Stock Market Nosebleed Rally

By: Anthony_Cherniawski

I just wanted to comment on the extremes to which this market has gone. The normal standard deviation used to mark the top of a cycle is 2.0 above the six-month moving average price. Normal market tops will either touch the upper Cycle Top line and almost immediately will be repelled. Thus, I call it Cycle Top resistance. In a very few rare instances the price of the SPX will briefly move above it, but drop back beneath the resistance area quickly.

There are some rare instances when The price goes above for more than a day or two, and they are noteworthy. The first one I found was the peak before the 1987 Crash, where the SPX had achieved a level of 2.3 standard deviations above the 6-month mean. On March 24, 2000, the SPX had reached a level of 2.5 standard deviations above its 6-month mean. The 2007 peak was only 2.1 standard deviations above the 6-month mean.

The SPX has been bumping against the 2.5 standard deviation line for the past week, currently at 1674.57. This is certainly the longest time that this has occurred and the highest relative peak (referring to standard deviations) that I have on record. I have an economist friend who does his calculations from the 90-day moving average and he claims that we are approaching 3 standard deviations on that basis.

This is a market that is clearly out-of-hand and dangerous. I am not interested in calling a top, since my efforts have been thwarted by a market that is clearly out of control. Let’s just say that the turn will be easily recognized but leave most investors trapped at the top. There have been a dozen “liquidity events” suggesting that we are in a rarified atmosphere when it comes to liquidity to bail out all the sellers. It simply won’t happen.

Regards,

Tony

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