Market Analysis

NDX check

Over the weekend more stimulus chatter from the Chinese and voila the post holiday market losses in China were erased no matter how severe the impacts on the Chinese economy may be. The desperation to prevent or fix any market damage by central bankers continues to yield success. As a result US markets, already drowning in Fed liquidity, keep running from record high to record high.

Hence time to check in on $NDX which continues to embark on a historic extension above technical indicators not seen once in this aging bull market perhaps reflective of a final blow-off topping move often seen during the final phases of bull markets.

Hence I thought you might appreciate some of these readings.

I’ve talked about the extension above the daily 200MA, but here check the price extension above the weekly 50MA:

Over 1,600 points above the weekly 50MA now on the futures contract. Nothing extreme about that. Ha ha.

The PPO oscillator shows that this is the highest extension in many years:

Previously any readings above 17 have produced larger size reversions. Currently the PPO reading sits at 18.6 on cash with a weekly RSI at 80.55.

During the last bull run leading up to the 2007 top the reading peaked above 15 which was the highest reading achieved during that bull run.

Indeed it is notable that the 2007 bull run ended as $NDX extended far above its monthly Bollinger band, and an extreme extension above the monthly Bollinger band is precisely what we can observe now:

The vertical nature of this move and extension above the monthly Bollinger band can also be seen in the cash monthly chart I’ve shown before:

Previously large extensions above the upper monthly Bollinger bands have led to large size reversions.

Perhaps notable here too is how similar the current run off of the December 2018 lows visually compares to the final run in 2006/2007:

Back then it was one of the best times ever to sell stocks.

We’ll see. For now the stimulus and liquidity inspired momentum continues unabated, but these charts above show there is preciously little, actually zero history that suggests that this move here is sustainable. The 2000 tech bubble went more extreme to the upside before completely crashing. That’s the problem with these type of moves, the more extreme they get the more violent the reversion. And the data shows that these current extensions are the most extreme we’ve seen in many years and none are supported by a fundamental growth story, rather a liquidity induced multiple expansion story, making this move perhaps as dangerous as the 2007 run when buyers then too ignored all the problems lurking beneath.

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Categories: Market Analysis

5 replies »

  1. anyone with one brain cell, realises that today’s situation is much more INSANE than in 2000…can it get more INSANE? Why not…

  2. Is there any history of the Fed ever doing similar to what they have been doing recently (Fed liquidity)? I was just wondering if this is a new practice for the Fed.

    • Someone can correct me…but IMO no. Central banks lower rates and print money (which they actually are not allowed to do!!!, but nobody cares) when markets have had (large) corrections ….not when they are at all time highs. So what is happening today, is really unprecedented. One wonders what central banks will do when we do enter a recession (and eventually we will!!!). Today’s situation is clearly the terminal phase of the debt system we have been living in for many decades….


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