There Is No Way This Bull Market Doesn’t End Very Badly

There is no way this bull market doesn’t end very badly. We all know that is the reality of this liquidity-fueled market, but we keep investing for “Fear Of Missing Out.”

An excellent example of investor exuberance came recently in “Investors Go All In:”

“More importantly, over the past 5-MONTHS, more money has poured into the equity markets than in the last 12-YEARS combined.”

(Click on image to enlarge)

Bull Market End Badly, There Is No Way This Bull Market Doesn’t End Very Badly

If that chart alone doesn’t get your “Spidey senses” tingling, I am not sure what will. However, I have a few more charts to share with you.

 

Technical Deviations

In the short term, fundamentals don’t matter. Such is because over a few days, weeks, or even months, what drives prices higher or lower is the psychology of investors. As such, we can look at technical deviations to determine how exuberant or not the market currently is.

For moving averages to exist, prices must trade both above and below that average. As such, moving averages act like gravity on prices. When prices deviate too far from the moving average, eventually, prices will revert to, or beyond, that average.

We can visualize the reversion in the chart below of the S&P 500 index versus its 200-dma. With the index currently more than 14% above its 200-dma, such should be a short-term warning to investors.

(Click on image to enlarge)

Bull Market End Badly, There Is No Way This Bull Market Doesn’t End Very Badly

The following chart says much the same. Currently, the 50-day moving average is also significantly deviated above the 200-dma. Such suggests that not only will prices retest the 50-dma but eclipse that level in a reversion back to the 200-dma.

(Click on image to enlarge)

Bull Market End Badly, There Is No Way This Bull Market Doesn’t End Very Badly

Notably, technical deviations in the short term do NOT mean the market will “crash” tomorrow. Markets can remain deviated for quite some time. However, when the deviations begin to diverge from the price index negatively, such has previously preceded more important corrections and bear markets.

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