On January the 29th I posted “The Evidence for the Greatest Top in History” that happened to be the day of the all time high in the S&P500 and Dow industrials so far.
In the comments I said “the market could rip lower very quickly now. Like the Nasdaq in 2000. Or maybe it will make a correction-recovery-crash like 1929/1987”. The market did rip lower very quickly as various VIX products imploded, but the bounce has been ongoing for 4 and a half months.
There is a good chance this could be due to seasonal factors as the period into May tends to be strong but we are approaching the most seasonally negative period in September/October. This is when some of the largest crashes tend to happen such as in 1929, 1987 and 2008.
The recent bounce has eliminated the oversold condition, it rallied into the Fed meeting yesterday and has since declined. A pattern I’ve noticed in recent months.
Since February the Nasdaq and S&P/Dow have made a large divergence, typical of large degree tops. Once the tech stock orgy is over a much more severe decline in stocks should start.
Various sentiment indicators show investors are now complacent about the possibility of a decline again. These are some of the same indicators I showed as evidence for the top in late January. There is room for investors to get more bullish but it is enough for the bounce to be over.
After the VIX implosion this indicator has also recovered to levels indicating complacency, and not far from the record stretch of calm that persisted in 2017
Bitcoin has been a leading indicator in speculative sentiment, the biggest mania in history (in terms of price/value) it topped 1.5 months before stocks and its now about 1.5 months since its last recovery high. Bitcoin also broke a major line of support recently.
It seems the market has done more or less enough to complete a bounce, if so a stronger decline should develop over the coming months with September/October being a good bet for a large decline.
If the yield curve curve starts to steepen it would indicate a recession is coming. Look for other blow-ups to occur, like the VIXplosion in February. The junk bond market should start to respond to the new bear market.
Like the Nasdaq, investors have piled into the junkiest of bonds recently. For them the losses should turn out to be catastrophic.