Transcendental Market Fragments:
The Market:
If the government were a stock, it would be near zero now. How long can a capitalist system survive when virtually all private failures are guaranteed by the government? My stance is that the country is bankrupt right now, with no hope of ever paying back all of this debt. It's moving forward on momentum alone.
The Greater Fool Theory is one of the oldest, and most accurate, descriptions of the market. The theory says that there is a tendency for buyers to want to buy high and sell even higher. It's a momentum game. The only losers in the game are those who buy high, but can't find a greater fool to sell to. At that point, the last buyer is the "Greatest Fool." The market appears to be coming to a line in the sand that separates the greater fools from the greatest fool. That line is mostly in time, not price.
The line is currently in the 970 area on the weekly S&P. Last week's high in the SPX was 956.25, so there's very little headroom for the market to advance here. Buying power is dropping off as the market makes new highs, a sign that the market is rising on fumes alone. That has always resulted in a big decline in the past.
Money managers have been forced to expend their cash reserves to be exposed to the rally, despite the fact that the market is fundamentally overvalued. This is an explosive combination of unwilling buyers looking to exit when the pressure is off - no one wants to be the Greatest Fool.
The real line in the sand is the calendar. The market is coming to the end of the Second Quarter at the end of June. Money managers will be wanting to demonstrate that they were invested in the market for the cyclical bull market rally. But, they don't want to get caught as the Greatest Fool. That's where this week's Triple-Witching Expiration comes into the picture. One way investors protect themselves is by buying puts against a market decline. June puts are expiring and will need to be replaced soon (especially so for puts which are far out of the money). When puts are purchased, it feeds through into the general market, causing selling of the underlying stocks which are protected by those puts (this happens because the put sellers hedge their sales by shorting the underlying stocks).
Oil:
Oil prices are exhibiting bearish divergence (via Wilder's Relative Strength Index -14) and indicating a reversal is near. The dollar is the key and a turn in trend there will cause a turn in the trend in Oil.
Mining Stocks:
It doesn't get much more bearish than this. My proprietary Accumulation-Distribution curve has moved into negative territory which indicates that net selling pressure is swamping buying pressure. Last year the miners tanked when the A-D curve dropped below the zero line. And, the index is barely off its highs right now. My interpretation: mining insiders are getting out in a big way as they anticipate a big drop in profits of the mining companies. Whether this is a forecast that the price of Gold will drop is another question. Mining companies are under severe cost pressures which are putting the squeeze on profits. The chances are that Gold will follow the shares lower. |
