As the rally matures, the rate of change (ROC) of this Cycle is beginning to accelerate. Normally a Cycle will form a more pronounced topping pattern, so the rate of change declines towards zero near the market top. This move is very different because it has blow-off like qualities about it. The longer this Cycle advances, the more vertical it becomes. The extension of this rally compared to past Cycles is clearly pronounced (see blue arrows below) on the below chart and we know the sharper the rise the faster and further it will eventually fall. To me this market resembles a lot like the 2007 melt-up move where the market just kept on going despite what was clearly a worsening macroeconomic landscape.
This might also explain why the market internals is conflicting, despite an obvious divergence half way through this Cycle, much of the internals now look bullish and easily support this markets move to all-time highs. What it’s most likely showing is that once the next ICL occurs, we could well be looking at yet another move higher.
The internal technical data may support this move, but the underlying macroeconomic fundamentals couldn’t be further away. The divergence between the sputtering economy and the liquidity fed markets is already at bubble proportions. This FED created spread is by design, and for as long as the economy manages to avoid tipping into the abyss there remains a chance that this spread could be maintained.
I often here on “the wire” that this move has such little exuberance and that because “Joe public” isn’t buying it that this couldn’t be a bubble. This is often cited as justification for the market at these levels (and for higher prices) and I believe it’s a dangerous argument. Don’t believe for a second that traders, economists, investment banks, and hedge funds believe this is a true secular bull market. In 2000 and 2007, this element actually believed in the market, they really did think it was going so much higher.
But this time around it’s just one big game and we’re not invited. It’s a "backdoor" payback for the 2007-08 losses, a way to make them all whole again, and it’s at your expense. None of them believes this market because they know it’s an artificial rally, a FED induced and supported “wealth creation” exercise. This mentioned group is in on the deal in what is a massive transfer of wealth from the public to the connected “banksters” and their vast network of friends. Cash is sloshing around the economy and they’re buying everything and anything. Equities, junk bonds, Rwandan and Greek debt, Condo’s, Art, you name and they’re buying it.
So as they all party and cash in, “Joe public” is struggling to find employment. They're very aware that eventually all drunken parties come to an end. The smart ones already have one foot out the door while the others have quietly made their way over towards the exists. Like in any party, there are always the young and naïve who are just having too good a time, and we know what will happen to them. Can you see them moving towards the exit, look below.
Making new highs 26 weeks into a Cycle matches the longest winning streak of this 4 Year Cycle. We also have a close above the weekly and monthly Bollinger Bands, historically this has signaled a significant top.
When the party ends there will be a massive stampede for the exits. After an astounding 400 point Yearly Cycle move there is a lot of paper profit outstanding along with some massive and over leveraged positions. Once the first couple of dips are not bought, the participants will get a whiff of the party’s end and the mood will quickly turn from ecstasy to panic. This realization will set the “bots” into motion as their speed will accelerate the change in trend. This will set of a process of leverage reduction, forced liquidation, and the natural instinct to protect oneself. This self-fulfilling process is at the very heart of Cycle mechanics and it will ensure that the markets reversion back to the rising mean is fulfilled. Never under-estimate the natural laws of human nature, the FED maybe powerful, but they are far from supreme.