June 2, 2013
Weekly Market Outlook
By Keith Schneider
Whether one calls it the Hindenburg or the Titanic Indicator, the signs are ominous. Market meltdowns are named after disasters crafted by human folly. Whether it’s thinking that a ship is unsinkable, a balloon filled with explosive gas is fit for commercial travel, or the stock market can’t go down are all examples of crafted human folly. Whether it’s a healthy correction or the start of something bigger remains to be seen, but either way the odds are that some helium is going to be let out of this balloon.
After an amazing run up, the stock market hit all-time highs and had a key reversal day last week with almost double the normal volume. Also noteworthy is the 4 distribution days showing persistent institutional selling coupled with Friday’s 200 plus point drop is worth sitting up and paying attention to.
Looking at the market internals, we had more 52 week lows than highs as the overall market hit all-time highs. That is how the Hindenburg indicator is calculated. Those following candle chart‘s would call it a bearish engulfing pattern, and the odds of a real correction or more are adding up.
On the positive column is the fact that the more speculative issues and small caps are holding better than the big caps. The market phase is still firmly bullish.
Elliot Waver’s are pointing to this market action as the completion of a final leg up along with signs of frothiness not seen in centuries.
For example, summer rentals in the NY Hampton’s are at tulip bulb mania proportions with one property listed for $900,000. However, a summer rental at $900,000 is downright cheap compared to buying an oceanfront estate in East Hampton for $30- $50 million. A shrewd hedge fund billionaire, who is summer home homeless, looks at the numbers and thinks that if this market is in a bubble, why I should buy at these levels? A $900,000 summer rental looks like a cheap put option. For whoever picks up this bargain, my best wishes for a hot and sunny summer with no sharks in the surf.
Check put this week’s video for our macro view on the state of the markets...
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