“Rather than love, money, fame, give me the truth.” Henry David Thoreau
“Veritas Numquam Perit”- “The Truth Never Perishes” Seneca (the younger)
“There is only one side to the market, the right side.” Jesse L. Livermore
“There is nothing new in Wall Street. What happens today has happened before and will happen again.” Livermore
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Primary Trend: Up/Topping
Intermediate-Term: ~ Seven Sentinels Uptrend
LOLR Trend: ~ Downtrend
Trading Position: 100% Cash
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ALL TIMES EASTERN
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SPX Today 3703, Tracking: 1,876,353
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Thursday 4:00:
SS LOLR STS
Up Down Up
4/3 5/2 2/5
Breadth: 682/-136
McO -5.51
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December 27, 2020 – Warning to Readers: This article addresses one critical question…
It contains copious data concerning this 2017-2021 TOP. Readers may wish to read the main points and skim the data. You can always study it in detail later.
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Spanish philosopher George Santayana is credited with the aphorism, “Those that fail to learn from history are doomed to repeat it.”
But we all know that. In this article, we will answer one of the most critical questions a thinking trader will ever ask:
Why do those– even those who have studied each of the critical market tops over the centuries ––still fail to recognize this Primary Top and get out and reverse position?
That, quite literally, is the Billion Dollar Question: We’ve referred many times to Livermore’s success in making the equivalent of over $1.2 Billion in what equates to 2020 US Dollars by simply understanding what had preceded him in the many decades before 1929- and then executing upon what he had learned!
So why don’t ALL smart traders follow his example and do the same?
As it turns out, the answer is all about the market’s nearly infinite ability to deceive.
There is an enormous difference between recognizing a market top by examining historical data — and living through it! In real-time, the factors driving a market higher and the fact that each “top-call” gets proven wrong for weeks, months, and sometimes years- deceive even the brightest of traders into believing the four most ruinous words any market participant can utter:
“This Time Is Different”
Today, we’ll carefully notice how the market accomplishes the sophisticated and deadly deception that traps even the brightest of market timers- time after time.
More importantly, we’ll delineate what we can do to take the upper hand, defeat the deceit, and turn it to our advantage!
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Let’s start with the fundamental question: Are there shared characteristics at every Bull Market TOP- that can be used to identify the top when it arrives?
Absolutely! “By their fruits shall ye know them.” Matthew 7:16
Let’s examine today these common elements over the last 30 years using a simple monthly MACD- which moves from up to down as a new Bear Market emerges:
The bottom part of the image displays the NYSE Composite average monthly bars from 1991 to 2021.
The blue line moving through the price bars is the 13-month moving average of that Index.
The top indicator in the image above is the MACD of the Monthly NYSE Composite Index.
At most Bull Market peaks- like 2007 and 2015- MACD reverses from an uptrend to a downtrend. It did so in October 2007, and it did so again in July 2015.
But at the most significant and far-reaching tops- the pattern stretches much longer and is far more complex. (see the long, intricate MACD pattern in the above image.) 2000 was a prime example of a Primary top before the NASDAQ COMPQ dropped 79% in the next 30 months.
But the “Big Daddy” of them is in progress right now- having begun in 2017 and continuing into 2021- and we see the deepest and longest MACD pattern of all time in 2017-2021 in the same image above.
Indeed, by this market’s characteristics (“fruits”), we recognize this setup as the most consequential Bear Market of our lifetimes in the 2020s. But there is more evidence of the potency of the calamity that will follow.
A partial list follows:
“Starting with the presidential election in November 2016 and into January 2018, here are just some of the record RED FLAGS 
that emerged in markets to tell us that we were back at late 1929 or early 1962 or late 1987, 2000, or 2007… all over again:
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The highest percentage of new NYSE yearly lows at a new SPX peak in the history of such data on November 14, 2016
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In keeping with continued significantly elevated new lows at SPX peaks, we had the highest number of Hindenburg Omens in 2017.
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The CBOE “Black Swan” Index (AKA “SKEW”) registered the three highest readings in recorded history in 2017
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The most negative readings for net declining minus advancing volume at new SPX peaks occurred several times in 2017.
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VIX registered the lowest fear in recorded history several times throughout 2017
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The CNN/Money Greed Index at 95 registered its highest greed reading in recorded history on October 5, 2017
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The NAAIM exposure level of Hedge funds registered its highest commitment in history in 2017 at 110% long (reached 105% in October 2020)
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The Investors Intelligence Bullish Sentiment levels surpassed the unheard-of peaks of 1987 in 2017!
Since the dawn of the last century, there has NEVER been a period as long as the current one without so much as a 3% pullback:
From Our September 27th weekly article:
{Download Charles MacKay’s brilliant work in PDF for free- click on the link}
Indeed, by September 4, 2020, Apple’s market cap had exceeded the entire market cap of the Russell 2000. Speculation had driven one issue to a higher capitalization than not 20, not 200, but 2000 companies that we deal with every day.
These are Alexander & Baldwin, Allegiant Travel, Boise Cascade Company, Boyd Gaming Group, Brunswick, Ceasar’s Entmt Corp, Cheesecake Factory, Coca-Cola Bottling, Denny’s Corp, Hecla Mining Co, and thousand nine hundred ninety more similar companies.- COMBINED.
That’s a delusion. That’s madness.
X- For the first time, The dollar value of options exceeded the dollar value of stocks traded during August 2020 by 114%. We do not have to look back at some historical Stock Bubbles in history books to find this madness.
The images and narrative above detail the once-in-a-century “Feedback Loop” response to the highest call buying in recorded history this last month.
That record refers to the total dollars spent buying calls, the percentage of NYSE volume represented by these calls, AND the share of dollar value moving into call options daily compared to NYSE stocks. Each set of records has never occurred before since humankind walked this planet.
XX- Think about this: As billions pour into options daily, more than 75% of those $Billions go into options of less than 14 days of maturity! This level of pure, raw speculation makes the frantic activity of the 1920s look like a peaceful Springtime walk through the park. If these are not earmarks of the top, we can’t even imagine what would be.
Focus on the word “never” in the image above. This behavior is madness. This extreme has NEVER occurred in recorded history.
XXX- The above anomalies occur at every major top. But the above records are the most extreme we’ve ever found through real-time study for decades or from the market history we’ve studied in depth, covering three centuries. These negative divergences now exceed those at ANY top in history:
This is no “ordinary” top; we believe it will be one for the ages.
From above- February 2020 was the first time since 2015 that VIX closed above 15 at a new ATH SPX.
Then, in August 2020, as SPX closed at new ATHs, VIX was above 20. This close is the first close above 20 at an ATH since March 2000.
We don’t have to remind readers what followed March 2000.
To repeat the above- when markets rise alongside the VIX, as is the case now: “Bad Things Happen.”
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To summarize- we are experiencing, right now, the “Big Daddy” of all market tops- the biggest of our lifetimes. The opportunity ahead for short-side traders is nothing short of spectacular! However markets are still advancing, and to short now will almost certainly produce losses before those magnificent gains emerge.
What can the astute trade do at this unique time in history? The following:
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Recognize from the data above that markets are very close now to the end of one of the most critical market tops in decades, and
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Keep very close tabs on the Short- and Intermediate-Term TRENDS
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When the IT trend turns down, get out and get short
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