Loading ...I got sent but in a pin with a lot of charts but since GB get hit and many stocks don’t recover always good to be cautious I’ll send some of it.
Not anymore optimistic in his opinion who works on cycles.
In Asia, the problems are critical. Specifically, a black swan event that triggers global panic could originate from China. The Shanghai B- shares Index (middle of page 5) is already in panic mode and close to spiraling out of control. Essentially, the B- shares Index represents the private sector of the Chinese economy (companies not controlled by the state). The plunge in Shanghai B-shares is reason for concern well beyond Chinese shores.
It is often difficult to obtain real-time economic data. Most of the key indicators become available after a delay of 1 to 3 months. However, LME Warehouse stocks (bottom of page 5) are an exception, with physical inventories reported with a 1-day delay. The recent ascent in LME physical stocks strongly suggests that the days of supply chain shortages are ending, soon to be supplanted with unwanted inventories. Rising inventories, along with a sharp increase in Advance Layoff Notices (as required by the Worker Adjustment and Retraining Notification Act
Universal Cycle Theory Financial Newsletter October 21, 2023 Page 2
of 1988), indicate that a significant economic contraction is imminent. In combination with deteriorating technical conditions in the equity markets, unexpected economic weakness sets the stage for a crash. The high ratio of 10- year Treasury Bond yields relative to Junk Bond yields (top of page 6) provides a strong signal that investors are ill-prepared for looming economic weakness. The high ratio indicates that investors believe the economy is resilient and low-grade companies will be able to pay interest on their bonds indefinitely into the future. But the resilient economy hypothesis will likely be turned on its head in the coming days. In the process, junk bond yields will soar (causing junk bond prices to collapse), and financial markets will panic.
In recent days, some analysts have claimed that stocks are oversold, and a significant rebound will soon take place. However, numerous indicators fail to support this claim. For example, the 5-week average of Investors’ Intelligence Bulls-Bears (middle of page 6) remains near the overbought level it touched just weeks ago. Similarly, the NYSE 50-day Arms Index relative to its 5-year average (bottom of page 6) resides midway between overbought and neutral. Importantly, both long-term indicators remain far, far above oversold levels – as happened in late-1987, late-1990, late-1994, 2002, and early-2009. On a short-term basis, the stock market is also surprisingly overbought from several perspectives. These include unusually high levels for the NASDAQ 20-day Arms Index (top of page 7), the NYSE 20-day Arms Index (upper-middle of page 7), the difference between the Consecutive Up-Down Day Oscillator and Composite Oscillator 1 (lower-middle of page 7), and Composite Oscillator 1 (bottom of page 7). Over the past month, the heaviest trading volumes occurred amongst advancing shares, whereas selling climaxes typically terminate after several days of heavy volume in declining shares. In other words, investors and speculators are still actively bargain-hunting. The decline will only terminate after market psychology completely reverses, and investors sell at any price.
The latest margin debt statistics just became available, and the high ratio of Margin Debt relative to Total Credit Balances (top of page 8) illustrates extreme illiquidity within this sector of the market. The liquidity situation is more dangerous than early-2000, early-2018, and late-2021. Interestingly, the high ratio is not because of rising margin debt – which is contracting modestly. Instead, the ratio is soaring because Free Credit Balances are rapidly contracting both in Margin accounts (middle of page 8) and Cash accounts (bottom of page 8). The contraction of credit balances in margin accounts is less severe than the contraction from late-2008 to early-2009. However, the contraction of credit balances in cash accounts is unprecedented. It remains unclear why investors are pulling cash from their brokerage accounts in record numbers. The contraction could involve transfers to purchase higher yielding and more conservative Treasury securities, or consumers might be transferring funds to supplement their strained personal finances, or possibly both. Whatever the reasons, brokerage account liquidity resides in its worst state ever, and the deterioration persists. Collectively, poor liquidity, high valuations, deteriorating market trends, and overbought oscillators suggest that stocks will soon crash – likely immediately after the October 28 lunar eclipse, which is the traditional inflection point for triggering crashes.