Red Sky in the Morning.......Sailors Warning
We know how to interpret the signs in the sky, do we know how to interpret the signs in the markets?
With as few words as possible here is what I see. (I have no position in any market to sway my emotions)
1. Major disconnect between markets
a. Dow Jones Industrials & Dow Jones Transports
b. S&P 500 & above two
c. US markets & UK markets
2. Credit spreads widening and about to explode
3. Housing markets topping out in many places
a. UK topped
b. Australia topped
c. Holland topped (years ago!)
d. US topping
e. S. Africa topping
4. Year on year rate of change in money supply in largest economies slowing
5. Consumer sales growth slowing / falling (US, UK & Europe)
6. Inverted / Flat yield curves in major economies
7. Banking Sector profits under threat
8. Stock indexes in topping formations
a. Dow Jones Industrials - topped
b. Dow Jones Transports - topped and falling fast
c. S&P 500 - topping
d. Nasdaq - topping
e. FTSE 100 - topping
f. European markets - topped / topping
9. Major sectors within markets topping
a. Banking sector US & UK - topped
b. Housing sector in US - topping / topped - see charts of Fannie Mae, Major US home builders
10. Commodity markets - topped
a. Oil - last sector within commodities appears to have topped with Katrina
11. Gold - topping
12. Silver - topped
I could go on. Please look at the charts for the markets / stocks mentioned. Consider the overwhelming bullishness that still exists for all types of investments. We are still in an investment mania!!
Hedge funds are chasing every up tick in every market. One of these big players WILL blow up in the coming months.
Listen to market commentators who have been through a real bear before. (Robert Prechter - Elliott Wave International, Richard Russell - Dow Theory letters*, Kennedy Gammage - Richland Report and others). * Russell's recent comments on potential upside breakout for S&P 500 relate to the secondary trend under Dow Theory, that is secondary to the Primary which is still DOWN "Things are never different this time". The market is at best a large crowd of humans and human nature DOES NOT CHANGE
Consider the social scene - look around you are people more or less optimistic than they were in 1999? Blind optimism has been replaced by blind disregard for the very evident danger. People are getting angry, defensive and is some cases desperate.
Every major market is telling us that the all night party is coming to an end. Dawn is breaking with a bright red sky. Heed the Warning.