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Something long term bears do not want to hear


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#1 NAV

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Posted 02 December 2017 - 02:37 AM

I posted a chart on how a trend line from 1987 passing thru 2000 top was hit at SPX 2656 and i got called a dingbat by a senior citizen. It’s hard to post anything which both the bull and bear camp loves. But you know what, that’s the reader’s problem for lack of open mindedness to accept any ideas contrary to their biases. Not to mention the low emotional quotient of the same people, EQ being the most important trait of a trader.

 

I am not new to this. During 2006 and 2007 when i was very bullish, i got horrible e-mails from frustrated bears. There was even a thread created on Silicon Investor “Fade the NAV”. It was horrible.

 

I am not playing devils’s advocate here, but i will just keep throwing information, that i find interesting.

 

I was listening to a podcast with Tom McLellan and he mentioned a very interesting stuff. According to their study, when the NYSE A/D line makes a new 3 year high, the market has never produced a decline greater than 10%. So odds of decline greater then 10% here, with all the data available over last 100 years or so since the breadth statistics have been collected is ZERO. A new high obviously means no divergence.

 

Now that does not mean, it is impossible. But if you are betting on ZERO percent odds, what kind of a sick gambler are you ? That is the bottom line.

 

So to make the long story short, yes the trendline touch from 1987 at 2656 and the some Fib extension targets at that level, could cause a big reaction here, but will not be the ultimate top, based on the highly reliable A/D line. So when i hear people calling this the ultimate top and calling for 30% or 50% decline, i view that with extreme skepticism. Sorry bears, you may get a 5-10% decline here. But anything more than that would mean history has to be “created” as we have no precedent for that.

 

My own view (not a hard target) is that when the 2.618 Fib extension is exceeded and sustained it will eventually reach 3.618 extension. I see this all the time in my short term trading. Many times, folks ask me how did i exit right near a top when i did not get a technical exit. Now you know the magic. 

 

 

And that 3.618 extension (off the SPX 666 lows) comes to around SPX 3087. If we see A/D line divergences there, we could see a big top there. We will cross that bridge when we come to it. Until then, happy trading !


Edited by NAV, 02 December 2017 - 02:40 AM.

"It's not the knowing that is difficult, but the doing"

 

“I have heard many men talk intelligently, even brilliantly, about something – only to see them proven powerless when it comes to acting on what they believe” - Bernard Baruch

 


#2 NAV

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Posted 02 December 2017 - 02:44 AM

If you are interested in the podcast, it's here

 

https://itunes.apple...0386780818&mt=2


"It's not the knowing that is difficult, but the doing"

 

“I have heard many men talk intelligently, even brilliantly, about something – only to see them proven powerless when it comes to acting on what they believe” - Bernard Baruch

 


#3 NAV

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Posted 02 December 2017 - 02:58 AM

BTW, he does mention 2 exceptions in that interview. One was obviously in 2015 where we saw a 15% decline.

 

The point is, we do not have a precedent for a 30 or 50% kind of declines.


Edited by NAV, 02 December 2017 - 02:59 AM.

"It's not the knowing that is difficult, but the doing"

 

“I have heard many men talk intelligently, even brilliantly, about something – only to see them proven powerless when it comes to acting on what they believe” - Bernard Baruch

 


#4 salam

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Posted 02 December 2017 - 08:32 AM

Thanks for sharing

Ps you can never be a fade in my book!

Edited by salam, 02 December 2017 - 08:32 AM.

I'm not sure what my future holds... But I know who holds it.

#5 Data

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Posted 02 December 2017 - 10:36 AM

I show greater than 10% declines in 2010 and 2011 where A/D line made 3 year highs.  These occurred right after QE1 and QE2 ended, respectively.   The declines were stopped after 2 months when more quantitative easing was announced.   So we don't know how much of a decline would've transpired without policy changes to inject massive funds into the system.   The same with 2015 and 2016.

 

I also show 2 huge declines in German Dax after the ECB QE's ended in 2012.   

 

It really comes down to markets that are policy-driven.

 

The question becomes whether there will be effective constraints on policy in the future due to the shrinking size of the markets that reside in private hands.


Edited by Data, 02 December 2017 - 10:42 AM.


#6 dowdeva

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Posted 02 December 2017 - 10:39 AM

Nav,

 

Did he mention how long the signal is good for?

 

Thanks.

 

Fib has a very good method of timing new $NYSI highs, also.



#7 libertas

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Posted 02 December 2017 - 11:36 AM

Well I know that this will result in disdain, but I believe that you have to keep in mind the economic fundamentals. Although the Fed has slowed its balance sheet growth, other CBs in China, Japan and Europe have not. This flood of liquidity has driven up the prices of financial assets of all kinds - stocks, bonds, real estate, etc., which have then been hypothecated and re-hypothecated in turn to further increase the supply of money and money-like assets. You have only to look at the Bitcoin phenomenon to see the resultant mania in action. The ongoing flow of new liquidity is vital to service the debt which has been created, as has been amply illustrated by the previous two bubble peaks, and their aborted liquidations. This third bubble has grown so large in part because of the prevention of the previous liquidation, but mostly because of the staggering bubble in China that Premier Xi created in order to ensure his historic "coronation" at the recent Party conference.

 

However, CBs are starting to realize that they have a tiger by the tail. What they have created is, in effect, a giant Ponzi scheme. If, as and when they slow or stop the liquidity flow the scheme will collapse. Maybe they will be able to rescue it again, but I doubt it. Japan is still crazy after all these years, but the Fed, the BoC, the BoE and the ECB are all planning - and talking about - their various slowdowns or reversals. So there's likely a pony in here somewhere.

 

This situation is unprecedented - it really is different this time, but not in a good way. As ultra-short-term technical traders, a day at a time, you probably don't care. I don't think looking at market internals, which have been giving negative signals for quite some time, will be helpful. Watching the yield curve might be a good idea. This piece is also food for thought.



#8 NAV

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Posted 02 December 2017 - 02:49 PM

I show greater than 10% declines in 2010 and 2011 where A/D line made 3 year highs.  These occurred right after QE1 and QE2 ended, respectively.   The declines were stopped after 2 months when more quantitative easing was announced.   So we don't know how much of a decline would've transpired without policy changes to inject massive funds into the system.   The same with 2015 and 2016.

 

I also show 2 huge declines in German Dax after the ECB QE's ended in 2012.   

 

It really comes down to markets that are policy-driven.

 

The question becomes whether there will be effective constraints on policy in the future due to the shrinking size of the markets that reside in private hands.

 

 

Data,

 

Yes he mentions both those exceptions in that interview. Even those two exceptions were less than 20% declines. As for 30%+ declines there is zero precedent.


"It's not the knowing that is difficult, but the doing"

 

“I have heard many men talk intelligently, even brilliantly, about something – only to see them proven powerless when it comes to acting on what they believe” - Bernard Baruch

 


#9 NAV

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Posted 02 December 2017 - 02:51 PM

Nav,

 

Did he mention how long the signal is good for?

 

Thanks.

 

Fib has a very good method of timing new $NYSI highs, also.

 

dowdeva,

 

No he does not talk about that. 


"It's not the knowing that is difficult, but the doing"

 

“I have heard many men talk intelligently, even brilliantly, about something – only to see them proven powerless when it comes to acting on what they believe” - Bernard Baruch

 


#10 NAV

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Posted 02 December 2017 - 02:56 PM

Well I know that this will result in disdain, but I believe that you have to keep in mind the economic fundamentals. Although the Fed has slowed its balance sheet growth, other CBs in China, Japan and Europe have not. This flood of liquidity has driven up the prices of financial assets of all kinds - stocks, bonds, real estate, etc., which have then been hypothecated and re-hypothecated in turn to further increase the supply of money and money-like assets. You have only to look at the Bitcoin phenomenon to see the resultant mania in action. The ongoing flow of new liquidity is vital to service the debt which has been created, as has been amply illustrated by the previous two bubble peaks, and their aborted liquidations. This third bubble has grown so large in part because of the prevention of the previous liquidation, but mostly because of the staggering bubble in China that Premier Xi created in order to ensure his historic "coronation" at the recent Party conference.

 

However, CBs are starting to realize that they have a tiger by the tail. What they have created is, in effect, a giant Ponzi scheme. If, as and when they slow or stop the liquidity flow the scheme will collapse. Maybe they will be able to rescue it again, but I doubt it. Japan is still crazy after all these years, but the Fed, the BoC, the BoE and the ECB are all planning - and talking about - their various slowdowns or reversals. So there's likely a pony in here somewhere.

 

This situation is unprecedented - it really is different this time, but not in a good way. As ultra-short-term technical traders, a day at a time, you probably don't care. I don't think looking at market internals, which have been giving negative signals for quite some time, will be helpful. Watching the yield curve might be a good idea. This piece is also food for thought.

 

 

I hear you. I have never witnessed bubbles is so many asset classes across the globe at the same time. 

 

But the point is when the liquidity is withdrawn, it will show it's footprints on the A/D line. You might say it's different this time. Only time will tell. But there is zero precedent for that. That's why i said, if it does happen, then we will be creating history.


"It's not the knowing that is difficult, but the doing"

 

“I have heard many men talk intelligently, even brilliantly, about something – only to see them proven powerless when it comes to acting on what they believe” - Bernard Baruch