One Chart that Says it All …

Similar to us, our friends at Sitka Pacific Capital Management are very wary of the stock market at its current levels of valuation and given its technical condition and the fundamental backdrop against which all of this plays out.

We have previously mentioned the 'parade of tops' and divergences that the market has served up: for instance, the NYA topped a full 18 months ago, which shows that the subsequent rallies were carried by ever fewer big cap stocks. But that is not all, and it is very instructive to look at a long term overview of the secular bear market in toto and compare the progression of divergences that was in evidence at the two prior major market peaks with today's situation.

Sitka Pacific has published just such a chart in a recent letter to clients and has graciously allowed us to post an updated version of it here. The chart to our mind conveys primarily one message: one should not lose sight of the forest for the trees.

 

Often when reading critical comments on the market by the likes of John Hussman (whose most recent missive is once again a 'must read' by the way), which may appear over a lengthy period, while the market rather stubbornly refuses to fall, one may after a while become inclined to dismiss the warnings.

And yet, when looking back at a long term chart of the market, one realizes that it is usually worth to be patient while a lengthy distribution process is underway. One would actually do best to heed the many warnings the market often gives us over extended periods before finally caving in for good.

It is important to remember in this context that both the major moves up and even more so the major moves down tend to happen in very compressed time periods. For instance, 90% of the market's gains occur in just 3% of the time (we are quoting this statistic off the cuff and it is a little dated, so if there is an inaccuracy don't hold it against us – it is the principle that we want to stress).

When the market falls, most declines tend to happen even faster. So it is clear that when people become aware of warning signs, that the actual decline that will eventually follow on the heels of these warning signs will come at some later point – how much later is slightly different every time. The decline can after all only happen once and will as a rule tend to be very compressed. So it does little good to complain that it hasn't happened yet, because when it does happen, it will be fast and decisive.

Of course the concerns of short term traders are generally of a different nature, it is also important to point out that this entire discussion is actually mainly of use to longer term investors. However, even short term traders must be aware of the longer term backdrop, if only to remain alert to important character changes that are usually presaged by such technical divergences.

So without further ado, here is the chart:

 


 

How market tops develop, based on the divergences observed at the two major peaks of the secular bear market to date compared to the current situation, by Sitka Pacific – click for better resolution.

 



 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

3 Responses to “Stock Market Peaks Compared”

  • Floyd, it is never different. The world is using its effort to support crumbling debt with more debt that will crumble later. We have an absolute idiot running the US, a split in Congress, a rest of the world more financially impaired than the US, bubbles in everything, an SPX that is probably trading at 150% of peak valuation and more. The idea the Fed can print wealth is a failed policy tried over and over again, most recently in Japan, where the destruction is visible. The QE is nothing more than idle money and it can’t go anywhere, because it is an entry on a bank ledger or in someones pocket and not available to the banking system. There may be books written about this. I say may, because Obama is trying to close the door to protest. Congress do away with the debt ceiling, the executive becomes a dictator.

  • Floyd:

    Is it different this time?

    Many things are different then most other times.
    Gov blunt intervention, tug of war between deflationary and inflationary forces, participation rate, etc.

    Yet, it would be amazing if the stock market can ignore the real world for very long time.

    One thing of significance that may be different is the distribution of market participants and their behavior patterns.
    “may” because I can’t prove this conjecture, only suggest it.
    Compare to twenty years ago.
    How many small participants could trade then on a whim?
    At the same time, what percentage of trades are actually performed by retail investors?
    Computerized investing is ever more automatic. High frequency trading is pretty much a new phenomenon.
    Are these changes sufficient to make a difference?

  • Mark Humphrey:

    Thank you for this article (and many others like it). I always enjoy your carefully reasoned comments on the destruction inherent in government intrusions into the civilized market place. I especially appreciate the value of your techical analysis of market trends, as for example, this article. Your insights are important and instructive.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • Is the Canary in the Gold Mine Coming to Life Again?
      A Chirp from the Deep Level Mines Back in late 2015 and early 2016, we wrote about a leading indicator for gold stocks, namely the sub-sector of marginal - and hence highly leveraged to the gold price - South African gold stocks. Our example du jour at the time was Harmony Gold (HMY) (see “Marginal Producer Takes Off” and “The Canary in the Gold Mine” for the details).   Mining engineer equipped with bio-sensor Photo credit: Hulton Archive   As we write these...
  • Fed Credit and the US Money Supply – The Liquidity Drain Accelerates
      Federal Reserve Credit Contracts Further We last wrote in July about the beginning contraction in outstanding Fed credit, repatriation inflows, reverse repos, and commercial and industrial lending growth, and how the interplay between these drivers has affected the growth rate of the true broad US money supply TMS-2 (the details can be seen here: “The Liquidity Drain Becomes Serious” and “A Scramble for Capital”).   The Fed has clearly changed course under Jerome Powell...
  • Are Credit Spreads Still a Leading Indicator for the Stock Market?
      A Well-Established Tradition Seemingly out of the blue, equities suffered a few bad hair days recently. As regular readers know, we have long argued that one should expect corrections in the form of mini-crashes to strike with very little advance warning, due to issues related to market structure and the unique post “QE” environment. Credit spreads are traditionally a fairly reliable early warning indicator for stocks and the economy (and incidentally for gold as well). Here is a...
  • The Gold Standard: Protector of Individual Liberty and Economic Prosperity
      A Piece of Paper Alone Cannot Secure Liberty The idea of a constitution and/or written legislation to secure individual rights so beloved by conservatives and among many libertarians has proven to be a myth. The US Constitution and all those that have been written and ratified in its wake throughout the world have done little to protect individual liberties or keep a check on State largesse.   Sound money vs. a piece of paper – which is the better guarantor of liberty?...
  • Fed President Kashkari Hears Voices – Are They Lying?
      Orchestrated Larceny The government continues its approach towards full meltdown. The stock market does too. But when it comes down to it, these are mere distractions from the bigger breakdown that is bearing down upon us.   Prosperity imbalance illustrated. The hoi-polloi may be getting restless. [PT]   Average working stiffs have little time or inclination to contemplate gibberish from the Fed. They are too worn out from running in place all day to make much...
  • US Stocks and Bonds Get Clocked in Tandem
      A Surprise Rout in the Bond Market At the time of writing, the stock market is recovering from a fairly steep (by recent standards) intraday sell-off. We have no idea where it will close, but we would argue that even a recovery into the close won't alter the status of today's action – it is a typical warning shot. Here is what makes the sell-off unique:   30 year bond and 10-year note yields have broken out from a lengthy consolidation pattern. This has actually surprised us, as...
  • Switzerland, Model of Freedom & Wealth Moving East – Interviews with Claudio Grass
      Sarah Westall Interviews Claudio Grass Last month our friend Claudio Grass, roving Mises Institute Ambassador and a Switzerland-based investment advisor specializing in precious metals, was interviewed by Sarah Westall for her Business Game Changers channel.   Sarah Westall and Claudio Grass   There are two interviews, both of which are probably of interest to our readers. The first one focuses on Switzerland with its unique, well-developed system of  direct...
  • Exaggerated Economic Growth of the Third World
      Exciting Visions of a Bright Future Fund Managers, economists and politicians agree on the exciting future they see in the Third World. According to them, the engine of the world’s economic growth has moved from the West to what were once the poverty-stricken societies of the Third World. They feel mushy about the rapid increase in the size of the Middle Class in the Third World, and how poverty is becoming history.   GDP of India vs. UK in 2016 – crossing...
  • Choking On the Salt of Debt
      Life After ZIRP Roughly three years ago, after traversing between Los Angeles and San Francisco via the expansive San Joaquin Valley, we penned the article, Salting the Economy to Death.  At the time, the monetary order was approach peak ZIRP.   Our boy ZIRP has passed away. Mr. 2.2% effective has taken his place in the meantime. [PT]   We found the absurdity of zero bound interest rates to have parallels to the absurdity of hundreds upon hundreds of miles of...
  • Why You Should Expect the Unexpected
      End of the Road The confluence of factors that influence market prices are vast and variable.  One moment patterns and relationships are so pronounced you can set a cornerstone by them.  The next moment they vanish like smoke in the wind. One thing that makes trading stocks so confounding is that the buy and sell points appear so obvious in hindsight.  When examining a stock’s price chart over a multi-year duration the wave movements appear to be almost predictable.   The...
  • How Dangerous is the Month of October?
      A Month with a Bad Reputation A certain degree of nervousness tends to suffuse global financial markets when the month of October approaches. The memories of sharp slumps that happened in this month in the past – often wiping out the profits of an entire year in a single day – are apt to induce fear. However, if one disregards outliers such as 1987 or 2008, October generally delivers an acceptable performance.   The road to October... not much happens at first - until it...
  • Yield Curve Compression - Precious Metals Supply and Demand
      Hammering the Spread The price of gold fell nine bucks last week. However, the price of silver shot up 33 cents. Our central planners of credit (i.e., the Fed) raised short-term interest rates, and threatened to do it again in December. Meanwhile, the stock market continues to act as if investors do not understand the concepts of marginal debtor, zombie corporation, and net present value.   The Federal Reserve – carefully inching forward to Bustville   People...

Support Acting Man

Item Guides

Austrian Theory and Investment

j9TJzzN

The Review Insider

Archive

Dog Blow

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com