Market Analysis

Bear Capitulation

Relentless squeeze in $SPX and $NDX to ever higher highs and bears are capitulating left, right and center. Short interest at 15 year lows, asset manager index parked north of 100, the complete elimination of down days in August, in short: The perfect bear set up.

Imbalances keep building and money relentlessly pushes into high cap tech in anticipation of Jay Powell delivering more dovish goodies tomorrow with expectation he will make an announcement suggesting the Fed won’t raise rates for another 5 years and the Fed would be willing to let inflation run hot. In other words: The Fed is implicitly endorsing an asset bubble.

I had an opportunity today to speak with a German audience via Markus Koch a well known German financial journalist based in New York and we discussed a wide variety of issues including bear capitulation and a general sense of resignation that central banks are in complete control and will never allow corrections again.

The interview here with some initial German comments and then into the full English version:

I will note that the internal picture in the market on new highs is very negative andpronounced, be it in the overall market versus the S&P 500:

Or in the Nasdaq itself:

with the result that equal weight actually is remaining below the June highs:

So it remains a rally in key indices driven by a few stocks, not a rally in the overall market, an, in my view, important distinction that is perhaps broadly ignored.

But so far nothing matters and hence one needs to be aware of continued upside risk in indices that show zero 2 way price discovery and just keep drifting in one direction:

The latter chart being discussed in the interview above.

No, investors keep getting sucked into the most highly valued market in history by far, and central banks appear keen to entice investors to take on ever more risk. There is, so far, no central banker that is willing to admit to an asset bubble, or caution investors about risk. If Jay Powell had any sense of responsibility he’d try to caution investors tomorrow, but that seems unlikely.

So we’ll see how far they push this. The chart above suggests technical risk into 3525 or so on $ES, yet the imbalances keep getting ever more extreme with each passing day suggesting risk off could occur at any time. Jay Powell better not disappoint investors that are chasing his every move and words. As for any remaining bears: Sometimes the best selling opportunities present themselves when nobody still believes in any downside risk in markets. It appears we may be rapidly approaching this point.

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Categories: Market Analysis

25 replies »

  1. Opportunity to make big gains in SQQQ, UVXY, TECS, SOXS, SDOW, SPX and DRV.

    Don’t miss this opportunity, Avoid the shoulda, woulda, coulda. no regrets.

  2. Interesting times…

    The decline (which will eventually come – when we’re all exhausted) could be gradual and slow – almost to the point where you don’t notice it (rather than a massive crash).

    Also, @Sven, please respond to my email (via contact us), as i look to be subscribe to your Live Trade Events.


  3. Keep riding the beast up and keep your stops fairly tight. Maybe buy October VIX in case you miss the turn. Meanwhile, back in the real world…

    Hurricane Laura will be hitting the Gulf TX/LA border soon after midnight local time (CDT) as a huge cat 4. It will be catastrophic, with 140mph winds and a widespread storm surge that may exceed 15 feet in places and reach perhaps 30 miles inland. Considerable loss of life is possible, insured costs could be $20bn+. Rita, 2005, may be the closest analogy:

    This, of course, will be positive for US stock markets.

  4. This technological transformation is globally exponential and oceans of money is investing in exponential growth it’s momentum…who wants to own crap 💩 interrupted revenue stocks it’s a curse to own that trash…I stop trading in July on Nasdaq 100 futures …but we get a break buying salesforce and face book booth spectacular cash 💰 operating explosive 🧨 revenues “ masterpieces “

  5. Thank for the analysis, but Sven, you must admit that for months now this is uncharted territory for you and the endless ‘extreme’ calls yielded nothing but even more extreme. This is hopefully a learning period for you. For the rest of us who stick to trends and enjoy seeing our 401K portfolios hitting new ATHs weekly, this is a wonderful run.

    • I’ve moved all of my 401K to the Stable funds portfolio which is Treasuries. And I’ve lowered my contribution % to the company match.

      Not even the tax deferral of a 401K will get me to contribute more to this stock market bubble. 401k will be dead money for years.

  6. “The chart above suggests technical risk into 3525 or so on $ES, yet the imbalances keep getting ever more extreme with each passing day suggesting risk off could occur at any time. ”

    There are no imbalances because the stock market is not a physical system- there are no real rules, like with thermodynamics. If people are given the money to buy stock, the stock goes up. The reasons they buy stock may have nothing to do with ‘imbalances’ in indices.

    This market isn’t even close to 1999 yet.

  7. People taking profits way too early in UVXY and SOXS. Big mistake. They will buy higher.

    ‘Hold. Do not trade.” inverse ETFs

    • There is built in decay to inverse ETFs.(notice how the charts all slant down?) They are designed to hold only for one day. People who hold them long term don’t know what they’re doing. They can be the absolute worst way to short the market.

      • Not true. The billionaires will be buying your shares as you sell early due to a false narrative. They will be holding and then they will force you to buy at much higher prices. Hold!

  8. The Fed using their hot air b.s. again ( i mean forward guidance) by saying they will leave rates “lower” for longer.

    However keeping rates the same (no change in rates) does not mean “lower”.

  9. Sold half of everything in the markets today, as another 10-15% gain (SP500 at 3850-4,000) isn’t going to do much for me personally already being up 33% on average and I find watching daily as tedious and reaching the point of insanity as nothing makes much sense anymore. Tight stops on the other half as I suspect we get a 5-20% correction before the elections, yet will probably reload once the Fed pulls another rabbit out of the infinity hat. Watching the VIX rise with markets these last two days is not a good sign if the past rhymes at all with the future, yet perhaps the Fed makes that point mute. Good luck to everyone, we will need it. I suspect at some point the NAZ investors will figure out that Americans can not sit at home indefinately playing on their “I-Things”, ordering China junk on Amazon they don’t need, watching Netflix all day on subsidized junk food and soda via govt benefits “IF” the govt benefits do not get renewed soon at a continuing $1 trillion per month…TBD

    • Did some summer cleaning at home and realized how much junk and clothes i’ve accumulated and don’t even use. What a waste of time and money buying all this stuff over the years.
      Donated it and gave to Goodwill.
      And i will not be restocking my closets this time with junk again.

      I agree, a bunch of junk on Amazon (including clothes) we don’t need.

  10. Who else is realizing how much clothing and junk they’ve accumulated over the years that we no longer use or need?

    We got suckered into buying stuff we don’t even need.

    • Donation sites have lined around the block in my area of NW USA… I’m the kind of guy who rotates through a handful of $100 pants engineered for the apocolypse and my wife is no shopaholic either, but we purged an impressive volume of junk this summer too…

      Hopefully after the Great Reset people will value serviceable, durable, quality goods a bit more, and vote with their FEDcoin Digital Dollars by supporting their neighbors as the real economy comes out of hibernation. People need to relearn how to consider everything an investment from quality food to furniture that doesn’t come in a box.

      Either that or we will go hard in the other direction as a disposable colony of China we will see I guess…

  11. Sven, this and your previous interview have been excellent. Thank you for expanding my horizons on all of this! Hopefully your views that we are creating a giant market airball are percolating through to more and more people.

    As far as Trump not accepting the election, the American left has never accepted that Trump won. Example – the multi-year Russian-collusion hoax – ex-CIA Brennan testified he had no evidence of it yet afterwards went on TV for years saying Trump colluded. Blatant lying to undermine a valid election result, yet he’s probably out there now griping that Trump won’t accept the results.


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