From my friends at EWI

Sunday, May 15, 2016

THE MARKET IS FRACTURING AND A DOWNTURN IS IMMINENT...POSSIBLE WAVE C OF A THREE PEAKS AND A DOMED HOUSE FORMATION.

THE BOTTOM LINE:  BASED UPON THE STRUCTURE AND BREADTH OF THE CURRENT STATE OF THE MARKET, A DOWNTURN OF IMPORT IS NEAR AT HAND.  MOREOVER, THERE ARE NOW TELLTALE CLUES THAT  SUGGEST THAT THE RALLY IN THE ENERGY SECTOR MAY BE ABOUT TO TURN.  VERY IMPORTANT WEEK COMING UP! 

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 One look at the chart above will well you that it is no accident that we are seeing choppy schizophrenic behavior with some of the indices, as the Dow has been bumping up against overhead resistance for 18 months.  Note also how breadth has been waning in typical fashion as price has churned relentlessly in an effort to break above this overhead resistance.  For those who think we are on the cusp of a new bull run, the evidence is clear that we are the verge of a BEAR  market, not a BULL. I have also noted where I expect the next bear market to take the Dow to, and that is approximately the 6500 level.  However, this will be no ordinary bear, and therefore I expect the market to drop below this level, if only for a short period of time.  That downturn however, is still at a minimum 5 months away, and possibly longer.  We always want to deal with the reality at hand, and the reality at hand is that a downturn of a much smaller scale is imminent, and presents a very good money making opportunity.


The first order of business is to get the major trend right.. If we get that right, then we increase our odds of being on the right side of any respective trade we initiate.  To wit, it is clear that the Dow is approaching support in the form of the top trendline of the parallel trend-channel that it has been operation in for over a year.  The market believes that these line are important, therefore so do I. I expect this top line to halt the decline in the Dow temporarily on Monday, followed by a resumption of the decline on turnaround Tuesday.  If you do not know, Tuesday is the number one day of the week for trend changes.  I have been trading these markets for many years, and it is uncanny how many small and large degree trends are reversed on Tuesdays.  So, from now on beware of Tuesdays.  The other turnaround day is Thursday.

 The weakening underbelly of the market is ubiquitous, as China, Europe, Japan, and the U.S. are now all displaying weakening internals which suggests that we will be seeing a return of the bear in the very near term

 The chart above of the NYSE composite shows an index on the verge of a meltdown.  Note how the PPO turned lower in early March, even as the index churned higher.  An erosion of momentum of this magnitude can have only one ending, and it is an ending that will not be kind to those who insist on holding their longs.  The break of the zero line on the PPO from such an elevated level (the highest  level in two years) supports our contention that this will be the wave C of a Three Tops and  Dome House formation.



The Advance-Decline chart above also supports the thesis that a downturn is imminent. Note how the MACD flat-lined as the A/D weakened, clearly implying a loss of momentum and signalling that a change of trend was nearing.

 The percentage of stocks in the S&P 500 that are above their respective 50 dma is now rolling over as well, signalling an increasingly weak market on the fringe of entering into a full blown route the likes of which we saw in January-Feb.  Note how persistent these trends become once they enter a downward move.  This is quintessential bear market action under the surface

This weekly chart of the XLF Financial ETF clearly displays a lack of any ability to get up off the mat and rally.  Note the three red weekly bars, indicating not only extreme weakness, but also an increase in volume.  I expect the Financials to lead the market lower, save for a small rally early in the week.  Note also the 50 day moving average helping to keep a lid on the XLF in addition to the top of the trend-channel.


 This is an update to the KBE chart we published earlier in the week.  This weekly chart paints a very bearish technical position for the KBE.  Not how the ETF returned to test support and then failed on a weekly level.  In addition, the move up was a three wave move, which is ALWAYS counter-trend in nature.  This is a fantastic short sellers setup!

 Traders shun risk!  The chart of the IBB index above is on the verge of a complete loss of support that goes back to 2014.  Note how price failed to hold the 200 dma, and how volume picked up on the most recent selloff.  Another great short opportunity for traders.

 A telltale clue is also given by the TRIN chart above.  Note how the TRIN has surged recently as the market has lost momentum.  As a refresher, remember a rising TRIN indicates a weakening market, and a falling TRIN indicates a strengthening market.  Note also how the TRIN bottomed at a lower level than the level that precipitated the last two downturns in Jan -Feb, thereby echoing the signal given by PPO on the NYSE chart above.

 This is an update of our XLY chart we posted last week when we issued our head and shoulders alert.  The pattern is unfolding as we stated, and we continue to expect increased selling pressure on discretionary stocks in the days ahead.

We mentioned that this could be a big week for the energy sector, and by extension, yields as well.  The chart above of the OIH, which tends to be the leading edge of the energy market, shows unmistakable weakness.  Failure to hold technical support after only managing a three wave move off the bottom is very troubling for the sector.  And because energy makes up nearly 7ercent of the S&P weakness in this sector would have implications market-wide.


Another three percent of the market is represented by Basic Materials, which are also implying weakness by failing to break above overhead resistance.  Short sellers should be watching this sector or subscribing @ www.vanportcapital.com

Good Trading Everyone! 


ACCURACY OF INFORMATION. All of the information on this website is for entertainment and educational purposes only. While the information is believed to be accurate and the analysis is honestly offered, none of the information on this site should be considered solely reliable for use in making actual investment decisions.
INVESTMENT DECISIONS. You assume all risk associated with investment decisions made on the basis of information contained on this website. It is our policy to never advocate the purchase or sale of any individual investment vehicle. You should also understand that vanportreport.com and its writers may be active investors in the market and may or may not have open positions in any investment vehicle mentioned on this website. Prior to the execution of a stock trade, you are advised to consult with your broker or other financial representative to verify pricing and other information. Vanportreport.com, its writers or content partners shall have no liability for investment decisions based upon the information contained on this website.

 





Monday, May 9, 2016

There's Seems to be Something Wrong with the Bloody Market. WWW.VANPORTCAPITAL.COM

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The Bottom Line:  During the Battle of Jutland, Admiral of the Fleet, David Earl Beatty, famously stated "There seems to be something wrong with our bloody ships!"  That same quote is applicable to today's market, as many of the indexes are printing precarious technical formations that could have ominous implications for the market.
First, lets start with the business cycle courtesy of our Martin Pring.  As the market has continued to struggle to break above overhead resistance, the business has clearly rolled over, and would suggest a weaker cyclical economy at the very least.  
Note how traders are pushing the 2-10 year spread tighter as money flees from risk assets just as it did during 2007-2009. Its also interesting to note that the move toward widening yield spreads off the 2011 bottom has taken place in 3 distinct waves, which is the definition of a counter-trend move.  It would not take much more weakness in the spread to turn this series into a bear trend.




in line with the downturn in some of the fundamental indicators, many of the major indexes have failed to hold above critical support lines that have been in place for over a year.  In the case of the SPY above, it appears to be losing its grip on the upper trend-line that has encapsulated price for 18 months.  This is classic behavior that typically presages significant moves.  If this is to be a wave C downturn, we should see impulsive price action on any appreciable downturn.
Small caps have lagged behind the action in the major averages, suggesting that risk investors are not drinking the Kool-Aid.  Note how the Russell has not even come close to reaching the previous high highs registered back in June 2014.


Transports have also failed to hold above the upper trend-line of the trend-channel it has been operating in for quite some time, thus mirroring the weakness in the S&P.  The other critical technical factor is that many of these indexes have traveled back up to the underside of the trend-line on declining volume. This is a common technical phenomenon often displayed just before a selloff begins in earnest.


the Financials as measured by the XLF, have also failed to stay above their respective trend-line and appear poised to fall in sympathy with the myriad other indexes sporting similar technical setups.


What has happened with Goldman Sachs, could be prologue for what is about to happen to the rest of the market.  After moving back up to meet the trend-line one last time, GS has sold off on increasing volume after being unable to penetrate the overhead resistance.


Homebuilders also seem unable to get off the mat even though some of the REITS are hitting 52 week highs, suggesting underlying weakness in the housing market which is always bad for the broader market.


Even the once venerable AAPL has become a victim of the urge to purge, as investors forced AAPL clean through the trend-line that looked to provide support for the most recent downtrend. Note the huge volume as well.  This is not mom and pop selling their AAPL investments, these are large institutions divesting themselves of the stock in an effort to rebalance their holdings.


The weak economy has only led to short rebounds in the demand for commodities, as evidenced by the CRB index.  We typically see this index hitting new highs late in the business cycle as the economy chugs along at full speed, and the demand for raw materials is high.  This is not the picture of a CRB index that is supporting a full functioning economy,,,far from it.








Likewise a economy functioning at a high level would see a high demand for steel.  U.S.Steel plunged 13 percent today.  Not a welcomed sign for the bulls.


Finally, as many averages have failed to hold above key support levels and many indexes are sporting precarious technical positions, advancing volume has been trending lower in what can only be seen as a precursor to what could become a major downturn.

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Sunday, May 8, 2016

Trade Setups for the Week of May 9-13 GET REAL TIME ALERTS @ WWW.VANPORTCAPITAL.COM

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SUNDAY NIGHT SETUPS FOR WEEK OF MAY 8-14
Here are a few setups we have our eye on in the upcoming week.  Remember, the Stock Market has been in a "B" wave since the orthodox bottom of March 12, 2009, and therefore has displayed the typical schizophrenic nature so often associated with B waves. B waves are by definition corrective waves, and at larger degrees of trend, which this wave B is, they are notoriously difficult for any trader to consistently make money on.  In these situations, go low and go slow.
 The first order of business is to realize that the major averages are testing overhead resistance in the form of their respective parallel trendchannels that they have all been operating in for nearly 18 months.  The market obviously believes these trendlines to be important, and therefore we have to respect that.  I expect choppy action in the major averages to start the week,  But if volume and breadth are waning, then expect good action to the downside.  Also, the 3 Tops and a Domed house formation is still very valid, and if we get confirmation of a downturn and good impulsive price action, then we would be looking at a large degree wave C to finish off this pattern that started back in 2014.  That would mean price action would move below the bottoms that were established in August, Jan, and Feb., before bottoming on massive pessimism, and then moving to new highs in the September-October time frame to mark a final top to the bull market from March, 2009.  Keep following us here, and we will keep you updated to potential trade opportunities.

 PCLN looks to continue its march higher.  Look for a completed impulsive structure within parallel trendlines to mark the end of this one, then look for a short entry. P.S. REMEMBER THIS ZIGZAG PATTERN!  IN TWENTY YEARS OF TRADING IT HAS BECOME THE MOST PROFITABLE AND CONSISTENT PATTERN WE SEE!
GOOGL has completed a textbook flat correction, and now appears to be trying for new highs,  The current price action appears to be in a small degree third wave, and aggressive traders could get long and ride price action through waves 4 and 5.  I prefer to wait for my pitch, and that means waiting to see if we get a three wave pullback, and then go long.  Also if we do get a three wave pullback on lower volume the setup would be for the ensuing third wave, which by definition is the strongest of the impulsive waves, so I would expect to see profits come on strong as the wave unfolds.  Keep watching us here to see how this develops.


 The XLY is an irresistible chart right now for any self-respecting technical nerd, as it appears to be shaping into a rather large degree head and shoulders pattern.  Due to the large degree of this patter, if it happens to materialize in earnest, then this would be clearly ominous for the major averages.  The XLY is traditionally a leading barometer of other averages, and to a decent extent, represents investors appetite for risk, along with small caps and the SPHB high betas of the world.  For this to become valid in my version of technical analysis, I would have to see a breakdown from here in impulsive fashion on increasing volume.  Note also how this would fit nicely into our scenario regarding the 3 Tops and a Domed House that we have been discussing, and it also dovetails nicely with our scenario regarding the SPY which was discussed above. This week will either make or break this trade, so we will be following this one closely.

Friday, January 1, 2016

THREE TOPS AND A DOMED HOUSE?

The Bottom LineAlthough it is impossible to know for certain, a preponderance of technical evidence is suggesting that the market is tracing out a pattern that has accompanied the end of some of the greatest bull markets of the 20th century.  A pattern made famous by the late-great market technician, George Lindsay, called Three Tops and a Domed House.


Above is an idealized rendering of the Three Tops and a Domed House formation based upon Lindsay's observations of how stock market's top.  Lindsay studied more than 150 years of stock market price action dating back from 1968, and noticed a remarkably consistent similarity among all major topping formations, and he named it the Three Tops and a Domed House formation. Lindsay observed that the pattern begins when the market comes off a low and rallies into point 3, where resistance is met, and the market retreats to point 4.  As the market gyrates between points 5-6-7, much buying pressure is used up as traders get whipsawed and volume diminishes, making it difficult for price action to break above the resistance level at points 3-5-7.  For these reasons, the market drops to a new low at point 10, sometimes on increasing volume, as the low point at point 6 gets taken out. Buyers then step up and bid price action past the previous resistance points noted at 3-5-7.  A very interesting and common trait is that price action, after breaking above the previously noted resistance, comes back to test that level, which has now become price support, at points 16-18-20.  After three tests of support at points 16-18-20, sellers have been whipsawed, and new buyers, along with the short sellers getting squeezed, provide enough short-term buying pressure to push prices to a new high for the bull market.  It's also important to note that points 15-19, are often associated with a previous market high and therefore these points often take time to be surpassed.  Lindsay noted the time frame from point 14, to the ultimate topping point at point 23, has averaged 7 months and 10 days over the 150 years prior to 1968.  Of course, this time frame varies dramatically with the time frame of the chart you are observing.

                                                                 (click on chart to enlarge)

I have placed a current chart of the S&P 500 above with the labels I believe are relevant if this is truly a Three Tops and a Domed House formation. The biggest technical issues that may undermine the validity of the current formation are twofold: point 10 is lower than I have seen in other formations and points 15-19 are not above points 3-7. However, I have been trading this formation under the assumption that it is a legitimate "Three Tops" formation since the initial points 3-7 started forming in June. It is important to remember that price patterns never repeat exactly.  They are more like rhymes of past price action, rather than exact duplications. This is true for a number of reasons, including different market participants and different technical formations.  If you need any more convincing, start studying the myriad formations that constitute head and shoulders formations. Many of these formations seem to fail even a cursory examination, yet end up being perfectly valid.

 Point 10 not withstanding however, this appears to be the valid structure forming at the moment.  Note also the bull flag forming within the recent price action.  This bull flag also portends a rally to new highs, which would also validate the ending points of the "Three Tops" formation.  In addition, note how the volume has dried within the bull flag as the market retreated recently.  Some of this is due in part to the typical lower holiday trading volume.

From a cycle perspective,  the upcoming months could be conducive to a long-term market top as well, as history has shown that January and March are often important market turning months.  In January 2000, the stock market reached its orthodox top for the secular bull market that began in 1982, and it also bottomed in March 2009, after the severe bear market that started in October 2007.  So, it would seem that in addition to the ominous technical picture being presented by the "Three Tops" formation, the cycle date is also ripe for a historic turn in the tides of the market as well.



The top chart is a long-term chart of the Dow going back to the orthodox beginning of the secular bull market in 1982, and the chart directly above is the S&P 500 going back to 1997.  Although it is not noted in the chart above, the 2000 market top as well as the top in 2007 were also accompanied by the "Three Tops" formation.

As an interesting aside, I have drawn vertical trendlines at major inflection points when the MACD has rolled over and pierced the slower line.  As you can see from the chart, every major penetration of the MACD line has been accompanied by a major downturn in the stock market.  What is even more ominous is the slow rolling nature of the decline in the MACD this time around.  Typically short sudden drops are associated with short vicious declines.  The slow rolling nature of this decline appears to be an ominous harbinger of things to come.

 Although Lindsay did not opine as to why the "Three Tops "formation has appeared so many times in the history of the stock market, I believe the answer, like most things in life, is rather simple, and in graphic display in the charts above.  What is clear is how important simple trendlines can be in predicting price action, and it is these trendlines, I feel, that are the basis for the persistant appearance of the "Three Tops' formation.  After over twenty years of active trading, I can unequivocally state that price action loves trendlines, and the staying power of the "Three Tops" formation proves it.  All the major points of the pattern are simply points on the trendlines that encompass price action.  When this formation is viewed within the context of the Elliot Wave Theory, one can clearly see where and why this formation is created time and time again.

There is no way to tell whether this will be a valid "Three Tops" formation, or just an atypical topping pattern.  I am operating at this point under the assumption that it is valid, and as an interesting side note, Lindsay noted that failure of the market to hold the new high at point 23 in the top chart has always resulted in a bear market drop at least to below point 10, and there has never been an exception to that rule!

Good Trading!

D.A. McFarland

ACCURACY OF INFORMATION. All of the information on this website is for entertainment and educational purposes only. While the information is believed to be accurate and the analysis is honestly offered, none of the information on this site should be considered solely reliable for use in making actual investment decisions.
INVESTMENT DECISIONS. You assume all risk associated with investment decisions made on the basis of information contained on this website. It is our policy to never advocate the purchase or sale of any individual investment vehicle. You should also understand that vanportreport.com and its writers may be active investors in the market and may or may not have open positions in any investment vehicle mentioned on this website. Prior to the execution of a stock trade, you are advised to consult with your broker or other financial representative to verify pricing and other information. Vanportreport.com, its writers or content partners shall have no liability for investment decisions based upon the information contained on this website.







Friday, November 6, 2015

LARGE SPECULATORS SELLING INTO BETTER THAN EXPECTED JOBS REPORT.

The Bottom LineAlthough market technicals suggest we will see one more new high in the major averages before the next bear market is ushered in,  large speculators and hedge funds are wasting no time divesting themselves of "toxic" equities before the septic shock of a debt laden global financial system goes terminal.

Large speculators and hedge funds appear to be using the better than expected jobs report as a golden opportunity step up their selling.  Volume figures suggest that stocks are being transferred from the strong institutional players to the weaker retail players in classic topping fashion.  The obvious question then becomes; what is it that the large players are seeing on the horizon that has them nervous enough to sell into what has been the "best" rally in several years?

                                                              (click on chart to enlarge)
Part of the answer lies in the chart above.  This is a long-term chart of the Dow going back to 1997.  Notice how price action has been contained within the expanding trendlines for nearly two decades without an appreciable breakout above or a breakdown below.  What is even more telling is the current rally has taken price action right back to the underside of this trendline, but this time on significantly deteriorating momentum as noted in the MACD in the lower pane.  In fact, the much lauded "best rally in years." has not even been enough to turn up the MACD in any significant way.



  The Dow is not the only index seeing a deterioration in its breadth, the S&P 500, as well as nearly all of the major sectors that comprise the stock market are seeing deterioration on a scale that is not sustainable without a significant downturn!  Notice how momentum peaked early on in the recovery rally, and has subsequently made a lower high.  Remember, technical analysis 101 states that "momentum leads price."  If this is indeed true, then this chart speaks volumes about what will ultimately befall this rally.  Note that I am not eliminating the potential for a new high in the averages.  In fact, I believe we will see a new high, as retail investors jump on the bandwagon after the media does its part to inform the masses.  But make no mistake however, that unless breadth picks up significantly, this rally will have sewn within it, the seeds of its own demise!



As if the aforementioned technicals were not telltale enough, I have placed above a chart of the Top 5 ETF Index.  The Top 5 Index is simply an index that tracks the top 5 ETFs based upon their momentum, or in stock market jargon, their PMO.  Essentially it is a barometer of the health of the top 5 performing ETF's and by extension, their constituent stocks.  What is surprising is the complete loss of momentum these ETF's have experienced over the last year, and even to a greater extent, over the last two months when the major averages have been rallying.  Needless to say, this is not the behavior of a market that is on the verge of a new bull market.  Notice also that every time the  index has peaked, the S&P 500 (bottom panel) has followed suit in short order.  Again, not welcomed news if you are a bull.


The chart above is of the S&P 500 relative to the S&P 500 equal weight.  This is a useful index to watch, as the equal weighted index typically turns before the regular market cap weighted index.  And again, it appears that the equal weighted index is turning lower even as the market cap weighted index is on the verge of making new highs.  This relative weakness of the smaller-cap issues within the S&P 500 is also unsustainable if this bull market is to continue. Another nail in the bull market coffin.


Another important sector of the market that has hit a wall is the XLY, or the consumer discretionary sector.  Consumer discretionary spending accounts for nearly 70% of GDP, and as such, is an important sector to monitor.  The chart above is a weekly chart of the XLY going back to 2011, and you can see how price has trended as usual within the parallel trendlines without much of a material breech.  Now however, price action has once again ran smack into overhead resistance in the form of the top trendline, and like much of the market, this test of resistance is on deteriorating momentum.  If the XLY comes under selling pressure in impulsive fashion, the rest of the market will soon follow suit.



Of course, this deteriorating technical condition is against a backdrop of a business cycle that is  clearly in decline.  The above chart compares the S&P 500 to the business cycle, with momentum noted in the lower chart.  Notice how the peak in the stock market has been pushed progressively later after the peak in the business cycle courtesy of our intrepid federal reserve and the plunge protection team.  Notice also that every time momentum, as noted in the lower chart, has turned negative, the market ALWAYS followed suit. Again, unless these conditions are negated by improving technicals and fundamentals, this bull market is on the verge of being crushed.



The chart above is courtesy of Martin Pring, and it is of his proprietary indicator he calls the "known sure thing," or KST for short.  Essentially it combines many of his indicators into one momentum style indicator.  The chart above shows KST's for China, Japan, Europe, and the S&P, making it a decent representation of the health of a global economy.  The report, however, is less than ideal, as all of the KST indicators have turned negative not only for our market, but those of Europe and China as well!

Conclusion:  Not withstanding another intolerable dose of federal reserve "paper-nepherine," the market internals suggest that investors adopt a much more defensive posture. If the bull market does continue anew, participation is just a commission away.

Good Trading.

D.A. McFarland


ACCURACY OF INFORMATION. All of the information on this website is for entertainment and educational purposes only. While the information is believed to be accurate and the analysis is honestly offered, none of the information on this site should be considered solely reliable for use in making actual investment decisions.
INVESTMENT DECISIONS. You assume all risk associated with investment decisions made on the basis of information contained on this website. It is our policy to never advocate the purchase or sale of any individual investment vehicle. You should also understand that vanportreport.com and its writers may be active investors in the market and may or may not have open positions in any investment vehicle mentioned on this website. Prior to the execution of a stock trade, you are advised to consult with your broker or other financial representative to verify pricing and other information. Vanportreport.com, its writers or content partners shall have no liability for investment decisions based upon the information contained on this website.


Sunday, October 5, 2014

                              A Top of Consequence is Fast Approaching!

The Bottom Line...

Here are the facts: We have had a flood of IPO's, massive speculation on record levels of margin debt, junk bonds being bid past all reasonable valuations, advisor sentiment at its most bullish extreme since 1987,  insider selling of shares on a large scale, advance decline numbers puking, up/down volume figures are dismal, commodities, which should be breaking out in typical late-cycle fashion are not, mutual fund cash levels near records lows, unprecedented printing of money, momentum waning, historic credit expansion, overvalued P/E ratios, low dividend yield, 3 years of uptrend without a ten percent correction, and oh yeah.. the market is rolling over, see below.




 The first chart above is a weekly chart of the NYSE, an index of over 2800 stocks, and from a technical perspective the index looks to have broke decisively through the trendline that has supported the rally for 2 years.


 Although it's difficult to see from the top chart, we can see from the chart directly above, that September 4th, 2014, has so far marked the high point for the NYSE.  What is more important and clearly evident from the charts below, is that it made that high on significantly deteriorating breadth.  i.e.. less stocks making a high along with the major average.  In fact, on September 4th, while the NYSE was making new highs, only 195 stocks out of the 2800 listed, or roughly 6.9% of the stocks, were participating!  Any advance this weak on participation would be susceptible to a selloff!  But wait, there's more...




The above chart is that of the Russell 2000, an index that represents small cap stocks, and by extension, the risk appetite for market participants, and what is clearly evident is that the Russell left the party back in March of this year, or six months ago!  I have also noted on the chart the day the NYSE made its high for the year, and you can clearly see that the Russell was well below its previous tops reflecting a diminishing participation in the small cap issues.  Exactly what you don't want to see if you are betting long on the market.


For another picture of investors risk appetite, I have placed the Junk Bond ETF, ticker symbol JNK on the chart above because I believe it paints a rather grim picture of what is happening to investors attitude toward risk.  If you are not familiar with Elliott Wave Theory, the above formation is a picture perfect ending diagonal.  Ending diagonal formations are quite rare so when they appear, especially at this magnitude, and this late in the cycle, I heed their warning. When ending diagonals are completed, the resulting countertrend move is often swift and furious.  The above chart clearly shows a market reversing course swiftly.

Another measure of risk that is currently breaking out is the TED spread, This is the spread between 3 month Treasury Bills and equivalent Eurodollars.  A widening spread indicates a shift away from risk and a move toward the perceived safety of US Treasury Bills.  This is typically a very reliable indicator, and a continuing widening of this spread would be a cause for worry about the health and sustainability of this rally. If you think this is no big deal, you may want to consider the following: Total US debt now comes to over 1.1 million per family of four.  Moreover, The face value of all derivatives outstanding now totals  more that 693 trillion dollars, or nearly ten times the  size of the entire GLOBAL GDP!  JP Morgan Chase alone has over 72 trillion dollars of notional derivatives on its books.  That's about four and a half times our US GDP,! And its only one of several money center banks!  And that is not unique to the United States.  For example, Deutsche Bank's derivatives book is over 21 times the size of the entire German economy!

The chart above shows why we are seeing decreasing marginal benefits to the Feds ongoing stimulus.  The velocity of money, or how many times a dollar changes hands, has imploded, making the Feds continued asset purchases increasingly less effective in stimulating the economy.


The technical picture suggests that despite all of the contrary evidence mentioned above, the market is most likely going to make at least another new high before any major top is in.  The evidence is in the chart directly above.  The chart is a 30 min. chart from the high on September 19th, through Friday, October 3rd, and it clearly shows a 3 wave zigzag formation.  Three wave moves are always counter to the one larger trend, thereby implying that the larger trend is still to the upside, with at least one more push to new highs.

The only real question is weather this three wave move from the September 19th high is the entire corrective move, or just the "a" wave of a larger a-b-c correction.  We will have our answer this week.  If the market rallies up in a three wave move on deteriorating breadth, then we know that we have one more move to the downside, wave c,  before a push to a new high.  If the market rallies up in a 5 wave move from the recent low, then we could surmise that that move is terminal with a significant downturn to correct the massively overbought condition ensuing thereafter.

When this tide finally turns, it will be the greatest transfer of wealth the World has ever seen.  Will this be the top that starts that chain of events that finally changes out financial system for the better, probably not, but that remains to be seen.

Good Trading.

D.A. McFarland

ACCURACY OF INFORMATION. All of the information on this website is for entertainment and educational purposes only. While the information is believed to be accurate and the analysis is honestly offered, none of the information on this site should be considered solely reliable for use in making actual investment decisions.
INVESTMENT DECISIONS. You assume all risk associated with investment decisions made on the basis of information contained on this website. It is our policy to never advocate the purchase or sale of any individual investment vehicle. You should also understand that vanportreport.com and its writers may be active investors in the market and may or may not have open positions in any investment vehicle mentioned on this website. Prior to the execution of a stock trade, you are advised to consult with your broker or other financial representative to verify pricing and other information. Vanportreport.com, its writers or content partners shall have no liability for investment decisions based upon the information contained on this website.