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Is The Bull Market On Its Last Legs?

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Risk vs. Reward Stinks

The major bull rally (cyclical bull as it turns out) currently in progress was highly predictable as was the current relief blip to new highs across many markets. In early 2009, extreme bearish sentiment along with ferocious money supply growth provided the platform.

In the newsletter, we have watched a big picture 'bull signal' take shape for many months now. Specifically, this was represented by the ability of the broad SPX to do exactly what it had done at the launch of the previous cyclical bull; rise above the 20 month exponential moving average, grapple around with it for a few months, and hold above it. Check. There is no debate, the SPX (along with many other markets) has registered cyclical bull. The question now becomes 'for how long?'

S&P 500 Chart 1994-2010

The chart shows a 62% Fibonacci retracement target of 1224, which not coincidentally is the ultimate NFTRH upside target set over a year ago. But before we pat the newsletter on the back we note that two major potential interim scenarios have been carried forward that have not come to pass; one a classic A-B-C correction upwards (cyclical bull) off of the impulsive decline of 2008, and the other stating that the initial crash leg was itself an 'A' of a massive A-B-C correction downward off of the precious cyclical bull market that manifested out of previous inflationary monetary policies. The 'bullish scenario' required a 'healthy' correction mid-stream on the way to 1224.

Given the declining volume (conviction?), given the fact that the dumbest of money (per NFTRH's always-watched sentiment indicators) is ever braver as prices rise and given the fact that the cycle has not paused for a 'healthy' correction, even as the ultimate target is approached... given that a thick band of visual resistance resides at and above the 62% Fib, almost by definition right minded investors (as opposed to day traders and assorted other 'players') must be in risk mode now. The easy money was made already folks.

Harping on risk does not help me sell newsletters, but it is the only thing I can do because that is what I see. The important thing is to manage risk vs. reward over the entirety of cycles, not to swing spastically along with the markets. Low risk opportunities will come, but unfortunately many people will not be prepared as the noise of the day - let's use today's Dow Theory bull signal as an example - will have already given them permission to go with the flow.

I used to subscribe to Robert Prechter precisely so I could take in his bearish precious metals analysis even as I remained bullishly deployed. It simply made me stronger in my convictions if I could feed rational but contrary ideas into my decision making. Similarly, 'high risk' does not mean 'don't play', it simply means risk is much higher at SPX 1160 than it was at 666, when virtually the entire investing world was seeing the sign of the devil - enabled by the mass media.

Before this post gets too long winded - and there is a lot more to consider about the ongoing market reaction to historic inflationary policy - let's have a look at a couple important money supply graphs.

M2 5-year chart
MZM 5-year chart

Do you see what I see? Do you see ramped up money supply off of the initial downturn in the credit bubble leading directly into the first red circled flattening phase as the markets shook off policy makers and attempted to purify themselves?

Do you see incredible subsequent inflationary panic (this was our investment opportunity for late 2008 in the precious metals and 2009 for the stuff inflationary policies were actually aimed at - assets of all kinds) and money supply ramp up? Do you see money supply again flattening and making 2008's red circles look modest by comparison?

Do you see risk yet?

 

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