"...the underlying cause of a crash will be found in the preceding months or years, in the progressively increasing build-up of market cooperativity, or effective interactions between investors, often translating into accelerating ascent of the market price (the bubble). According to this ‘critical’ point of view, the specific manner by which prices collapsed is not the most important problem: a crash occurs because the market has entered an unstable phase and any small disturbance or process may have triggered the instability."
From Bitcoin to the Swiss gold referendum, and from Chinese trade and North Korean leadership, Jim Rogers covers a lot of ground in this excellent interview with Boom-Bust's Erin Ade. Rogers reflects on the end of the US bull market. citing a number of factors from breadth to the end of QE, adding that he agrees with Albert Edwards' perspective that now is the time to "sell everything and run for your lives," as the "consequences of [The Fed] are now being felt." Most notably though, Rogers believes the de-dollarization is here to stay as Western sanctions force many nations to find alternatives. Simply put, Rogers concludes, "we are all going to pay a terrible price for all this money-printing and debt."
The 100-day moving average of the advance/decline ratio for the MSCI World Index has collapsed to its lowest level since November 2008.
With just $10 billion of freshly-printed money left (plus reinvested maturing debt) the Fed is rapidly running out of put-providing, VIX-selling, low-volume-levitating ammunition to keep the wealth-creation dream alive. Nowhere is that more evident in the collapse in equity market breadth. NYSE New Lows have surged to 14-month highs and the spread to New Highs is weakest since August 2013. Of course, back then, equity bulls could rely on a guaranteed 'flow' from the Fed to BTFD, this time that backstop does not exist.
Many of the macro drivers in 2007 are in place today (housing bubbling away from median incomes, richly priced equity valuations, excessive leverage in the financial system, etc.).
The stock market is presently a roulette wheel with dimes on black and dynamite on red... The ‘buy the dip’ mentality can introduce periodic recovery attempts even in markets that are quite precarious from a full cycle perspective. Galbraith reminds us that the 1929 market crash did not have observable catalysts: “the crash did not come – as some have suggested – because the market suddenly became aware that a serious depression was in the offing... for it is in the nature of a speculative boom that almost anything can collapse it."
While the current bull market remains "bulletproof" at the moment to geopolitical events, technical deterioration, overbought conditions and extremely complacent conditions; it is worth remembering what was being said during the third phase of the previous two bull markets...
After months of ignoring events in Ukraine, HFT algos suddenly, if one for the time being, have re-discovered just where the former USSR country is on the map, and together with the latest economic disappointment out of China in the form of its official manufacturing PMI which missed expectations for the sixth month in a row, futures are oddly non-green at this moment now that talk of a Ukraine civil war is the new black (after two months of ignoring the elephant in the room... or rather bear in the room). Lighter volumes, courtesy of holidays in Japan and UK, have not helped the market breadth and stocks in Europe are broadly lower with the DAX (-1.33%) and CAC (-1.19%) weighed upon by risk off sentiment and market positioning for the eagerly anticipated ECB policy meeting especially after the EU cuts its Euro-Area 2014 inflation forecast from 1.0% to 0.8%. But what's bad for stocks continues to be good for equities, and moments ago the 10Y dropped to a paltry 2.57%, the lowest since February... and continuing to maul treasury shorts left and right.
The 1900 target for the S&P 500 that Credit Suisse since the start of the year but are seeing increasing signs of a market top with a meaningful correction lower likely to emerge. Volume divergences, DeMark clusters, and reversal days all point to weakness and, as CS concludes, a break of 1844/34 (for the S&P) could lead to a decline to 1800 and then to 1768.
This past week has seen the market struggle due to continued weak economic data, rising tensions between Russia and the Ukraine and an extended bull market run. Market internals are showing some early signs of deterioration even though the longer term bullish trajectory remains intact. Therefore, this week's "Things To Ponder" wades through some broader macro investment thoughts, from the safety of your investments to how market tops are made.
"Stay defensive," warns BofAML's Macneil Curry. While risk assets ended last week on a very strong note, with the S&P500 putting in its best 2 day performance since October; the weight of evidence says that new S&P500 lows are coming and that risk assets should suffer in the weeks ahead. From the S&P500’s impulsive decline from 1850, to negative February seasonals, to deteriorating equity market breadth (the percent of NYSE stocks trading above their 200d avg is at its lowest since Oct'12); it should pay to remain defensive. In the week ahead we look for a top into the 1800/1823 area before the downtrend resumes for 1711/1686; and stay bullish bonds.
But at the end of the day, if your creditors lost faith in your ability to repay it… it’s GAME OVER. This is hitting the emerging market space today.
If we break below these... LOOK OUT BELOW.
Market tops occur when investor psychology changes. But it’s not a clean shift. Investors, like any category of people, are comprised of numerous groups or sub-sects: some get it sooner than others.
The markets are in a perilous condition today. We’ve been noting for months that the markets were displaying signs of a top.