Running correlation tests with the rally from Mar 2009 - 2013 to help us to determine how much juice is left in the rally.
Previous post on this subject: Dow Forecast based on past cycles.
Juice [money flow] into stocks is the question?
At the moment it is known the NYSE margin debt is at near all time highs, this means broker accounts are leveraged to the extreme.
Extract from Pragmatic Capitalism and there is more here '4 bearish divergences'.
"The latest reading on NYSE margin debt was just shy of an all-time high. Borrowing to execute securities trades has not waned much at all in recent months as the July data showed borrowing of $382.1B which was slightly below the all-time record of $384.3B seen in April of this year. The July reading is up from $376B in June."
The blue line below is the period 1923 to 1929, and the next 100 weeks saw a 60% rally that resulted in the 1929 crash. For the current market to advance 60% (ie INDU to 25,500) that would require several trillion dollars of new cash into equities. For money like this to enter the equity market in the next 50 weeks there would have to be fears of strong inflation (ie Zimbabwe stock market gained 20,000% during the money printing episode). It's possible, but unlikely. However a new high in 2013 post the Sept-Oct wobbles is a real possibility. What happens next is the $64000 question? Will the NYSE data divergences confirm the market trend.
All time equity market highs attract profit taking and short sellers. Money manager will look at here nice green screens and start to bank health profits, this is what happened in 1936 and 2007. Of course each period also suffered a fundamental scare the resulted in very strong liquidations that followed.
The US FED is printing $85 bn a month that is eventually is used to hold up the equity market. Yet this level of funding would not hold back lower prices if the red sell buttons are activated by Mr Market.
The reader must remember the calls for Apple Inc to be a $1,000 dollar stock, it may well be, but as we have seen it going to be via $440 first. The Dow Jones (INDU) may get to 25,500 but it may be via 12,000 first.
The next few months will be history making, you can be sure about that!
Investing Quote...
"Tape reading was an important part of the game; so was beginning at the right time; so was sticking to your position. But my greatest discovery was that a man must study general conditions, to size them so as to be able to anticipate probabilities." ~ Jesse Livermore
"The stock market is filled with individuals who know the price of everything, but the value of nothing" ~ Philip Fisher
