Financial topics

[John]

One thing that really intrigues me is a look at the 200 day moving average versus the daily price of the S&P 500 going back to when the bubble took off in 1994. When the bubble took off, the 200 day moving average wasn't touched in over a year. Quite understandable seeing as it was near the beginning of the move from what may have been a reasonable valuation and healthier economy compared to today.

Perhaps this is what "going parabolic" means.

[Higgenbotham]

One thing that really intrigues me is a look at the 200 day moving average versus the daily price of the S&P 500 going back to when the bubble took off in 1994. When the bubble took off, the 200 day moving average wasn't touched in over a year. Quite understandable seeing as it was near the beginning of the move from what may have been a reasonable valuation and healthier economy compared to today.

Perhaps this is what "going parabolic" means.

I've been trying to figure out the best way to get a feel for this, short of making a spreadsheet of year over year prices on a daily basis and graphing it out to get peak year over year values.

What seems to come out of this is that:

The 2000 bubble had a peak slope of the 200 day moving average of about 450 points per year, and ran for about 2 months at peak value.

The 2007 bubble had a peak slope of the 200 day moving average of about 280 points per year, and ran for about 3 months at peak value.

The current bubble has had a peak slope of the 200 day moving average of about 380 points per year, and has run for 5 months at peak value and is still running at peak rate.

Also interesting to note that in all 3 cases, as the peak slope of the 200 day moving average was hit, the peak 14 day RSI was making lower highs.

I may zoom in on these time periods later and take a closer look.

200 DMA.gif (53.76 KiB) Viewed 3175 times

[Higgenbotham]

Once the slope of the 200 DMA got to peak value, the maximum difference between the 200 DMA and the price was approximately:

1999 180 points
2007 130 points
2013 170 points

In 1999, once the 200 DMA reached its peak slope and the price reached its peak difference of 180 points over the 200 DMA, the market immediately dropped 160 points to touch the 200 DMA.

Similarly, in 2007, once the 200 DMA reached its peak slope and the price reached its peak difference of 130 points over the 200 DMA, the market dropped 185 points about 2 months later and went through the 200 DMA.

In this bubble, the market is reaching similar extremes and not coming down anywhere close to the 200 DMA. The difference in this bubble seems to be the persistence of the maximum slope of the 200 DMA and the persistence of the large deviation above the 200 DMA where the price got 170 points over the 200 DMA on August 2, 2013 and again on December 31, 2013.

As noted earlier, this is happening in a relatively poor economy with relatively lower growth, and seems more unsustainable.

1999 200 DMA.gif (34.48 KiB) Viewed 3174 times

2007 200 DMA.gif (35.44 KiB) Viewed 3174 times

CURRENT 200 DMA.gif (33.2 KiB) Viewed 3174 times

[aedens]

Agree on the confirmation views and the pair trade bias switch noted a few days ago.
I am not short yet and will accept a slow drain wave effect.
The issue is already clear and has been as we seen it anyway.
The good, the bad, and the ugly in a consumer balance sheet depression. As Stiles noted the Cavaliers of credit
where the harbingers of the fatal deceit.
Contrivances to decimate as the wasting effect of consumers rendered to subjects
and the view from some they never seen it then why would they see anything now
sadly rings true in my opinion only since we cannot Dent that view much."pun intended on Dents work"
Having students in very technical positions has formulated some deeper trends for me we have touched on.
I will be very, very select on shorts and observable positions of interests just as everyone else about now.
The percentages of change needed is attitude so you know how they approach the reality in Washington
and it is NOT there money but the taxpayers.
I guess for the brevity of time the balance sheets are torn apart on design and leadership on all levels of society
of enclaves since the left and right coast simply do not wish to get it. Like we know provisions are circulated
and human action covers the rest. https://mises.org/document/3250
I find entitled attitudes in a finite world add up as we know in a natural economy they cannot define.

As we know, water, wheat , and weather will decide to the mental conditions of the Stewards abilities.
https://www.youtube.com/watch?v=hyRTmM_ktaY

http://gdxforum.com/forum/viewtopic.php ... 890#p22027 pre employment gleaned from our notes

[Higgenbotham]

I covered shorts early this morning and went back in near the close. Will be locking in on that 25% and looking for a place to do another 25%. As of the close, there is a classic crash setup. Crash setups are low probability events but this appears as high as any I have seen, perhaps higher than the week before the silver crash of 2011. A crash setup is based on the patterns I have observed in the movements of markets before they crash. This setup is actually similar to the one that was seen before the flash crash. The problem is that the market is vastly overpriced compared to before the flash crash and anything that sets off a panic could make it, say, 2-3 times worse. They might use limits or shut the market down for awhile but how will the market being limit down day after day help? I posted some charts of TNX, the 10 year US government note rate, last weekend and think we have enough for a stock market top based on the interest rate activity after the employment report.

Getting back to the parabolic nature of the bubble, the 251 day moving average, which is about one year, seems to correlate with the final parabolic stage and collapse in a similar manner for all 3 of the bubbles. The 200 day moving average is most commonly used by market analysts, so I started with that last night. There didn't appear to be any consistency in the application of the 200 day. The 50 day moving average, also commonly used, doesn't seem to be long term enough to smooth out the short term bumps in prices when looking at years of data.

On this diagram, I have drawn in a black line along the area of the 251 day moving average where it is still linear for some period of time and prior to where it goes parabolic. As the moving average increases its distance from the black line, it is then going parabolic. The areas where the moving average goes parabolic during all 3 bubbles are shown in the gold brackets. Based on this study, approximately the same amount of time has passed as was required to start the first crash in 2000 and 2007. If this occurs, the question would then be whether the market can get to a higher high after the first crash occurs. In 2000 and 2007, the market was 150 points over the moving average when the first crash began; now it is 200 points over. If the market comes down to touch the 251 day moving average and goes through it by any substantial amount, it may not be possible for it to get back to a new high.

251 DMA.gif (53.02 KiB) Viewed 3141 times

[aedens]

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

http://www.zerohedge.com/news/2014-01-1 ... statistics

http://www.youtube.com/watch?v=phDAX_3Qw5I h/t d

[Higgenbotham]

I just put these hourly charts together showing the S&P 500 futures contract from the high of the market before the flash crash (top) and from the recent high of the market (bottom). As mentioned above, this is the kind of activity that precedes a crash, and there are 2 or 3 other crash signatures I am seeing besides the short term pattern. But it doesn't necessarily mean the market will crash. The flash crash happened 3 days after the top pattern ended. So if the market follows this pattern exactly (which it very likely won't) it is due to crash on Wednesday.

The market is acting a lot more erratic than it was in the comparable period in 2010. It seems like a heart patient whose irregular heartbeat has worsened in the past 3 years or a bridge that has a lot more fractures in it and the same gust of wind makes it shake more violently. For example, in the big oval part, it is much more spikey than it was in 2010 as it traced out a nearly identical pattern. It looked like it almost wanted to crash twice in there.

ESM0-20100514.JPG (60.22 KiB) Viewed 3121 times

[Higgenbotham]

There's a lot of imprecision in the monthly payrolls numbers, though the scary thing is that the revisions that occur some years later are normally downward. However, I seriously doubt this one will be. The recent movements in the various markets (besides stocks) are also telling us the economy could be softening. Interest rates on the longer term US government notes and bonds have been falling after making a longer term high. Oil prices have fallen a lot in a short time, despite the fact that the cost of producing the marginal barrel has been increasing double digits annually. Pulling demand forward during a rebound out of a crash can make the economy look OK for awhile, but the bottom can fall out faster, as in 1937 or 1973, as we've mentioned. If so, I would expect these markets to either top together (as they have so far) or to top a lot more closely in time than they have in the past. Which, if that's what is happening, may mean that stocks don't have one more high coming as they normally would. Depending on where the low is taken, the move out of the last stock market low is 15-18 days which is still a little on the low side in any case.

[Higgenbotham]

Before I forget some of them, here is a summary of the cycles which may finally put an end to this beast of a bubble. These have nothing to do with the market movement that results in crash signatures.

The first cycle, mentioned recently, is the mirroring effect where the market will mirror the time between the lows of the crash once again at the top of the bubble. The time between the lows of November 21, 2008 and March 6, 2009 is 105 calendar days. Adding 105 calendar days to the last important high at September 19, 2013 is January 2, 2014.

The second cycle, not mentioned previously, is 221 calendar days. The time between the (previous) all time high of October 11, 2007 (that stood for 6 years) and the secondary high of May 19, 2008 is 221 calendar days. Since then, the high most similar to October 11, 2007 is May 22, 2013. A daily chart of the S&P 500 shows the similar movement on those dates where the market made a dramatic spike and reversed, commonly known as a key reversal. 221 days from this key reversal is December 29, 2013. Although one of the 221 day intervals was a downtrend and one was an uptrend, there is remarkable similarity in the patterns. I won't take the space to show all that but it is quite interesting.

The third cycle, mentioned here and there in these pages, is 24 years. The time between the April 18, 1906 earthquake in San Francisco and the rebound top of April 17, 1930 out of the 1929 crash is 24 years. Likewise, the time between the Chernobyl accident of April 26, 1986 and the first rebound top of April 26, 2010 out of the 2008 crash is 24 years. Due to the unprecedented QE programs, the April 2010 top did not turn out to the the final top of the rebound out of the 2008 crash. The gigantic bubble in Tokyo topped out 24 years ago on December 29, 1989. It seems reasonable to think that a nuclear disaster and the top of a gigantic bubble have unrelated effects, but the aftermath of the events lagged by 24 years is showing nearly identical movement on the intraday chart of the S&P futures, as shown in the post above yesterday.

The fourth cycle, also mentioned here and there in these pages, is the 14 month cycle. The time between the March 6, 2009 low and the flash crash of May 6, 2010 is 14 months. Likewise, the time between the last major low of November 16, 2013 (the last time the big moving averages got hit) and January 16, 2014 is 14 months. Last night I noted that, "The flash crash happened 3 days after the top pattern ended. So if the market follows this pattern exactly (which it very likely won't) it is due to crash on Wednesday." Wednesday would be January 15 and the 14 month cycle is indicating it may be a day later.

None of this means the market is going to crash but there are some strong indications. At this point the bubble is unprecedented in my estimation, and it's hard to say how far they can carry it. Judging from what has happened since, May 22, 2013 "should have" been the end of it (as April 26, 2010 and May 2, 2011 also "should have" been the end it). If a crash really is due, with the market more than 150 (S&P 500) points over the May 22 spike high and more than 600 (S&P 500) points over the April 26, 2010 high, it's going to be a long, long way to the bottom.

"In individuals, insanity is rare; but in groups, parties, nations, and epochs it is the rule. "

This has gone about 2-3 years beyond insane in my opinion.

[Higgenbotham]

The cycle I have "on watch" is the 1293 day cycle.

The time between the Chernobyl accident (April 26, 1986) and the fall of the Berlin Wall (November 9, 1989) is 1293 days. The time between Hurricane Katrina (August 28, 2005) and the bottom of the stock market crash (March 6, 2009) is 1285 days. These events represented the results of a "loss of faith" in the government to properly respond to a crisis.

We are now witnessing a similar failure to respond in Japan. The Fukushima accident occurred on March 11, 2011. 1293 days from March 11, 2011 is September 24, 2014. I am "on watch" for a collapse of the Japanese government around that time period, which will likely in my opinion be the catalyst for the worldwide financial crisis.

Probably worth repeating from July 2012:

"And I think that fits in with the psychological aspects, which (though it can't be proven) societies that experience disasters that result from technological failure first go through a period of denial as individuals typically do. Not only that, but there are coverups, which are another form of denial. And all the activity that follows the disaster reinforces the denial as it makes it appear on the surface that things are still normal. Like the bezzle, the losses show up later. For example, an insurance company that has to make a huge payout isn't going to announce that right away. They may push the accounting off to the end of the next quarter and it gets reported the quarter after that, etc. But as time goes on, the facts come out and the denial lifts and the redundant activity ceases. People lose faith and it might be like a grieving process where denial is then replaced by anger and then acceptance that the society has experience a technological failure and the leadership is a bunch of incompetent liars (I don't know the exact steps of the grieving process).

Another aspect with how these disasters tie together is part of the delusion and denial of the West after Chernobyl and the collapse of the Soviet Union (and Gorbachev has attributed Chernobyl as being a cause of the collapse - Read his essay Turning Point at Chernobyl) was to believe the West was superior and immune to any sort of similar disaster and collapse. Exactly a quarter century later, that delusion is being put to rest and people are realizing that all of humanity is incompetent and susceptible. The Fukushima reactors were built by GE, which is run by incompetents who probably wouldn't even still be in business without subsidies and bailouts. If one were to want to date a possible time frame for the collapse of the West, a quarter century after the collapse of the Berlin Wall may be as good as any - November 2014.

The nuclear meltdown at Chernobyl 20 years ago this month, even more than my launch of perestroika, was perhaps the real cause of the collapse of the Soviet Union five years later. Indeed, the Chernobyl catastrophe was an historic turning point: there was the era before the disaster, and there is the very different era that has followed.

Turning Point at Chernobyl
Mikhail Gorbachev

http://www.project-syndicate.org/commen ... -chernobyl

18 months after writing this, there are some things I would change but the basic gist of the statement remains true to the events that are unfolding. The begining of the end may be in September 2014 but the fall of the West might not come until more like 25 years after the collapse of the Soviet Union, say, November 2016.