Tipping Point (Part 3):
Equities Flash Danger
An old Wall Street adage says: “no one rings a bell at the top“. Those who try to pick tops, eventually not only fail in that effort but suffer tremendous losses in the vain attempt to be able to say that they sold at the top. I’ve learned that ringing is tinnitus, not some sign of peaking prices. Picking tops or bottoms are financial suicide to everyone but the one lucky guy that did pick the top. It was luck not skill.
Those who handicap horse races often claim to be able to pick winners. Instead, they merely assess probabilities based on the volume of bets. That is how markets are set. Some bet long and some bet short. The dollars on each side are what clear the market and set the odds, not some guru who knows more than anyone else. Academic study after study has concluded that successfully making money on the ponies is as likely as winning in roulette or beating the market. Horse racing, the gambling tables and the NYSE are businesses structured to make money, not allow some guy off the street to win money. The only consistent winners are Mr. Market and the House.
No one wins betting on the ponies in the long run, because the HOUSE takes its cut and, therefore, one cannot win statistically. If you bet on every horse, you will not win 100% of your entire bet back. Same in Blackjack, same in roulette, and same in Wall Street. That does NOT mean that certain mathematical tricks can be used sometimes to provide an advantage over the HOUSE.
While no one can beat the market consistently over the long term, we can nonetheless crudely estimate and shape the odds of winning. One way is through superior information.
That brings us to this publication (https://markonomics101.com/). If no one beats the market, why do we do the research and undergo the effort to present a certain case for investment strategy?
The information presented here and developed here is not a thinly veiled attempt to get readers to buy or sell. We have NO AGENDA except truth, honesty, and accuracy. The level of analysis we put forth is repeated nowhere else. Have you read about Reverse Waves or Hindenburg Omens anywhere else?
Of course, the proof is in the pudding. About 2 months ago, July 12th to be exact, this publication began to cite some very important factors of equity valuation which suggested stocks had little to no upside potential but substantial downside potential. That analysis was an objective assessment of the odds (https://markonomics101.com/2018/07/12/inflection-point-part-1-the-long-term-equity-valuation-cycle/).
Since then, the equity markets have inched higher for the most part. Some, like the Russell 2000 and the Nasdaq 100, continued to make a series of new ALL TIME highs, while others such as the Dow Jones Industrial Average fell short of their January highs.
So, what did our analysis uncover that wasn’t widely known? A series of rare but revealing chart patterns and technical indicators. The appearance of “Reverse Waves”, Ascending Wedges, Parabolic Uptrends, and Hindenburg Omens was pointed out to our readers but nowhere else. These formations are significant because they are so reliable and rare. Readers of this publication were provided an explanation of the circumstances that produce them.
All of these together are signs of the kind of cross currents that mark Points of Inflection. They are also indicators of “Ultra High Risk”, which was pointed out very recently in the piece called “Ultra High Risk for the Equity Markets” (https://markonomics101.com/2018/08/31/ultra-high-risk-for-equities/). This piece rightly pointed out that severe cross currents were a trader’s worst nightmare.
The market is still in an “Ultra High Risk” mode in many respects but starting to tip its hand and hinting that the next major trend is shaping up. This is what we have referred to as a “Tipping Point” and our handy-dandy charts are now worth 1000 words.
At the moment, a couple of the indexes are still slightly in BULLISH territory, such as the Russell 2000 and the Nasdaq 100. However, the others are showing clear signs of a potential Major Reversal, including the Dow Jones Industrial Average, the Value Line Composite, the New York Composite, and GOOGL, one of the “Four Horsemen of the Nasdaq Collapse” (https://markonomics101.com/2018/08/23/tipping-point-part-2-the-four-horsemen-of-the-nasdaq-collapse/).
All of these together do not make a market reversal a certainty. They are a “necessary” condition for the coming massive equity BEAR MARKET we have been referring to for months, but not a “sufficient” condition. In other words, the odds of a new Bear Market have gone substantially higher, and anyone who ignores these signs or dismisses them as irrelevant is tempting fate. By the time a BEAR Market is obvious, a lot of damage will have already taken place.
Being the bearer of bad news is never a pleasant part of publishing these types of analyses, but nothing is worse or more unethical than the herd of Wall St. analysts who never met an overvalued market. Buy recommendations typically outnumber sells by 10 to 1.
Tom Dwyer, chief strategist for Canaccord Genuity, forecasts a year end S & P 500 at 3200 (https://www.cnbc.com/2018/06/06/wall-streets-biggest-bull-sees-sp-500-at-records-by-years-end.html) while UBS analyst Tim Parker sees 3,150. (It is at 2878 at the close of business on 9/6/18.)
Furthermore, the vast majority of analysts will stubbornly stick to their bullish forecasts even when circumstances dictate caution. They have a huge conflict of interest. Issuing a sell signal is BAD FOR BUSINESS and any individual company that is downgraded pretty much means that any future investment banking or underwriting business from that firm is out of the window. Being intellectually honest comes at the risk of losing one’s 7 figure job. An analyst that downgrades IBM from a buy to a sell has pretty well kissed any business from IBM goodbye and probably his or her cushy job.
But worry not, I have NO intention of firing myself for being wrong and nothing to gain by being right except that you can rest assured no such conflict exists. If our analysis is either misleading or wrong, you’ll know it and why.
In the last several days, a very significant shift has become evident in the charts. All those Ascending Wedges we’ve spoken about are now breaking down. A rare pattern, called the “Reverse Wave” (RW), is now present in nearly all the key indexes. (More on the RW can be found here: (https://markonomics101.com/2018/08/22/tipping-point-or-tripping-point-equities-surge-to-new-highs/) and here: (https://markonomics101.com/2018/08/23/megaphone-madness/). ) Reverse Waves historically have very accurately marked short term and perhaps longer term tops.
To re-iterate from the articles, these patterns are not common and reflect an environment that is riddled with cross currents.
In looking at the charts above, only two are constructive and barely so. The rest are seeming ready to roll over and begin the process of putting into place the BIG BAD BEAR who has been hibernating for too long.
The equity markets are at a critical juncture, although one cannot rule out more rally or churning action. The markets remain at ULTRA High Risk. Even if our analysis proves to be early, it is always better to be a month too early than a day too late.