A Historic Week For Stocks

This report is a follow-up to my February 21 report which can be read here. For those who started following my work recently, I recommend reading that report in order to better understand how we got here.

Also for new readers, please note: email replies containing charts, market history and thoughtful analysis are always welcome. Any other material discussing current events or theories of how the world should work will be spam-filtered and not read. Also a warning: anyone sending inappropriate or disrespectful feedback will also be permanently blocked. Lastly, (1) anyone who fails to understand the time frames being discussed in this report should stop reading (and shouldn’t be trading in the first place) and (2) anyone who trades based on any information contained herein is fully responsible for their own decisions.


  • One of the steepest 1-week market plunges of all time could be nearly over – Nasdaq futures even briefly exceeded the worst 1-week loss in October 2008, the core of a historic Bear market.
  • Extreme and historic oversold signals are being generated across nearly all core datasets I run & monitor.
  • Based on prior historic signals, there is a chance (no guarantee) markets bottom and reverse very soon – need to monitor for price reversals to confirm the turn.
  • The subsequent rally could very quickly retrace at least half of the decline within a very short period. Again, no guarantees.
  • How the leading Stocks (particularly broad Tech) behave over the next several weeks will be key for the market to repair the damage and re-establish the foundation for a bigger rally into potentially Q2-Q3.


My Core Models are all max oversold. Below is one of the most important ones, for reference.

Stock sentiment is in full capitulation. My report last week compared the extreme overbought Weekly RSI signals to January 2018 among other dates. This week’s collapse is tracking almost exactly to the February 2018 decline (and a few others) – suggesting the same dynamics in play. Visible in the chart, NDX daily sentiment DSI hit 10 on February 8 2018 (which was a Thursday) and bottomed the next day (a Friday) with a hammer just above its 200dma (never touched). As of the time of writing, NQ futures touched the 200dma in the overnight session – monitor the cash session behavior – it will be critical.

The Stock/Bond ratio hit an 18 RSI in the overnight session. This is an extremely powerful and historic signal – see the next charts.

Below are the five priors – ALL marked initial bottoms that led to immediate and massive oversold rallies – which then retested the lows as part of a bottoming pattern – sometimes with higher prices, sometimes slightly lower, and in one case there was no retest:


S&P 80% of Stocks are below their Bollinger band. Only three dates ever went lower: August 4 2011, August 8 2011 (bottom), August 24 2015 (bottom).

S&P 0.59% of Stocks are above their 10dma. Other than 2008, this happened only during the 2010 Flash Crash, August/November 2011 collapse, August 2015 collapse, February 2018 collapse, and December 2018 collapse. Some spikes marked the exact bottom (but most notably in 2008, the market kept crashing).

S&P 1.58% of Stocks are above their 20dma. Same dates as the prior chart with a new one added – July 23 2002, the first of two bottoms in a massive 8-month base that ended the Bear market.

S&P 6.94% of Stocks are above their 50dma. Again many of the same prior dates pop up, but some important new dates as well: the initial stages of the 1990 Bear market bottom (market needed more time to bottom), the September 2001 bottom, October 2002 bottom, August 2007 bottom, January 2008 bottom, March 2009 bottom and January 2016 bottom. Even in Bear markets this led to some immediate and extremely sharp rallies.

S&P 62.77% of Stocks have oversold RSIs. Priors: August 23 1990 (market went lower and formed a base over several months), September 20-21 2001 (bottomed on the 21st), July 22-23 2002 (bottomed on the 23rd), October 9-10 2008 (minor bottom on the 10th – then continued to collapse another month), August 4 2011 (bottomed two days later), August 8 2011 (bottom), August 25 2015 (bottom), December 24 2018 (bottom).

S&P 5-Day A/D Breadth is 11.45%, the second-lowest reading since 1990. More oversold than any week in 2008. Only the August 24 2015 shock decline was worse than this (market bottomed the next day).


The VIX curve is historically backwardated (as of yesterday’s close) by more than 30%, in the top 16 days since 2002. Prior dates were: July 22-23 2002 (bottom), October 6-24 2008 (crash), August 24 2015 (bottom), February 5 2018 (bottom). If this is NOT 2008, then there is a chance for an immediate bottom to form per the other dates. Again no guarantees.

As of the time of writing the VIX itself traded at 47.15 in the overnight session, one of the highest levels ever recorded. Prior dates were: October 28 1997 (bottom), September 11 1998 (after the bottom), October 8 1998 (bottom), September 21 2001 (bottom), July 24 2002 (bottom), October 2008-March 2009 (crash), May 21 2010 (initial bottom in bigger base), October 8-9 2011 (bottom), August 24 2015 (bottom), February 6 2018 (bottomed 3 days later).

Also yesterday, VIX closed 6 points above EEM VIX for only the third time since 2011 (data start). The other two dates were February 5 2018 (bottomed 3 days later) and December 24 2018 (bottom). U.S. Stocks, which until last week were seen as the only safe haven, are being used as a source of funds and liquidated.


Records are being approached or completely shattered in ETF Volumes, Futures Volumes and Put Volumes – in most major Indexes, Futures and ETFs. This is a classic sign of a washout capitulation.

One example is the Net Put-Call Volume in the S&P seen below. The only two other dates that matched this extreme bearishness were August 2015 and February 2018, both exact bottoms.


Target Volatility Funds have almost completely delevered into yesterday’s close and dropped Equity exposure to levels close to where the market bottomed in 7 out of 8 cases over the past eight years (the exception was 4Q18 which led to a longer decline, which ultimately was fully recovered in a historic V-shaped rally). [Note this dataset is a model-driven approximation that has been a useful gauge in the past. It is not based on actual reported positioning.]


After comparable historic moves, over a medium-term time horizon most prior cases led to Stocks finishing their decline almost immediately, then rallying sharply (roughly 0.500-0.618) within a larger bottoming pattern that took weeks/months. This is also consistent with the analysis presented in last week’s report, regarding initial declines from extreme momentum highs. The exceptions, primarily in 2008, led to catastrophic losses for traders who bought early.

Because of the extreme risks, it goes without saying that all readers need to evaluate this data individually within their own risk tolerance & long-term objectives, and then decide what makes sense for them. Nothing contained here is an investment recommendation.

But there is ONE suggestion that is appropriate here, and always worth a reminder: turn off the noise.

Here are some of today’s cover stories, screaming for your precious attention – as if we didn’t already have enough problems to deal with:

And here is the noise level on Twitter – at a new all-time record – worst of all, not a single prior spike meant anything for Stocks. Most turned out to be fairly decent opportunities to think differently and take a longer-term view.

Turn it all off.


These were some of the hardest days I’ve ever seen in more than 25 years in markets.

I hope everyone is safe and most importantly, know that life is going to get better.

I wish everyone good luck, a nice weekend, and that this may all become a distant memory – making the world stronger and more prepared than ever before.

Thanks for reading.

If you liked this post, please share it with colleagues, subscribe to the Blog to receive future updates, and follow me on Twitter for daily charts: @MacroCharts.

Forever and a Day (in Stocks)

Something truly rare is happening in markets.

This is the biggest report I’ve written since November, maybe the biggest I’ll write this year. There are no memes here. There are no bite-sized “takeaways” or “market calls”. Traders should take the time to carefully study what I’m sharing, then actively monitor the charts on their own going forward, and decide for themselves if any of this is important. Most charts in this report are in WEEKLY time frame. The data won’t change if markets trade down this morning and rally in the afternoon. The picture won’t change if a hot microcap Stock is up 80% tomorrow. These charts and their key message has been developing for months (and years) and won’t change overnight. Those who fail to understand time frames should stop reading (and shouldn’t be trading in the first place).

This post is for traders and students of market history. This means two things: (1) Readers with similar interests are always welcome/encouraged to write back and share technical charts with any interesting idea. (2) Anyone looking to talk about the Fed, politics, liquidity, epidemics, inequality, 1929, debt, please don’t bother sending comments (they will be spam-filtered and not read).

Before we begin, I’ll reiterate what I wrote in my last post a month ago:

For those who started following my work recently, you should know that I spent most of 2019 reiterating my extremely Bullish case for Global Equities, including a cyclical resurgence theme led by Semis, Tech, Banks and Industrials. For medium-term investors who don’t care much about short-term 1-2 month swings, I should add that my view is that 2020 as a whole should be favorable for Equities. Having said that, I am not a long-term investor – and if you’re like me, an Equity & Macro trader that cares very much if the S&P moves 5-10% against me, then what we have right now is a potential big problem brewing.

In that January post, I showed the extreme complacency building in options markets, and wrote:

If history is a guide, the risk-reward over the next 1-2 months is moving towards “extremely poor”, and we shouldn’t rule out a compressed (front-loaded) decline either. All that’s needed is a “catalyst”, as always just a narrative/excuse to trigger deleveraging.

Maybe Stocks will continue to grind a few points higher, generating even more extreme signals in the coming weeks. Personally, I don’t think the odds favor such an outcome – instability is rising significantly and there’s enough pressure accumulating that anything could trigger the start of a corrective phase into later Q1.

Also in January, I shared several charts on my Twitter page specifically highlighting my concern for extreme euphoria in Emerging Markets and extreme bearishness on the Dollar. Below are two of them, and those who want to read further are encouraged to look through my other tweets from that period.

From January 15: “Emerging Markets. Looking for signs of excess in Stocks? Here’s one: This rally has seen +150k $EEM Calls purchased over Puts. The last time this happened was… never. EM traders have gone from “Sell everything” to Buying 3X the prior record in just a few months. That’s alot.”


From January 13: “Dollar. Positioning getting extremely lopsided – and could soon become a contrarian Buy. Even more important, the highly sophisticated FX Dealers are quietly amassing one of the largest Long USD positions ever. History suggests not to fade them, especially with Vol this low.”


It’s been six weeks since then – what has happened? The biggest consensus trades from late 2019/early 2020 – sell Dollar, buy Cyclicals/China/EM – have all been challenged or completely run over. Most markets experienced significant drawdowns and many still haven’t recovered:

Five out of the seven main S&P cyclical Sectors have barely made any gains or are down since their January highs (Comm Services, Energy, Financials, Industrials, Materials). The Dow Jones Industrial Average, the Dow Transports and the Russell 2000 are all flat/down as well. Even the mighty SOX, the LEADER of last year’s cyclical resurgence (and my #1 most Bullish view for 2H19), has stopped going up. Most international markets topped in January and never recovered, some haven’t made any progress in almost two months – and including FX returns, things are even worse.

This may feel like a great market if you’re a U.S.-based growth stock trader or reddit options yoloer going all-in, but in the real world where real asset allocation decisions are made, losses are stretching out far and wide.

In normal times, these past weeks should have been enough to reset some of the froth that had accumulated in certain markets. But a new consensus trade has emerged since then, and has become more crowded than anything that came before it.


Below, the NDX weekly RSI rose above 81 in late January, and again above 80 this week. This is among the TOP 23 weeks since inception of the index, a period of 1,815 weeks (35 years). This means it’s a TOP 1.3% event (98.7 percentile). Extremely rare.

Here is a history of the priors note that I’m marking the PEAK RSI value in each case. This is extremely important because as of the time of writing, NDX is threatening to close the week with another POTENTIAL confirmed turn down in the weekly RSI in other words, another potential peak may be forming this week.

NDX weekly RSI peaks 1985-1995

NDX weekly RSI peaks 1995-2002

Last but not least, the *only* extreme NDX RSI since 2000 – in January 2018:

But it gets even worse.

Below is an updated version of the chart I shared February 10 on Twitter:

The NDX/SPX ratio weekly RSI is in the TOP 11 weeks of all time. Over a period of 1,815 weeks (35 years), this means it’s a TOP 0.6% event (99.4 percentile). Similar to the prior charts, nearly all extreme overbought cases led to immediate relative & absolute losses – the only major exception was the Y2K Bubble, which extended higher only to collapse disastrously. Overall this doesn’t make it any less concerning.

To be clear, I don’t think we’re in a Bubble (yet) and I’m not saying a Bear market is coming. Time frames matter. History strongly suggests a sharp and violent shakeout is a reasonable base case over the next few weeks/months, in order to clear weak hands and eventually continue an even-more-parabolic ascent. Again this is extremely important because as of the time of writing, the NDX/S&P ratio is also threatening to close the week with another POTENTIAL confirmed turn down in the weekly RSI in other words, another potential peak.

Unfortunately it gets even worse.

Something truly rare is happening in markets.

This is an updated version of the chart I shared February 10/18 on Twitter:

The Tech/SPX ratio weekly RSI just made a new ALL-TIME intraweek record (30 years). History being made – it’s never done this before. This prompted me to write the following earlier this week: “Tech has been invulnerable to bad news. A sharp repricing may seem impossible – mean-reversion could make it inevitable.”

Again, similar to the prior charts, most prior cases led to immediate relative & absolute losses. There were two minor exceptions in 2017, which still led to losses, albeit much smaller.

One important addendum before we continue:

Beware of spreadsheet traders with hidden agendas, who will invariably run these momentum signals and say that “on average, markets didn’t fall that much X days after”. Or the usual quip that there’s not enough historical signals to be robust. Or that past extremes are meaningless in today’s markets. These are largely inexperienced analysts (not traders), usually with an emotional need to be right, and think that running a linear regression qualifies as understanding how markets work. Markets aren’t linear (especially at the extremes), don’t trade in fixed time intervals, and certainly don’t follow average returns. Which is why I’ve hand-written all the prior cases in each chart. There is no debating the forward path of each prior signal, each case is clearly illustrated. Spreadsheet traders offer a lot of average stats (useless) but have very little in-depth understanding of historical Stock movements, because tables will never be substitutes for an actual inspection of the chart. Regardless of what happens next, historic cases led to significant losses with extremely negative skew, and any table showing average returns “weren’t that bad” is at best uninformed/lazy, or intentionally misleading. One can torture the data all they want, but they can’t change the chart. That price line is set in stone.

In summary, Markets trend strongly and should be respected, but they also *mean-revert spectacularly*, especially in the 1% of cases where Momentum gets historically extreme. Just be aware of this risk, even if the consensus seems to be completely ignoring it. Awareness is the first step to being prepared for a change in markets, should it come around.

Related, any permabull making an aggressive bet on another benign outcome, is just as irresponsible as permabears who have fought this rally for years. And there seems to be a growing number of the former:

A Bloomberg article last week (“Frenzied Speculators Propel Surge in Options Trading”) stated that:

Volumes for contracts tied to single stocks have surged in the past six weeks to all time high levels, according to Goldman Sachs. The growth has been so staggering that trading in the derivatives by notional value is almost on par with volumes in the underlying shares themselves. Spurring the growth are bullish wagers on Tesla, as well as mega caps that wield heft in the S&P 500 Index unseen for 20 years (Amazon, Apple, Alphabet and Microsoft).

It’s not just Option Volumes, but Skews are also being pushed to previously unimaginable heights: Call Skews in a number of key Stocks exploded higher last week – some hit the highest in data history (15 years). The prior record spikes were just before the major top in January 2018. Meanwhile flows into some Megacap Tech and Growth ETFs hit record highs over the last few weeks. Rampant speculation is in full display.


Breadth may be one of the most misunderstood indicators out there. Rather than go into an extended discussion, or show the dozens of Markets/Sectors/Regions that have already peaked, I’ll just submit the following:

NYSE Breadth has been below 50% for almost a month now, even while the index hovers near the highs. This index contains 1,884 issues and is fairly representative of the broad market, including many Stocks that some people may not consider “American”. In that case, I submit the second chart below, showing the Nasdaq Composite which contains 2,709 issues and is even weaker than the NYSE Composite. Breadth is not good. It doesn’t mean the market has to collapse, but there’s enough vulnerability where any minor decline could be enough to trigger a significant downtrend.


Speaking for myself personally, this doesn’t read like a healthy environment where taking extreme risks is likely to be rewarded.

U.S. Ten-Year Yield is in full collapse. Can Stocks continue to float away if Yields breach the 2019 lows? At what point does this trigger a sentiment reaction?

U.S. Ten-Year Yield (continued). Here is the weekly chart:

AUDUSD weekly. Same question: what happens if this continues to trend lower for a few months?

Even in the U.S., the Dow essentially topped in January at log-channel resistance, with a magazine cover no less.

NDX managed to extend +4.8% from its January highs, only to test log-channel resistance, trigger historic RSI extremes as shown earlier, then yesterday right on cue came this magazine cover:

But it’s well beyond the cute magazine covers, and risk looks quite real:

Currency Volatility is rolling up from multi-decade lows.

The MSCI EM Currency Index topped in January and after a small failed bounce is beginning to collapse again.

Similarly, EEM made a failed breakout in January, and then a failed bounce to horizontal resistance in February, and now the daily trend is potentially turning down in full force.

Now look at USDCNH showing WEEKLY trend initiation, after BASING at the old highs for months. This may be one of the most important charts in the world right now, because of its enormous potential impact on cross-asset Volatility.

In summary, FX Volatility is rising from multi-decade lows. The Dollar is just beginning to initiate uptrends, accelerating from huge bases against most Major & EM Currencies (if I put all the charts here, I’d never finish this report).

Meanwhile all the various Global Equity Regions, Indexes and Sectors remain completely fractured, having topped 1-2 months ago. Bonds are rallying, Commodity/Cyclical Currencies are falling sharply, all hinting at a sharp deflationary backdrop. In this environment, what do you think is going to win out? Do all these forces now repair themselves and Tech continues to rally unabated? Does Tech just get “overboughter”?


VIX daily. Take a look at the massive, picture-perfect base forming here. Along with Daily cross up yesterday. The VIX bottomed in November, this isn’t an overnight thing. It takes months to build this kind of structure, with this potential energy – Forever and a Day. Like I said earlier, this isn’t going to change if Stocks fall in the morning and rally in the afternoon, or what Call options are being pumped today. There is something far bigger at stake here, and most traders are blissfully unaware. A number of Volatility charts looks like this. It’s not an isolated event, it’s widespread.

The VXN daily chart deserves a special mention. Look at the perfect stair-stepping pattern developing, and the base almost fully complete. Again, anyone who trades for a living will understand that this isn’t a CALL for anything to happen. All it says is IF Stocks are ready to start moving lower in the next few weeks, with Volatility exploding higher, this is pretty much a picture-perfect location where that behavior could start.


The story is still being written and there’s no way to know in advance. Anyone looking for absolute truths is in the wrong business. This is trading, where edges matter and risk control is everything.

All we know from history is:

  • Comparable historic weekly momentum led to extremely sharp, violent shakeouts in Tech in particular.
  • Corrections lasted weeks or even months, oftentimes the first leg down was the most violent, a common trait with extreme momentum signals. I encourage everyone to study the individual RSI signal dates showed earlier, and see (1) Which ones topped in January-February after Stocks ran up 10-15% the first weeks of the year (for instance 2018), (2) Where did Stocks correct on a chart basis (what was the prior support), (3) Did markets trade NEGATIVE for the year at any point after that? (4) How high did realized & implied Volatility go? (5) Perhaps most important of all, how much did Tech & NDX fall vs the broad S&P and Dow (what was the Beta)?

I hope this has been a helpful glimpse at markets from a slightly different perspective than what you may have seen elsewhere.

Markets appear unstable here. Very little is needed to unleash pent-up Volatility pressure. Relative factor Volatility and correlations could also rise, but in my view the biggest risk is a violent deleveraging of crowded consensus which has become deeply entrenched in U.S. markets and particularly Tech Stocks. I firmly believe that IF such a scenario materializes, it may present a unique opportunity to Buy growth Stocks in a moment of broad panic perhaps in the next few weeks or months.

Things may look easy now but it’s never easy inside the arena. Being concerned about markets here feels extremely difficult, even with overwhelming evidence suggesting problems are becoming too big to ignore. Time slows to a halt, watching the excesses accumulating for weeks and then converging onto a single point in time. It takes forever for a turn to materialize. And then it takes just one single day – and then everything changes.

Thanks for reading.

If you liked this post, please share it with colleagues, subscribe to the Blog to receive future updates, and follow me on Twitter for daily charts: @MacroCharts.

Extreme & Historic Complacency Building in Markets

Today is almost exactly two months since I last posted on this blog.

On November 8 2019, I consolidated over a dozen charts into a report, from hundreds of charts I had shared on Twitter over the course of 2019. Then I wrote a comprehensive review showing overwhelming evidence Stocks were accelerating higher from massive 2-year bases (see: The True Message of the Market (and Thinking for Yourself)).

For those who started following my work recently, you should know that I spent most of 2019 reiterating my extremely Bullish case for Global Equities, including a cyclical resurgence theme led by Semis, Tech, Banks and Industrials.

Yet even though Stocks were up a lot last year, being Bullish was never an “easy” trade to make. In fact until the very end of 2019 – even as Stocks began to break out in October and November, the cesspool of Twitter permabears kept reminding me daily they were going to “take the other side” of my trade. They were absolutely certain of the Bear case, they were not listening to the market, and they got destroyed.

For medium-term investors who don’t care much about short-term 1-2 month swings, I should add that my view is that 2020 as a whole should be favorable for Equities – even more so if we think of relative performance versus Bonds & Defensive assets. There are several reasons why I think this, the two most important ones being: (1) supportive Central Banks (for now) and (2) Credit markets unlikely to have major problems until 2021-2023, especially if Rates remain where they are now.

Having said that, I am not a long-term investor – and if you’re like me, an Equity & Macro trader that cares very much if the S&P moves 5-10% against me, then what we have right now is a potential big problem brewing.

Over the past several weeks, I have begun writing my biggest report since November, which is still in progress and if markets continue to grind higher, they’ll likely generate some of the most extreme chart signals in history.

It’s already happening in the Options markets, where extreme & historic complacency is now in full display:

Above, the 50-day Put/Call Ratio (inverted) has dropped to 0.56, among the most extreme overbought readings in 20 years. Remember this is the same indicator I discussed in November – when people were pointing to a 1-day overbought Put/Call reading and saying markets were euphoric. They weren’t. But now they certainly look that way.

ZOOM 2001-2005:
JUN 2001 Bear Market rally topped and rolled over (not applicable to today)
JAN 2004 Topped 1% higher then corrected -9% over the next six months
JUL 2005 Topped less than 1% higher then corrected -6% over the next two months

ZOOM 2009-2020:
APR 2010 Topped 1% higher then corrected -17% over the next two months
DEC 2010 Market ignored the signal, extended +7% in two months, then gave it all back in one month, then spent four months topping and fell -22% (for traders, this was the only signal that failed in 20 years)
DEC 2013 Topped less than 1% higher then corrected -6% in one month
JUL 2014 Topped less than 1% higher then corrected -4% in two weeks, rallied back to the highs then dropped -10% in one month
JAN 2018 Market had already topped, corrected a total -12% in two weeks

If history is a guide, the risk-reward over the next 1-2 months is moving towards “extremely poor”, and we shouldn’t rule out a compressed (front-loaded) decline either. All that’s needed is a “catalyst”, as always just a narrative/excuse to trigger deleveraging.

My goal for the next few weeks is to finish my next comprehensive chart review and post it here on the Blog. What I can already say is – the data picture has swung almost completely since November. Maybe Stocks will continue to grind a few points higher, generating even more extreme signals in the coming weeks. Personally, I don’t think the odds favor such an outcome – instability is rising significantly and there’s enough pressure accumulating that anything could trigger the start of a corrective phase into later Q1.

Right now, I believe that traders who are able to identify such a corrective phase when it begins, and are able to take steps to protect capital and then monitor for Long entry on the other side, have the chance to make this Q1 period potentially the most important allocation decision of the year. This is where I’ll be focusing all my attention in coming weeks – back with more soon.

Thanks for reading.

If you liked this post, please share it with colleagues, subscribe to the Blog to receive future updates, and follow me on Twitter for daily charts: @MacroCharts.

The True Message of the Market (and Thinking for Yourself)

This report is a major update on what’s happening in global Equities, including what I’ve shared over the past several weeks and extending it even further.

Before we begin, I want to address what I think is the biggest problem facing investors and traders today: the constant daily barrage of permabears and nitpickers fighting the market.

The first group needs no introduction. The permabears are a known breed with notoriously short lifespans. Virtually all of them blow up and become bloggers (except those that never traded real money to begin with). Sadly that’s just the start of their mission to destroy themselves and others, as they begin to prey on unfortunate folks by luring them with n=2 “this (completely useless) indicator also happened in 2000/2007 so the world is ending” charts. You can spot them a mile away, because they tell you how bearish they are, every single day.

But there is another toxic breed of pundits that provide even LESS value: the nitpickers. They’re just as easy to spot, because they exhibit several common behaviors: snarky tweets, clever soundbites, short sentences heavy on sarcasm and zero data. Sometimes, claiming a data point is “the highest since [not very long ago]” with no analysis included (for a reason). They’re successful at presenting themselves as analysts/strategists, but ultimately they’re just as toxic. Why? Because they don’t have a system, don’t have a process, are not real market practitioners, have no real understanding of how to actually trade or invest in markets, and their sole job is to feed you noise and distract you from what’s really happening.

Let me show you what’s really happening, and how important this is.

On October 28, I shared the following charts on Twitter and wrote: “Japan and Europe showing massive strength – previously observed at the start of every Major Cyclical Bull Market in the last 20 years. In the context of historic outflows, LT Momentum confirming up and Cyclicals already leading – truly a sight to behold.”


What does it mean to say “Long-Term momentum is turning up”?

From my last report published here on Sep 19: “If this historic base is complete, could we soon enter the steepest part of the price advance? This would be compatible with a market that has been totally abandoned by investors and beginning to show historic Thrust behavior.”

The Japanese market itself had already been suggesting this Bullish potential for almost two years, while it based at the old multi-decade horizontal tops line. Most important of all, price and breadth are now confirming each other in a historic way. The market is telling us to focus on the big picture.

It’s happening everywhere, as I also mentioned in that September report when markets began to exhibit historic thrust behavior.

Further, on October 29 I shared this chart: “I consider this the most important chart in the world right now. The Stock/Bond Ratio is breaking out of a massive 2-year compression, confirming the SPX breakout. Trend momentum is just beginning to expand – a potential major & historic rally getting started.”


Here’s what the Stock/Bond Ratio looks like now again the market is telling us to focus on the big picture.

Here is a version of the Stock/Bond Ratio using the Nasdaq index look at the clear strength as it’s almost at a new multi-year high:

Related to this, on October 30 I shared this chart: “Here’s why the Stock/Bond Ratio is so critical: One version using NDX is the strongest of all. Most people said they “disagree with the chart”/”take the opposite side” – in the long run, this is the fastest way to the poor house. Never argue with the market.”

Here is what fighting the market looks like, at similar points in the past when Stocks were exhibiting similar strength:


On Nov 4, I shared the following: “Here’s the problem for those still trying to fade every uptick in this rally: Remember the massive Weekly compressions – NDX bandwidth was at bottom 5% of its history. The bands are now expanding with rising prices. Further, LT momentum has also turned up. Pure energy.”


Finally, a chart I shared on Nov 1: “I consider the Stock/Bond Ratio the most important chart in the world – here’s another reason why: Relentless selling & pessimism identical to the end of the last 3 global crises. This is how Stocks began major rallies, breaking out with few believers. “Wall St never changes”.”


Here’s what the chart looks like now, breaking out with flows just starting to turn up from a historic capitulation:

Again it’s important to emphasize: what’s actually happening, what are the implications, and what is the time frame?

Instead of reflecting on these meaningful questions, here’s what Twitter’s nitpickers decided to say:

(1) “The market went up but not enough Stocks are making new highs”. I wrote this before and it’s worth repeating: the nitpickers don’t tell you that new Lows are zero (globally), and the MSCI World Index is doing just fine up 20% YTD with 52Wk Highs in the single digits most of the year. Also, if the market keeps pushing any higher, New Highs will go into full expansion mode. And that’s exactly what’s happening, as 52Wk Highs are expanding into double-digits just like in 2016 when markets last broke out of a 2-year consolidation. Any more upside and the expansion could go into full gear.


(2) “The Put/Call Ratio is really low and the last time was January 2018.” This isn’t even worth showing a chart, it’s just more ridiculous noise. There were hundreds of times throughout history that the P/C Ratio was very low. Many of them occurred just as Stocks were launching into some of the biggest rallies ever, such as March 2009, August 2010, November 2012 (breakout rally), December 2016 (breakout rally). Again, what carries more weight? A single day of options buying activity or the trillions of dollars that need to chase Stocks and cut Bonds as the Stock/Bond Ratio breaks out of a historic consolidation?

To illustrate, here’s the 50-day moving average of the Put/Call Ratio (inverted) that’s supposedly euphoric. A week ago I said that maybe the true contrarian & objective view is to focus on the big picture – and ignore those fading every daily tick. Turn off the noise.

(3) “But Sentiment survey X is high and it’s impossible for Stocks to keep going.” Wrong. High initial sentiment was also a feature of the launch phase of every major rally in history (see chart below from NDR, with my annotations included). Other features include positive long-term momentum, breadth thrusts, extreme pessimism & outflows, all of which are present today thanks to the permas and nitpickers.

(4) Another one making the rounds: “AAII bullish sentiment 4W change was the highest in 2 years!” This fits the classic nitpicker style, ‘the highest since X’ with no analysis included (for a reason).

Below, the majority of historical sentiment spikes were associated with Stocks either launching a major Bull market rally, or an epic Bear market rally within a bigger downtrend. Even in 2000 and 2008.

Finally, it’s important to remember: there will be endless noise in the next weeks and months, claiming the next intraday data point is really bearish. There’s always something. But as I noted in every chart here, and in hundreds of tweets over the last months, the medium and long-term signals are still in a deep, historic panic. For instance, here is a chart from Oct 18, showing the 6-month average of AAII Bulls. The chart is from three weeks ago. Today, that moving average is at 29.61 (still falling). And yet people are going around parading the “4-week change”.


Finishing this report with a positive message:


Even though I believe there’s significant evidence suggesting we’re in a Major and potentially Historic global rally, Stocks don’t move in a straight line and usually pull back/consolidate regularly. Also from experience, I think Stocks probably won’t drop a whole lot if millions of people are nitpicking the latest intraday datapoint and completely ignoring the big picture.

More than ever, markets are littered with people looking to distract you with answers to questions that don’t matter.

Do you want to see what all those people look like? Here they are, millions of little pixels piling themselves up into towers (just like in that zombie movie) every time the market pulls back. Millions of hours of human potential, now just a line on a chart.

Each pixel is a permabear or nitpicker sending a tweet claiming victory for a 2% pullback or the inevitable correction, along what has been one of the most epic secular Bull markets of all time.

Free yourself from them (if you haven’t already). Erase them from your market research process. Build a system that listens to the market, and the market will quietly show you the answers. Be yourself, think for yourself, and the world will be yours.

Thanks for reading.

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The Most Important Force in Stocks

Tell me if you’ve heard this over the last ten years:

“The economy of [X] is more dependent on debt than ever before”

“Companies are issuing record debt to buy back stock, this will end badly”

“Debt is too high and the [economy/markets/savings/wealth] will [explode/implode]”

“The Bond rally is telling us something bad is coming”

Extra points if you’ve heard all of these from a market guru, famous economist, TV personality, ivy professor promoting a book, or ex-hedge fund manager with a blog.

Let me start by saying that markets don’t operate on absolutes. I’ve been trading for 25 years. In the arena every single day. In the middle of this organized chaos, I hear academics every day, taking turns shouting from the gilded seats, trying to be the one who predicts what happens next (always loud and full of confidence).

There is a simpler truth to markets. One that academics/noise-makers cannot grasp, yet all successful traders inherently understand: Sometimes things matter, other times they don’t.

A trader’s goal should be to constantly discard everything that doesn’t matter, so that what’s left is essential.

Let’s try this now, using a historical chart:

Top panel, S&P and 10-Year Yield. Bottom panel, 1-month Net Change in 10-Year Yield (2006-2019).

Now let’s add vertical red lines for every time the 10-Year Yield rises significantly over a 1-month period:

Looking above: see the spike in Yields in June 2007? That was the largest since 2004 (not shown). How about mid-2013, the Fed doing QE3/Infinity but the S&P still traded sideways from May to October, because Yields spiked three different times? Or 2015, Yields spiked twice and Stocks traded sideways for a year. Or most recently in 2018, Yields spiked in January & September and Stocks collapsed both times.

(Also notice above, how spikes have become far less frequent since 2013.)

Nothing works 100% of the time, and Yields have spiked on occasion with Stocks moving higher anyway (2016 a prime example). Nevertheless, over the last 15-20 years, rising Yields are usually bad for Stocks.

Now let’s add vertical green lines for every time the 10-Year Yield falls significantly over a 1-month period:

Recently on June 3 2019, Stocks may have formed an important bottom, after 10-Year Yields fell -47bps over the prior month. In the last four years, only one day had a bigger 1-month net drop in Yields: February 10 2016 (-51bps), which was the day before Stocks bottomed.

Once again nothing works perfectly, but Stocks generally do well after Yields fall sharply. So let’s go back to the start: is the recent Bond rally telling us something bad is coming?


Or maybe despite the loud chorus of sideline crisis-callers, the Bond rally may have just saved the economy (and the Stock market) yet again.

For this entire Bull market, yield declines of this magnitude have created huge runways for Stock prices to recover.

Bull trends die from inflation scares, not disinflation scares. Some of the biggest Stock corrections in recent years came after Yields rose sharply.

Equities love low-inflation/disinflationary growth. If there’s one “truth” in investing, this could be it. Disinflationary growth has kept this Stock Bull market plodding along for longer than anyone thought possible.

For more than a decade since this Bull market began, Stocks have been repeatedly hit with disinflation scares (mostly due to the Dollar rallying, like this year). Those scares pushed Yields sharply lower, clearing the way for Equities to recover, eluding the crash-callers each time. This latest Bond rally could rekindle the same old Bullish force for Stocks, right when the academics are rushing to call it a bad omen yet again.

Thanks for reading!

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Consensus Lawnmower (2019 edition)

Almost everything investors believed just a few months ago has been cut down:

  • EM & China were among the best places to invest.
  • The Fed was “friendly” and the Dollar would continue to weaken.
  • Equity & Rates Volatility would stay low because the Fed removed tail risks.
  • Commodities were going to make a comeback.

Feels like a long time ago, but these views were widely accepted until very recently.

In Mr. Market’s twisted Yogi Berra irony, 2019 has already been a tale of two halves, except we’re not even halfway yet.

Rolling waves of pain:

  • U.S. Financials & Banks fell sharply in March, and bottomed.
  • U.S. Healthcare & Biotech fell sharply in April, and bottomed.
  • The Dollar has rallied sharply, cutting through every consensus EMFX trade.
  • Like last year, the Dollar is moving in waves. First against the weak current account countries (ended a month ago), then Asia (largely over I believe, and wrote about last week), now migrating to a few select final pockets. Wherever the carry books are still holed up, that’s where the Dollar has unfinished business.
  • Asian Stock markets fell sharply in May, in some of the heaviest selling waves in history. Some markets broke selling records, far greater than even the panic in 2008. I’ve documented this extensively on Twitter and prior blog posts. Yet this week, momentum has been quietly stabilizing.
  • As EM tries to stabilize, U.S. markets continue to decline and look for a bottom. Yesterday, the main EM ETFs were up while U.S. indexes were down almost 1%. U.S. Tech in particular is starting to fall faster than most other areas.
  • U.S. Semiconductors, which rallied 50% from the December lows and triggered historic extremes in late April, have given up more than half their gains and become “ground-zero for trade war risk”. Quietly, they closed up yesterday even as the rest of U.S. Tech was down nearly 1%.
  • Even the U.S. defensive sectors are dropping sharply. Over the last two days, they lost nearly 3% (roughly 2-3x what broad markets fell). When Bears take out the defensives, they are running out of targets (everything else has been eradicated). This happened in December too.

True bottoms are made when the Bears successfully take down all the last pockets of strength. Sellers have relentlessly and systematically purged the haves for nearly two months. Everywhere we look, the haves have turned to have nots: there’s no one left overweight EM, China, Semis, EMFX, or any cyclicals of any kind. Defensives are heavily favored. Bonds are in a panic spike.

Meanwhile, Chinese stocks are quietly stabilizing directly above the support targets I’ve been tracking for several weeks.

Is it possible that China is forming a base ahead of the U.S.? It’s an extremely contrarian scenario. It also happened three years ago in 2016:

History doesn’t have to repeat exactly, but it wouldn’t be the first time EM & China were sold to the bone, only to bottom ahead of the U.S. and lead the recovery.

The destruction of consensus trades came in waves of selling. It works the other way around too. If sentiment is approaching rock bottom, the recovery will also come in waves:

Here is a candidate for the first wave: a key Asian market, stuck in the middle of the trade war, with heavy exposure to the Tech & Semiconductor industry — representing a massive 50% of its stock market capitalization. Essentially this market is uninvestable in the current environment. All of this psychological damage, for a simple gap fill and base on the 200dma.

We’ve already documented the historic outflows from China and everywhere else in EM. So for posterity, here is the wave of selling that just went through the same market from the prior chart (Taiwan):

No one can say with 100% certainty if the bear case is now fully priced in. What we do know is, many highly-exposed markets — most now deemed uninvestable by the same folks who were pounding the bull case just a month ago — have been deleted from investor menus, have stopped falling on bad news, and are now rising even as U.S. markets continue to search for a bottom.

Over the last month, the market wrote a story gradually, as prices came down. Now another story is quietly being told, for those that are listening. A story that will likely carry bullish implications far into the future.

Thanks for reading!

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Approaching Tactical Bottom in U.S. Stocks


Extreme oversold signals suggest Tactical bottom approaching over the next 1-2 days. Look for reversal to confirm.

This is one of my Core U.S. Equity Risk models. It’s almost fully oversold and very close to a Tactical Buy signal. This suggests an elevated probability of a sharp retracement rally starting soon. This may be the first of two oversold signals similar to the 2016 structure I’ve been expecting (the second one later in October-November).

My Options Gamma Model also very oversold. Positioning may have gotten too negative and is vulnerable to a squeeze.

Several of my U.S. Core Flow models are also extremely oversold. I run several flow models for U.S. markets. Many are scraping the bottom of the barrel here. I haven’t seen a capitulation of this magnitude since February 2018, which is remarkable for a small correction of just 5% so far.



S&P may have residual downside to 200dma and lower band at 2750-2780 area. An undershoot could target 2720 but is less likely. Not shown, NYSE Composite and many key cyclicals are already at respective 200dma and lower band support. Looking for sharp rally possibly to the 2900 area (5-6%).

S&P Daily RSI has reached my minimum target for this initial leg. This is identical to the 2016 period. The market may need 1-2 stabs lower but I’m on high alert for intraday reversals. Stocks have four more days to finish the week. This is a long runway with models so oversold. Any rally later in the week could quickly feed on itself, especially with Gamma this negative. Stocks could still finish the week with a powerful weekly Hammer or bullish reversal.


S&P E-Mini has a pending Buy Setup that should complete in two days if the market just trades sideways from here. There is also a major Bradley Cycle Date on May 16, the exact day of the potential setup completion.

Adding it all up, this two-day window through Thursday looks like a potential setup for a Tactical turn. Accordingly I am switching my own trading bias to Buy on residual declines over the next 1-2 days. This is my personal trading plan based on my own objectives and risk tolerance, and not an investment recommendation. While I don’t think this is THE bottom, I do think Volatility will remain high and the potential for a sharp squeeze is increasing.

Thanks for reading!

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The Current Stock Market Correction

In late April, nearly four months into a historic Stock rally that began in late December 2018, I tweeted some Summary thoughts and suggested plan for Q2-Q3:

I proposed two core ideas at the time. In this note today, I will focus on the first idea — Stocks. My reasoning is based on some charts that really stood out to me at the time:

First, Stocks were very extended in late April and likely to switch to a volatile mean-reverting regime. On April 29, I tweeted the below chart, showing the S&P Technology sector’s trend strength at one of the highest in history. I added that “a major corrective phase is likely to occur this year, lasting several months. Could be a topping process like 2000. Or (as I believe) a multi-month big volatile consolidation similar to 1991, 1995, 2004, 2012.”

Note the red boxes I drew above. When Stock prices move significantly in one direction for a relatively short period of time, they exhibit very high trend strength. Eventually, this reaches an extreme and the strong trend is vulnerable to exhaustion. The result is a return of two-way volatility, usually a violent sideways consolidation. This is what the red boxes show. And that was my best guess in April for what was coming.

Stocks are now correcting, but I believe we are still in a Bull market. One can never been 100% certain in markets, but I think a Bull market is still the most likely scenario. Note in the prior chart — in 1991, 1995, 2004 and 2012, Stocks rallied strongly and then consolidated bullishly for several months, ultimately moving higher.

I also think this is more likely to be a single digit correction, not another severe decline like last year. To illustrate why I think we’re in a Bull market, and why the correction should be relatively mild, I present the chart below: in late April nearly 80% of S&P stocks were trading above their 200dmas. The key condition to evaluate is: is Stock Breadth ABOVE or BELOW the 50% line?

At the time, I tweeted this chart and wrote it’s “reminiscent of the 2016 rally which reached 78% before two pullbacks that held above 50%. This is very positive longer-term. Market likely to correct through time, maybe 5-10% downside volatility next 3-6M.”

Further, notice above that the most violent declines of the last several years: August 2015, January 2016 and December 2018, all shared the same weak Breadth characteristics under 50%. (In fact this is a recurring feature of virtually every big Stock decline of the last 100 years.) Even late last year, note the red “X” in October-November 2018. That’s where Breadth failed to exceed 50% and soon after, the market collapsed in a second selling wave.

For reference, here is the same Breadth indicator from 2005-2009. Note the 2008 Bear Market began when the indicator failed under the 50% line. I marked it with a vertical line below. Soon after that, Stocks finished their topping process and began to decline in earnest. When I look back at the chart from April 2019, it’s a long way from any serious weakness and still looks like a Bull market.

I’ll add more charts next, but it’s important not to forget this simple concept illustrated above. In markets, I believe the simplest ideas are the most powerful. What is simple is often misunderstood. When I started in markets, I thought the most complex indicators would give the best results. I searched far and wide looking for answers. In those early years, my quest for more information led to an advancement in my theoretical understanding, but yielded few practical insights. When I decided to refocus on the right things, everything changed. The most important lesson I learned in those early days was: the market had been communicating the message all along, and simplifying my focus allowed me to listen.

Now let’s go one step further.

The next chart is from an idea I tweeted on May 7, where I noted the “Nasdaq Composite with roughly half its Stocks trading >200dma (red series), similar to where the initial rally topped in April 2016. Intermediate breadth weakening, just 56% trading >50dma (blue series). When this breaks below the 50% line, a correction is likely to be underway.”

Unlike S&P Breadth which as we just saw earlier, got very high at almost 80% of Stocks > 200dma, the Nasdaq Composite Breadth was much weaker and still under 50%. Below is an updated version of that chart. Note that 200d Breadth never did get above 50% and now 50d Breadth is moving back under the 50% line. Not surprisingly, we’re starting to see Volatility creep up again.

There are some striking similarities between the current market and some important prior periods. Let’s look at what they are, and what it could mean.

On May 2, Michael Santoli of CNBC noted the following on Trading Nation:

“As S&P 500 sits at a record, nearly a quarter of stocks are still stuck in a bear market […] at least 20% from 52-week highs.”

This weakness is important to study and discuss. I made this chart to illustrate the idea, with some of my own annotations and thoughts added. What we have is a market that rallied back to prior highs, similar to 2012 and 2016, but many Stocks are still more than 20% below their own highs. In other words, the Trend is strong but Breadth participation is weak.

What happened in 2012 and 2016? Stocks spent months basing near the highs, with two separate pullbacks each time. Exactly like the volatile “red box” consolidations from the very first chart, where we talked about the Trend strength being too high and the mean-reversion that ensued. Everything is tied together and related.

Corrections come when uptrends become extended and Breadth can’t keep up. In 2012 and 2016, the result was that Stocks needed time to rest and gather the energy to move higher.

First, let’s look at 2012:

Now let’s look at 2016:

And back to today:

What could this all mean, and what could we see from here? Following the Summary thoughts shared at the top of this note, here are some ideas I’m carefully balancing and considering, while remaining focused on the bigger picture (and keeping it simple):

  • We may be more than halfway through this correction in terms of price. If the 2012 and 2016 interpretations are correct, and we remain in a Bull market as I believe, the S&P index could perhaps bottom in the low 2700s.
  • Historically, Stocks went through mean-reverting phases that lasted 3-6 months and we’re still not even a month into this one. So it seems we could still be in the very early stages of this process, in terms of time.
  • This could provide plenty of opportunity to slowly accumulate good Stocks as weak hands lose patience, get frustrated or shaken out.
  • It seems the market’s goal here is to frustrate Bulls and Bears with a lot of erratic price movement, while ultimately making little net progress either way.
  • Because of the extreme volatility of 2018, some may fear this will become another massive decline. Since Mr. Market never makes things easy, a sideways range could be equally if not more difficult to deal with.
  • Looking back at history, the good news is that once 2012 and 2016 were out of the way, the following years were excellent for Stocks. The S&P advanced 30% in 2013 and 20% in 2017.
  • Those great advances weren’t a coincidence. Stocks had worked off their extended condition through time, while Breadth improved gradually and individual names began to catch up.
  • When Stocks had finally gathered the energy to rally again, the breakout came and they never looked back. Maybe we’ll see something similar later this year, when everyone becomes exhausted of the headlines and volatility.

Thanks for reading.

If you liked this post, feel free to share it with colleagues and subscribe to the blog to receive future updates. I’ll be revisiting this theme and many others over the next months, on my Twitter account and in bigger thematic pieces here.