The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, April 27, 2015.
Life in the fast lane, surely make you lose your mind
Life in the fast lane
Life in the fast lane, everything all the time
Life in the fast lane
Who could forget these poignant lyrics penned and performed by the eagles all those years ago - never more germane concerning the human experience than today. Of course back in the 70's, the eagles were talking about those who chose this path from a personal perspective, taking drugs and burning out, not in terms of what's happening now. What do I mean? Because of the tyrannical and predatory policies and practices (like this, this, and this) increasingly imposed on us by the ruling class, our entire society has been thrown into the fast lane by a bunch of scoundrels and vagabonds (think unscrupulous and corrupt oligarchs and their dogs [politicians, bankers, bureaucrats, etc.]) that seized opportunity - and human nature of course - that being it's our own bloody fault in being hedonistic idiots. That's right, we are allowing them to do this to us, because like Rome at 'peak prosperity' we have turned into a 'stoned mob', with accelerating debasement penetrating into every facet of our lives, from financial engineering (money printing, corporatism, etc.), to our mores (seven deadly sins, usury, etc.) - the 'new normal'.
So if it feels like life is speeding up for you, and things are getting out of control, you are not alone. If you are having an increasingly hard time paying your bills because prices are going up faster than income, and this making you desperate, you are not alone again. This is the lascivious process that causes mass manias and aftermath to unfold in unannounced regularity (this should not be surprising to you), given the present episode is of the highest order (think z-wave) ever witnessed by man. A large part of this has been to send stocks to record highs as the real economy and people's financial well being collapses (see here, here, and here), with the dominos just beginning to fall. Next, expect the manic blow-off in stocks and bonds to crescendo at some point between May and November, followed by acceleration in the unraveling of everything from the financial markets, to supply chains, to the larger bureaucracy. As discussed at length a few weeks back, the larger decentralization process is accelerating now, which is a very important thing for you to understand so that one reacts properly - because this kind of thing will cause many, if not most, to lose their mind.
As far as the stock market is concerned in this regard, process is accelerating here evidenced in the breakout in tech stocks, as measured by the NADSAQ, against the blue chips, as measured by the Dow, also pointed out to you some weeks back. What's more, the gains in tech continue to accelerate (see below) because as the real economy continues to contract, tech becomes the chief target for Wall Street bull horning due to the meaningless metrics followed here, with liquidity flowing in that direction for this reason. This will continue to accelerate until burnout occurs, which will come, but it's important to realize that this may not occur until the NADAQ / Dow Ratio reaches the 2000, leaving a great deal of room for tech to continue surging higher. As discussed last week, with professional money in panic mode and still hedging like a banshee, evidenced by still high open interest put / call ratios in the OEX and NDX (see here - just enter the symbol and click go), like 2000, this blow-off could still have weeks, or even months, before exhaustion likely causes a nasty reversal.
Again however, for now money printers are attempting to stay ahead of the bubble curve, so whatever you do don't short this thing until the professional speculators finally throw in the towel, which will be evident in true sentiment readings, and could be as early as next month. In looking at the excitement levels still gripping the trade this is not the case as of yet, but with process continuing to unfold, as measured by breadth becoming increasingly narrow, it can't be long now because people can't do crazy for extended periods of time without getting caught. The unfortunate thing for most short sellers is you can't tell anything by looking at the indexes, technicals, etc. One must view the ratios in order to have a fighting chance in identifying a potential top in stocks and as you can see in those pictured below, we are nowhere near that point if extremes witnessed in the year 2000 are to be matched. How probable is such a match, or betterment? As mentioned above, we are in the highest degree of sequencing in man's history, with everything from contempt for one's fellow man to desperation levels not witnessed in some time. Based on this understanding, one must conclude we have a very good chance of reaching these extremes.
And again, while the NASDAQ / Dow Ratio may not reach all the way up to the 2000 highs, with this measure being the ultimate bubble measure in the history of the American markets, one dies not want to step in front of this mania until all the shorts have been rung from the equation. This process could take some time, however if process continues to accelerate, which is necessary to keep the bubbles inflating, we could be there as early as next month, believe it or not. Of course with the real economy far removed from year 2000 levels, US price managers are more desperate today, employing measures and tricks not necessary at millenniums turn, so theirs no telling how long this will go on for - summer or fall - who really knows at this point. With the rising stock is a form taxation on the working class right now, where not only does it keep ruling class balance sheets looking good, but also, it gives the plebs hope one day they too will have financial security (which keeps them investing to make that happen), the game continues. One does wonder what would happen if everybody wanted to take their money out at the same time when the jig is up, like in 1987? (See Figure 1)
We may find that out once the Dow / Dax Ratio finishes bottoming out, which again, like the NASDAQ / Dow Ratio, still has a ways to go before reaching year 2000 extremes. Again however, if process continues to accelerate, which is what happens once you enter the fast lane, then this could come sooner than anybody expects. With the Fed meeting and month end this week, one should expect US price managers to be out in full force, especially if the periphery (think Greece, etc.) still appears to be heading for the off ramp. Because in order for the status quo boys to make it appear they are still in control we can't have a situation like last week where Europe looked set to exit the Keynesian super-highway via the head and shoulders pattern in the DAX, which can be seen here on the daily plot. The fact the Dow / Dax Ratio still has room to fall tells you to expect some conciliatory words out of the ECB in coming days, perhaps in the form of another set of bridge loans. Such an outcome would provide the backdrop for a big blow-off in May to mark a seasonal high, along with allowing all the ratios shown here today to achieve their objectives. (See Figure 2)
Further to this, and bringing the focus back to the US markets, one should notice we have the same bear market identifying negative divergence that occurred in 2000 in place at the moment, where the Dow may not confirm the new highs in the NASDAQ witnessed last week, if it remains subdued. What's more, if the transports do not take out the December highs, we will have a Dow Theory non-confirmation off the February highs in the Dow as well, which would be double trouble in this regard once the NADSAQ puts in a technical reversal. Like 2000, what's happening here is bearish Dow speculators are exhausted, but this is not the case with the NADSAQ, as discussed in our true sentiment analysis last week. And sure enough, as forecast, tech continues to blow-off, which is keeping the rest of the equity complex stable, however if open interest put / call ratios were to fall in NASDAQ related measures (derivatives), we could indeed see some fireworks post options expiry next month. Again however, we know more gains lie ahead because the NASDAQ / NASDAQ Volatility Index (VXN) Ratio has not hit the minimum Fibonacci resonance related target denoted below yet. (See Figure 3)
And the S&P 500 (SPX) CBOE Volatility Index (VIX) Ratio still has not reached its maximum potential either, that being the 230 proximity, the best-fit Fibonacci resonance projection shown with the bold grid, as is the case for the best-fit projection denoted for the NASDAQ / VXN Ratio as well, in bold, measuring all the way up to the 450 area. What is particularly important to notice here is the NASDAQ / VXN Ratio is already at new all-time highs; opening the door to the more aggressive targets being vexed. Again, with process accelerating by the day now, where increasingly draconian measures are being taken by the status quo because the economy is collapsing internally (the real economy is collapsing), these measures could be reached very quickly, perhaps even by next month as most of the gains will come from a collapse in volatility, where for example the VIX could break down from the triangle its been forming since last year, sending it careening lower in short order. Impossible? Nothing is impossible in the Twighlight Zone. (See Figure 4)
And we are deep into the Twighlight Zone now, submerged in a MacKay Moment, where America has a one-way ticket in the fast lane on the highway to hell, and there's not a goddamn thing anybody can do about it. It's too late. The greedy bastards of the world have already done too much damage. The bureaucrats have gained control of the system and they will continue to serve their false gods and exploit the masses until things go Road Warrior. Because a society that rewards lying and cheating and murder to get ahead is destined for doom. Once rule of law, mutual respect, and common decency are lost - so is the future of society. What's worse is there is no Plan B as well. Once the wheels come off the government machine all bets are off in terms of being able to envision a sanguine future. In my opinion, eventually you will see ISIS like groups of the disenfranchised spring up in the US and then the regionalization / localization process will really pick up steam. You will see States, cities, and towns secede. International trade will slow dramatically. The gap between rich and poor will grow even wider. Life will become far more basic. Simply eating will become a priority. The list goes on and on.
Before this however, again, as we know from reading above, if Rate of Change (ROC) and Bollinger Band® Width (BBW) indicators break out to the upside in both Figures 3 and 4 above, then the craziness in stocks witnessed in the year 2000 will be surpassed, not that we are far from that point now, and some would argue it's already worse. I'm not suggesting this will happen. In fact, I don't see BBW breaking higher until stocks top out. It's important to realize the upside targets discussed above can be reached without these indicators breaking out - in theory. What's more, traditional indicators like RSI and MACD still have a great deal of room to rise without breaking out, so the point is stocks could rally to the targets above without any of these indicators breaking out. One thing is for sure; whatever you do, don't short this beast, at least not yet. Again, this decision will be made based off of true sentiment conditions, which are definitely not right for this kind of thing at the moment. And of course it would help if a new QE program were not bandied about regularly in the turnstile. Eventually this will not have the desired effect, but again, we are not at that point as well.
We're getting close folks, so stay tuned.