2021-10-21

The Top

Note: Images are largest if you right-click and open in a new tab.

Here's the market top pattern again. I believe it came from Solar Cycles. The RSI and chart itself are more compelling to me than the ADX, but I see a simliar relatinoship between the peak periods.

The chart shows the Dow divided by the long bond price. It is strongest when stocks rise and bond's fall, as would happen during an inflationary expansion. Investors who expect some type of massive inflation that benefits equities at least relatively, would expect something totally new from the past 20+ years of history: a chart that keeps going up at an accelearting rate. Bears anticipate whichever way bonds go, equiites will do worse. Since it is a ratio, a collapse in both bond and stocks could leave the ratio elevated despite incredible losses. Right now I expect a retrace down to the horizontal line during the next bear market. If bond yields make a new low (bonds a new high) stocks might hold above the 2020 lows. Reminder: A test of the 2020 lows would take stocks down 50 percent. If interest rates remain elevated, i.e. bonds go lower, then a retrace of the ratio to the horizontal would entail lows that exceed March 2020, perhaps even all the way back to the 2000 peak on the S&P 500 Index.

Here's the chart with the COMPQ and SPX.
I checked the MSCI EAFE too. Interesting range there that speaks more to the weakness in Europe and Japan.

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