of its former highs once again.

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The Value Line Geometric Composite may well struggle initially at these levels, as it always has. And, as always, we advise against “anticipating the breakout”. However, this may be the VLG’s best chance yet to break this massive 3-decade resistance. The fact that it avoided a catastrophic selloff (e.g., 1998-2002, 2007-2009) this time before managing to return to its peaks suggests a higher level of demand (cup-&-handle?).

Should the VLG succeed in breaking decisively above its former peaks, its significance probably cannot be overstated. This would be an extremely broad market gauge braking out above 18-year, triple top peaks to new all-time highs. The short-term, and quite possibly long-term, ramifications could be exceedingly bullish.

That is why this 520-ish level in the Value Line Geometric Composite is the key level for investors to watch, in our view – even if no one has made up hats to commemorate it.

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More from Dana Lyons, JLFMI and My401kPro.

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LawsofPhysics's picture

Here we go again...

..."Market"...

LMFAO!!!

KnuckleDragger-X's picture

They need to track the price of crack on Wall St. I'm getting a serious 1929 vibe to this rise, and the question is 'who panics first'.....

Occident Mortal's picture

Yawn, so some dipshit has used maths to get the last few peak to align with current price?

Anyone can do that... at any time.

Automatic Choke's picture

I let my Valueline subscription go about 10 years ago --- there no longer seemed to be any point in picking stocks based on reality.   Perhaps someday, when america is great again, we can use Valueline again.

wanderer9641's picture

the bankers now use vaseline - can you feel it

wwzmach's picture

simply bend over and we'll buy your dip "-)

 

Déjà view's picture

29,035...

 

"Because it's There"

George Mallory, 1923

PlayMoney's picture

A better question is who reprograms the bots first to the sell side. They probably all do at the same coordinated time. All this "market" and chart stuff is fluff.

junction's picture

The VLG will now drop like a rock and, with rare exception, no one will notice. 

yogibear's picture

Wall Street wants their monster bonuses.

SenselessPanic's picture

i am quietly dumping into all the weekly rallies before the shennanigans begin

KnuckleDragger-X's picture

Good luck, your gonna need it....

gatorengineer's picture

I would hold for Santa, not inconcievable to be at 21k.

lasvegaspersona's picture

'Quietly'....so as not to upset the space-time continuum?

PlayMoney's picture

I loudly already dumped. Be quite a spell before i drop any bank on a long equity again. Outside the PMs.

GotNuttin'todo's picture

"...(data) going back several decades."

We had, until recently, interest rates at 1000+ year lows. I wonder if their stock data goes back that far? (~sarc)

Garbage analysis.

buzzsaw99's picture

there are what 11.5 trading days left in 2016? these are some of the lowest volume days all year. don't be a hero.

SgtSchultz's picture

The same pundits who said Trump would never win are the same ones saying that there will not be any problem with the Electoral College - if anything goes haywire with that vote.....................

blue51's picture

A top quality, made in USA antique level you showed there . Union Tool , or Starret ?

lasvegaspersona's picture

With hyperinflation all numbers are possible....Ghandi

Hammer823's picture

The stock market HAS to keep going up over time for our economy to work.

There isn't a choice.

That's why stocks like YHOO and MSFT have doubled their share price over the last 4 years.

Despite the reality that both companies haven't grown their revenue or profits over that time.

In fact they are actaully smaller and less profitable.

The stock market is rigged to go up.

https://www.instagram.com/the_rigged_street_journal/?hl=en

 

PoasterToaster's picture
PoasterToaster (not verified) Hammer823 Dec 15, 2016 2:31 PM

Maybe the stock market could be decoupled from the idea of "the economy" if the thieves and slavers were driven from power.

End the Fed.

Albertarocks's picture

Interesting index, but the author might want to rewrite one sentence.  I don't mean to insult someone who is obviously good at technical analysis but he says "Additionally, it has historically been very true to technical analysis and charting techniques, which is quite remarkable considering there are no tradeable vehicles based on it."

This phenomenon is not remarkable, it is very unremarkable precisely because there are no tradeable vehicles based on it. Surely Mr. Lyons knows that the usual culprit that screws up the most solid, most trustworthy technical signals because of some unexpected slam-down or rocket shot, is due to the derivatives based on that stock or index.  That's where the hedge funds and banking class manipulate markets to their advantage.

With that in mind, I agree that this is a great index to follow and only wish that there were no such thing as options, futures or bankers.  In a world like that most people with TA skills would be properly rewarded for the years they've put into educating themselves about market movements, which in turn reveal the overall human emotion and reaction to market happenings.  I'll bet Mr. Lyons wishes there was some sort of nice vehicle based on this index.  But if that were the case, I assure you, it would no longer remain true to technical analysis and charting techniques.

No slam on Dana Lyons.  Great little article on a very interesting index.  Thanks

hound dog vigilante's picture

 

generally agree w/ your sentiment, but this statement needs to be addressed...

"...people with TA skills would be properly rewarded..."

 

let's not pretend that TA is anything but card-counting & level-watching... simple software can perform/replicate 99.9999% of TA. TA is a skill like Hold 'em Poker is a skill - the math is finite & knowable. I would neither expect nor advocate much "reward" for TA.

we should pine not for a return on mindless TA, but for a return to meaningful fundamental analysis.  TPTB have destroyed both.  We are all in a dark forest w/o a torch... what are the inevitable consequences of countless predators&prey exploring (or hiding in) a dark forest?  behavior/consequences become obvious as the nature of a dark forest (unknowable; unquantifiable) is understood by those trapped within it.

therover's picture

Albertarocks...great response.

One thing I would like to ask about...the human emotion and reaction to the market that you refer to.

Are there still humans trading the market ?

Albertarocks's picture

No not really, it's mostly machines now (as you obviously know).  But it is still humans who code the algorithms, and those algos do to a certain extent pay attention to previous highs, lows and maybe trendlines... depends on who codes each.  But they also pay attention to news, and news has nothing to do with technical analysis.  So from that perspective the algos do screw up TA.  And I'm certain that's why TA, although it still works, doesn't work as well as it should.  Once the markets crack and the bankers start to lose control, true market forces (Economic Mother Nature) will take over and I'm certain TA will really start to work well again like it always used to.

TA ignores news entirely because the theory is that whatever the headlines are going to say tomorrow, the charts already suggest what is most likely going to happen.  In fact it's rather amazing that quite often the charts show that the market is due for some wickedly big event (either up or down, doesn't matter) but there is no indication what in hell might act as the catalyst.  Then the next day something incredible happens, some terror event, or some corporate collapse, who knows.  But the charts suggested "something big" was going to happen even though they didn't know what it might be... and it did.

PoasterToaster's picture
PoasterToaster (not verified) Dec 15, 2016 2:30 PM

And 4 years from now the anti-American US "media" will still be talking about how great Obama was for the economy and citing the nice round numbers as sound bite "proof". 

Meanwhile, they'll try like hell to pin any drops on Trump, like they always do when they are out of power.  Unless they all implode.

In.Sip.ient's picture

4 Years from now most of the
existing US media will be bankrupt
and a distant memory.

The reason they're all having a cow
over Trump, is that there will
be NO BAILOUT!

And the bailout friendly politicians
have all been slammed back pretty
hard by the Republican sweep.

That sweep may have dissed the Dems,
but you can bet, seeing how pols react
lately that the Republicans
also got the message...

Snaffew's picture

there will awlays be a bailout until the citizens finally revolt...Trump will be just as much a party to bailouts as Obama, Bush, and any other President.  Without the banks---there will be utter chaos---even Trump doesn't want that.  Buy bullets and dry food stores because the only way the banks fail is with a complete collapse of society.

Occams_Razor_Trader's picture

There will always be a coomie from the Soros school or a foreign government with selfish intentions to bail them out! (Think Al Jazerra- they bought a bogus bankrupt network (Current TV?) from Al Gore for 600 million!)

enough of this's picture

This could easily be a double top in the VLG (2014 and now) rather than a breakout to new highs or it can be a quadruple topping pattern since 1997.

The principles of technical analyses don't apply in a rigged market. Garbage in = Garbage out.

Ask any bear who got his head handed to him over the past seven years.  And you can count the best chartists among them.

MrSteve's picture

an odious double post, too many clicks!

MrSteve's picture

Agree 100%, the charts did not foretell the manipulation of QE and incredible bubble blowing by the banks and FED.

wisebastard's picture

I dont think i would trust that value line geometric composite: broad indext testing 3-decade triple top resistance unless i see a 1 minute chart

CoCosAB's picture

IT'S GOING DOW(N)...

wareco's picture

Would have been nice to overlay the S&P on that chart. 

natronic's picture

Sorry, we are in the wrong universe.  I was Bearish but now Trump is elected it's Dow 30,000  I've sold my gold and now it's 100% all in on stocks!!

Occams_Razor_Trader's picture

Use a moving average to smooth out the chart, turn it into a line chart to get rid of the noise- and lets buy above the peaks and sell below the valleys- and pocket some cash on this bad boy!