The Stock Market Is Booming, But These Indicators Says It Is On The Verge Of A Major Correction

Total loan book: originations + new – charge-offs/maturities

 

 

Do you sense a “but” coming?

Among the (by no means comprehensive) list of indices hitting new 52-week highs this week are the following:

  • Value Line Composite
  • S&P 500
  • S&P 400 Mid-Cap
  • Dow Jones Industrials
  • Nasdaq 100
  • NYSE Composite
  • Russell 1000
  • Russell 2000
  • Russell 3000

Furthermore, not only are these indices scoring 52-week highs, they are each hitting all-time highs as well. As you know, we are big proponents of good “breadth”, i.e., lots of participation among stocks and groups of stocks within a rally. Therefore, we unequivocally consider this myriad of index new highs a positive sign for the market.

Do you sense a “but” coming? As we query in the sub-heading, does the presence of such a wide-spread group of new highs signify a “sure-fire” bullish course for the stock market. As you are likely thinking, there are no guarantees in this business. In this case, that point is driven home by at least a handful of the markers on the following chart which shows all 39 occurrences in which each of the 9 indices above closed at multi-year highs.

image

As the chart illustrates, several of these “breakout barrage” days occurred near, or at, major market tops. Thus, the condition of widespread index highs does not guarantee further positive price action. Then again, there are periods like 2013 when we witnessed a continuous string of these events as the market just kept on rising. So what will our current incident lead to, another 2013, a major top, something in between?

http://jlfmi.tumblr.com/post/163256410680/breakout-barrage-part-2

Money Supply Growth Falls Again, Dropping to 105-Month Low

M2 growth also slowed in May, falling to 5.6 percent, a 20-month low.

ms1.png
….

In this case, we find that the growth rate in loans has fallen to a 74-month low, dropping to 1.9 percent. Loan growth has not been this weak since April of 2011, in the wake of the last financial crisis.

loans.png

We find similar trends in real estate loans and in consumer loans, although not to the same extent.

realestate_loans.PNG
consumer_loans.PNG

 

IMF executive board decides to give Greece a conditional loan but wants more austerity and a plan to reduce debt. Sales are plunging for GM, they are closing plants, laying off workers and discontinuing cars. Pensions are in trouble, many corporate pensions are underfunded and it is only going to get worse. The myth that there was cash on the side lines, is just that a myth, there is no more cash on the side lines.  The money supply has dropped and we have seen this back in 2008, this is an indicator that the economy is entering a recession. The central banks are panicking, once they announced that stimulus is ending the market took a dive, the central bank then backtracked on everything .

Follow IWB on Facebook and Twitter