The Market's "Last Gasp" was a Bull Trap

The headline of our September 30, 2018 issue of the award-winning Wellington Letter was: “The Last Gasp?” As we now know, that headline was incredibly prescient since over $8 TRILLION of global wealth was pulverized during the global stock plunges in October.

In September, our indicators had confirmed that the eye-catching last up-move in some of the major indices had all the signs of the final engineered “bull trap.”

The big, smart money was selling while manipulating the widely watched indices upward, which are controlled by about a dozen big cap stocks.

Last August-September, the small individual investors finally came into the market after not participating the past eight years. Although this was trumpeted as “bullish” by analysts, our work shows that this is usually the final sign of a major market top being formed.

Right on target, the charts show that some indices topped in late August, while others made their own tops at the end of September.

In fact, in late September we wrote,

“We are now going into the phase in the cycle where you want to put your financial TV on mute.”

We had cautioned since mid-September about the IWM (ETF for the Russell 2000) and to watch chart support for a potentially negative break. That happened on September 26th. Here is the chart:

That makes the late August upside breakout a “false breakout.” Before the days of High Frequency Trading these were reliably bearish and led to sharp declines...

However, because of all the other negative signals, we wrote in our September 30th issue that "this time it could signal something important." The IWM also broke the 50-day moving average to the downside that same day (not shown).

The chart of the NYSE COMP versus the S&P 500 is very also revealing. Over the past nine months we had warned our clients about all the statistics that show the S&P 500 is manipulated by 10-12 stocks, which account for virtually all of the gains of the index this year.

In that same September 30th Wellington Letter we said,

The NYSE COMP includes ALL the stocks on the NYSE, about 2300. Obviously, that makes it much more relevant. Note the huge spread between the two. That will close. And that will come through a plunge in the S&P, in our opinion.

There are a number of other important clues we explained in our Wellington Letter ahead of the devastating October market selloff, which you can now download for free for a limited time.

Simply click the link below to get your Free issue of our award-winning Wellington Letter today!