Has the bubble already popped and we haven’t realized it yet? I recognize it could be considered a ludicrous question to even ask considering indices just made new all time highs last Friday and we’re barely down 2% on $SPX.

And frankly I don’t know the answer myself here, but in context of the peak liquidity question I am submitting some data points that suggest that the speculative part of the bubble may have already popped back in February/March.

Consider the following:

What happened in February? Well, the same thing that happened in March and April. Risk assets made new all time highs, be it $SPX, crypto, you name it.

Yet while $NDX made a new all time high again last week along with Bitcoin and $DJIA and $SPX we can observe changes. Take a look at cumulative advance decline $NAAD. It peaked in February and last week’s highs show a very pronounced relative weakness in cumulative advance/decline:

That’s the kind of reading that got markets in trouble back in 2020.

New highs can be deceiving, especially if they occur in context of a trend break, and $NDX broke its March 2020 uptrend in February and these most recent highs constituted a back test of that broken trend line.

People ignore the trend breaks, new highs are deemed bullish when they may not be as suggested by internals.

So you know this is not just a theorem look back toward 2018 when $NDX did exactly the same thing:

Basically the same script. Trend break, a new rally to new highs that back tested the broken trend line and then lights out.

We can observe something very similar with Bitcoin. It too made a high on February 21 and then recently broke its trend only to make new highs on a negative divergence again raising the question of the Hedge Myth:

Bitcoin is now below the February highs.

Indeed, using the February peak as a benchmark the performance picture in many asset classes is not commensurate with the new highs picture seen last week:

Speculative vehicles such as SPAC have been decimated:

The rout has not gone unnoticed:

A lot of things peaked in February and one wonders if the February 19/21 time frame was perhaps the time of peak hubris:

Celebrated hedge fund manager Cathie Wood has seen her main ETF peak in February as well:

These February highs have also come on a pronounced negative RSI divergences with a pronounced trend break in February as well. Unlike $NDX there have not been new highs nor a back test of the trend line. Just a broken chart. And now the ETF is down for the year.

On the way up everyone looks like a genius, but what really is the key driver of success in an environment where everything goes up? Is it superior stock picking or is it just riding the general liquidity wave a lot of which just ends up in speculative high risk investment vehicles seeking superior returns?

I ask as I see ARKK, as an example, just track the liquidity train:

No printing, no performance. Printing and off to the races we go.

If one uses these vehicles as a proxy one could make the case that the speculative bubble has already popped despite still seeing pockets of relentless chasing in select vehicles (think Dogecoin). Call buying by retail has already calmed down, many stocks have stopped performing and the easy chase appears to be over and there is a lot of pain in these highly speculative momentum stocks.

Even small caps, themselves having sported an unprecedented performance since the March lows, have stopped making new highs:

You know it’s bad when even a log chart looks like a linear chart.

Small caps too put in new highs on a negative divergence and have significantly lagged in the past 2 months. The underlying volatility index, $RVX, also showing ( as $VIX) a budding bullish volatility structure.

Small caps peaked in March:

That final high being vertical  and aggressive similar to what we saw in $NDX in 2000:

Bubbles popping are only known in hindsight, indeed one could’ve been entirely oblivious to a bubble bursting in 2000 looking at $SPX as the index chopped in range for months following the March bubble popping:

It just took that long for that realization to filter through the  broader stock market and the economy.

Bottomline here: Last week’s highs in markets and crypto may have been deceiving. Whether we get new highs still or not I submit there is a lot of damage taking place in this hyper valued market that is masked by the new highs headlines of last week. And the cumulative picture leaves the door open for the possibility that the bubble has already popped, except none of us realize it yet for recent new highs are masking it all.

Now I freely acknowledge all this could end up being wrong and the ghost of 2013 may just continue ticking here, especially as nothing big has broken yet in the broader market.

But I also submit that we will only know for certain in hindsight, but if these data points send a viable signal then the implications could be profound. At least nobody can say the warning signs weren’t there when the realization sinks in that the bubble may have already popped.

For the latest public analysis please visit NorthmanTrader. To subscribe to our market products please visit Services.

All content is provided as information only and should not be taken as investment or trading advice. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. For further details please refer to the disclaimer.