First, I want to repeat something I wrote in January:
1/18/21 A while ago I made the huge call that the stock market would follow the bond market in crashing, because Primary Dealers were overloaded with long inventory and overleveraged in financing it. I set a line in the sand of 1% on the 10 year. Last month, they crossed that. Stocks are still going up.
My technical analysis, based on the Cyclical Analysis techniques that JM Hurst published in 1970, first forecast an ultimate price target of 3900 on the S&P 500 on July 26, 2020. Three months later that projection rose to 3900-4000, and just a few weeks ago, the latest revision pointed to 4300-4400.
I don’t think it will get there, but what I think does not matter. I will follow the trend indicators until a clear sign that the fever has broken. I acquiesce in the knowledge that there’s dark matter and energy in the financial universe that I can’t see and don’t understand.
The visible part of the financial universe that I can see and of which I have some grasp, tells me that the system is fragile, that it could crash, and that the risk of such a destabilization is as great now as it ever has been.
Again, I wrote that, two months ago. So now what?
Now I really don’t think that stocks will get anywhere near those most recent targets. The fragility is now clear in the behavior of the Treasury market in recent weeks. And we’re beginning to see signs of it in certain banking system liquidity measures. I will document those for you in a couple of reports this week.
In this report I’ll show you how bank deposits relate to the Fed, and to the bond and stock markets. I’ll show you how this data will warn us that the situation may be devolving into something uncontrollable and extremely dangerous.
The data is now trend is now very close to just such an inflection point.
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