Saxo Bank Explains How Massive Stock Market Rallies End

Submitted by John Hardy of Saxo Bank,

Now that I am convinced we’ve moved into totally unjustifiable extremes of complacency in risky assets, I am having a look at some historic stock market breaks and how they have unfolded. In that light, the current setup is rather ominous.

Note: All charts are courtesy of Bloomberg – kudos to them for keeping such long data sets on the major US market indices.

Disclaimer: I’m an FX strategist and not an equity strategist. But I also fancy myself as a bit of a chartist and I like to look at historic patterns, particularly when the past might provide a historic parallel for the present situation. In this case, I’m interested in what many historic major equity chart tops look like in a technical sense now that if feels like we’ve entered into a blow-off territory technically. Somewhat to my surprise, I found that many major market tops had remarkably similar traits as the one we have just posted.

What is in this post?
A look at big stock market tops in the S&P500 that resemble the current situation (with the assumption that the current situation risks proving a major top), including the all-time classic 1929, but also 1969, 1973, and 1987. The resemblance is not only technical, but also due to the fact that in all instances, bond yields were rising.


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