Wednesday, July 18, 2018

The 1929 Set-Up aka. "Spontaneous Combustion"

There are exceptional EconoDunces, and then there's Larry Kudlow...

Way back in 1929, the stock market crashed and then rallied weakly for several months. Then it rolled over and declined -90% in two years. As of this week, this has been the longest "correction" in 34 years. Now longer than 2008 DURING the recession, just prior to the Lehman crash. I think we all see where I'm going with this - as long as Amazon never rolls over, this will all be fine...

Aside from the Nasdaq/Tech, every other segment of global risk markets made their all time highs weeks, months, or years ago. 

Even within Tech, most stocks made their highs weeks or months ago...

This level in the equal weighted NDX has stalled the S&P 500 twice this year, while new highs (lower pane) diverges massively:

The broadest equally-weighted measure of all U.S. stocks is the Value Line Geometric index which has yet to make a new high:

While small cap stocks have been bolstered by trade wars, large cap stocks are particularly weak:

Where this gets interesting is that in Y2K the Nasdaq tanked before the Dow. Whereas this time the Dow peaked six months ago. Meaning there will be no "hand-off" from junk to quality this time:

We've seen this movie before:

What the tools believe right now, compliments of Larry Kudlow:

"What if all of the action since the January high turns out to morph into a seven-month accumulation period? As Larry Kudlow intimated this morning in his Delivering Alpha interview, he remains open minded to the idea that after eight years of subdued business activity and growth, just maybe the US economy is only starting to shift into a faster gear precipitated by the unleashing of regulations, tax benefits and pent-up demand from shelved capex from the Obama years."

The yield curve is open to the idea that Larry Kudlow is a mega dunce. Along with everyone who believes him...

"We're shifting into a faster gear of 'extreme implosion'"