This post is extremely important from a longer term time frame. This is the type of information I share with my members all the time but tonight I wanted to share this with everyone. This market is at a key juncture I hope this post makes you think. If you like what you are seeing please join us inside the members section.
I want to make this clear this post is not a short term outlook for the coming days it is an outlook over the next few months. All the charts in this post are monthly charts. I am looking at longer term time frames to get a larger perspective. There are many reason why the market in the short term should bounce, but we are getting into bounces that could be shorted into vs buying the dips.
People have been trying to call the top to this market for years, permabears stuck in short mode screaming for the mountain tops the END IS COMING now (Zero Hedge readers anyone?) They have been watching in disbelief as the market continues to run higher and their accounts continue to shrink. But eventually the bears will have their day and I think that day is approaching sooner than later. Markets that have been in a strong bull market for years continue to climb the walls of worry and head higher. However eventually they stop flying in the face of bad news and slowly they start to slowly roll over, uptrend lines of support start to break, things under the surface start to fall apart. Leading sectors start to fall while nothing new steps in to take its place. All this takes place under the surface while the major indices still look OK. The end of the bull markets start under the surface before being apparent to most… There have been a number of signs building over the last year that have started to add up suggesting long term risk in the markets is shifting out of the bulls favor and leaning towards the bears. I am going to take a look at a number of charts below to see where we may be heading.
First lets start with a charts that has been making the rounds for a while but hasn’t had an effect. NYSE Available Cash. (courtesy of sentiment trader) This chart started showing up once we reached a level that was higher that in the .com bubble (two years ago). If you just used this chart to exit the market you have missed the last few years of the bull market and missed a ton of gains. What this chart is really saying to me is be cautious as people continue to load the boat up long with all the purchasing power they can find. When the selling starts, margin calls will come. So it won’t take much of a spark to start a snowball effect. This is just one piece of the puzzle combine it with the other charts below and a picture starts to form.Next lets look at Margin debt levels on the NYSE and Nasdaq. No surprise in the NYSE after looking at the above chart however on the nasdaq we have not reached the margin debt from right before the start and the chart is started to turn down, is the Margin Debt level from before the 2009 crash a double top? Or is their more $ to barrow on the Nasdaq? Time will tell but these two charts have to make you stop and think. This next chart is looking at the number of secondary offerings, its not one I have seen many people talking about. What you want to see before another leg higher is a decrease in offerings (contrarian indicator) Then right after a decrease and explosion to the upside which occurred in 2010 as we entered a risk off environment and the appetite for investors for more shares increased. We have not had a real pullback in this indicator since 2009. We have seen a massive increase in secondary offerings over the last few months. To me this chart is saying companies are trying to squeeze the last of the $ out of the market they can, or they are in desperate need of capital to keep running (commodity companies anyone?). Or perhaps we are about to see another 1996-2000 run up… In-conjunction with the rest of the charts I am leaning towards the former idea.Next lets look at retail and mutual fund cash levels. Again we are in uncharted territories as retail and Mutual funds are sitting on almost NO cash, mutual funds cash levels are at the lowest level in our life times. This could continue to head lower until there is theoretically ZERO cash on the sidelines. Both are cause for concern, but the biggest issue once again for me here is if selling starts there is nothing on the sidelines to come in an stop the market from falling. A small spark with how $ is positioned in this market could lead to a pretty quick move…
Last chart before I look at market segments is money losing IPO’s we have now surpassed the 2000 bubble high point. How long can money losing IPO’s continue before the market tops. This has been a clear sign to put on the breaks and take risk off the table in the past, will it once again play out that one or is this time different? Lets look at the VIX some people say you can’t chart it I disagree especially on larger time frames. I will let the chart speak the resemblance to the 2007 here is uncanny… Lets look at a monthly chart of the NYSE notes are on the chart. I will let it speak for itself we are certainly at a very key area here that the bulls need to defend….
Commodities as everyone knows have been sold hard for years the commodity index is now BELOW 2009 levels, that certainly doesn’t bode well for the overall market does it? Maybe the 2000 low can hold? It is certainly oversold at this point perhaps we see some sideways action or a pop like earlier in the year before the next leg down. Or perhaps we are at the low and higher prices are just around the corner, whatever the outcome here in commodities I think this chart does a good job of showing one of the key underlying components to the market, how long can the major indices shake this off?
Lets now look at the emerging markets, which usually is a good risk on/risk off indicator when things are good $ flows into the emerging markets as people want to take additional risk, when things start to sour they pull money out and put it to work in the USA, until that also stops working…
The semiconductor index can be looked at as a leading indicator for the heath of the overall market, it started breaking down 3 months ago and continues to weaken… This chart is sending us a clear message…The Transports are another key sector to look at for overall health of the market. Another sector which has been weak for a while and staying weak.
Lastly lets look at the undisputed leader of this bull market the Biotechs this chart may be the most important of the bunch, if the bios start to weaken that could be the nail in the bulls coffin, for now its holding up fine, but this is a chart to watch especially with everything we discussed above…
My take away tonight is to be cautious here. There are a lot of signs under the surface on longer time frames that warrant your attention and thought. All bull markets must come to an end, and currently we are seeing a lot of signs this bull is running of of steam. I wish you all the best of the luck have a great week and look forward to seeing you as members!