The Nature of Market Tops

The Nature of Market Tops

The markets have been going up for a long time and everybody has forgotten about the Lucky Idiot’s gun with its ten thousand chambers. You remember; that’s the gun that had ten of those chambers filled with bullets. But everything has been so good for so long everybody has forgotten about that. The indexes have been constantly pushing higher. The media is leading the parade cheering each new high in the indexes with firecrackers bursting and banners flying. Investors are out in the streets doing cartwheels or at least it just feels that way. But underneath the indexes, the market, the real market is giving way. The adv/dec line of the NYSE is slowly deteriorating. Its 39 day moving average is flattening out and turning down to the extent that the adv/dec line is now spending more of its time below that moving average. It might be mid June, 2015. After awhile the 39 day ma will move below the 144 day ma which in turn is slowly rolling over and headed down. The underlying market is unmistakably getting weaker, much weaker. It’s now early August, 2015. You know how this story ends.

The lords of the playing field (informed money) have been slowly distributing (selling) their shares out to the great unwashed (everybody else). Everybody who can buy has already bought and there is no way to go but eventually down. When the music stops the chairs will be full with no place to sit.

It’s been my experience to ignore the market indexes. Everybody follows them. There is no Wager Value in looking at them. Instead keep a close eye on the adv/dec line of the NYSE (based on common stocks only). You can get this information summarized neatly for you in the weekend edition of Barron’s. The adv/dec line along with its assorted moving averages and momentum indicators has Wager Value in that few people pay attention to it.