Indicators Of An Impending Washout

I am not trading and have not been since 2013. I have been in a 99% cash position since that time. This doesn’t mean I will never trade again. It just means getting little or no return is my best option. Opportunities have abounded because the market has rocketed higher over and over again over the past 6 years. One of the interesting things about investing is that more fortunes are constantly flying in front of your nose than ones you take advantage of. The fact is that stock prices are manipulated to such a degree any indicators I use function as traps. I simply have no way of knowing how long the stock market can be elevated by means of government inspired affirmative stock market action. So, I have been on the sidelines. As for missed profits, others are welcome to them because they are accepting a degree of risk I have never seen in financial assets before. Anyone who has been long either by luck or expert calculus deserves what they have earned. Anyone now who can figure out how to keep their profits will be doubly deserving.

I still keep indicators because I will be back in eventually, provided there is still a stock market and a United States of America and I am still alive. I am going to show some indicators I keep to illustrate just how much danger there is in holding equities right now.

Notice the assenting head and shoulders pattern for Exxon Mobil (XOM). XOM is only one stock and not an index. But, patterns like that of XOM abound. The topping pattern covers a period of over 20 years.  What does it mean when 20 year long head and shoulders patterns break their necklines? It means a once per century washout and complete economic chaos for 5 to 20 years.

The chart below shows the total ETF volume as a percent of regular stock volume. During this long period of affirmative stock market action, a significant increase in relative ETF volume has reliably predicted bullish market turns. For the past year it has not been nearly as reliable. One of the things the manipulation consortium does is load up on bullish derivatives before goosing the averages. There has been no bear market since I have been keeping this index. Chances are signals will be reversed in a bear market. Look at the red ellipse. Relative ETF volume literately went off the charts on Friday. That means one of two things. Either the Deep State is planning to commit unprecedented resources to getting the bull market back on track starting on Monday. Or, they are giving up and loading up on bearish derivatives instead. My guess is that it is the ladder.

TZA is a popular 3X bearish ETF. TZA volume has suddenly rocketed to an extreme level. That is a good indication that folks who have rigged the market to the bullish side are flipping and plan on making windfalls on a significant ensuing drop. It also lends credence to the guess that super high ETF volume is occurring in advance of a washout.  Overall volume is increasing on the downside. To control the market, the Deep State must keep volume down. Folks may be selling without their permission. The nature of trading volume cultivated or otherwise has been perfect ALGOS and all who participate in rigging the market. That can change. As it is, almost all volume comes from from trades that last from less than a second to those which exit before the close. When long term holdings start hitting the market, the Deep State’s job may be too difficult. What happens when split second trading prowess ceases to be an asset. There are reasons why low volume is cultivated.

One time tested market breadth indicator is the percent of stocks trading higher than their 200 day moving averages. Unless averages are manipulated higher purposefully there is no way, stock averages are going to make new highs with only around 53% of stocks trading above their 200 day moving averages. Breadth divergences are typical at turning points in financial history. This is one of those times and the poor market breath is much worse than would occur in a free market setting.

I have made the point many time that using indicators to trade is pointless when supply and demand are not what is causing stock prices. It sure works that way over short and mid term trades. This it the first time I have seen long term indicators this negative. They usually do look negative in a market rigged to the plus side, but not this bad.

The truth is a hard sell. Fantasy Free Economics gains readers one at a time. Major search engines simply do not list blogs which disagree with their political agenda. As long as folks share the link to this blog and others speaking out against the grain, the truth will at least trickle into the public consciousness.

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About Fantasy Free Economics

James Quillian independent scholar,free market economist,and teacher of natural law. Who is James Quillian? Certainly I am nobody special, Just a tireless academic and deep thinker. Besides that, I have broken the code with respect to economics and political science. Credentials? Nothing you would be impressed with. I am not a household name. It is hard to become famous writing that virtually no one in the country is genuinely not in touch with reality. But, if I did not do that, there would be no point in my broking the broken the code. If you read the blog, it is easy to see that there are just a few charts, no math and no quantitative analysis. That is not by accident. Given what I know, those items are completely useless. I do turn out to be highly adept at applying natural law. Natural law has predominance over any principles the social science comes up. By virtue of understanding natural law, I can debunk, in just a few sentences , any theory that calls for intervention by a government. My taking the time to understand the ins and outs of Keynes General Theory is about like expecting a chemistry student to completely grasp all that the alchemists of the middle ages thought they understood in efforts to turn base metals into goal. Keynesian theory clearly calls for complete objectivity. Government can only make political decisions. Keynesian techniques call for economic decisions. So, why go any further with that? Fantasy Free Economics is in a sense a lot like technical analysis. Technical analysis began with the premise that it was impossible to gain enough information studying fundamentals to gain a trading advantage. Study the behavior of investors instead. Unlike technical analysis, I don't use technical charts. What I understand are the incentives of different people and entities active in the economics arena. For example, there is no such thing as an incentive to serve with life in the aggregate. In the aggregate, only self interest applies. It is routinely assumed otherwise. That is highly unappealing. But, I am sorry. That is the way it is. I can accept that because I am genuinely in touch with reality. Step one in using Fantasy Free Economics is for me to understand just how little I really know. A highly credentialed economist may know 100 times what I do based on the standard dogma. Compare the knowledge each of us has compared to all there is to know and we both look like we know nothing at all. There is always more than we don't know than what we do know. I am humble enough to present myself on that basis. Why? That is the way it is. I am not bad at math. I have taught math. What I understand is when to use it and when to rely on something else. Math is useless in natural law so I don't use it. While others look at numbers, I am busy understanding the forces in nature that makes their numbers what they are. That gives me a clear advantage.
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