“Rather than love, than money, than fame, give me truth.” Henry David Thoreau
“Veritas Nunquam Perit”- “The Truth Never Perishes” Seneca (the younger)
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“There is only one side to the market, and that’s the right side.” Jesse L. Livermore
“There is nothing new in Wall Street. Whatever happens today, has happened before and will happen again.”Jesse L. Livermore
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ALL TIMES EASTERN
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{Published here on SevenSentinels.com on January 26, 2020}
It is not possible to overstate this: We are on the leading edge of perhaps the most magnificent opportunity of our lifetimes.
Human psychology reacts to markets in the following two ways again and again over decades:
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The most significant set-ups go on much longer than most of us expect, causing one, initially at least, to want to enter too early, as we observe the top or bottom developing over time.
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When the final turn DOES arrive, there have been so many “shots across the bow” that it becomes difficult to have full faith in the new trend- at least at first.
In 1929 Livermore saw the handwriting of the wall for the decade of the 1930s. He knew that this was the time to think in terms of “being right and sitting tight.” From his original stake of $5 in the 1890s, he finished that 1929-1932 Bear Market with over $100 Million in 1932 dollars- or $1.2 Billion in 2020 dollars! We are confident that if Livermore looked today at today’s market message, he’d know what to do.
Lest we “overthink” what is before us and miss the incredible opportunity offered, let’s review the set up that brought us here- at the very beginning of a new primary trend.
Last week we said:
“A top in the market is not a one-day event. It is a process that can take days, weeks, months, or even years. That process occasionally produces unimaginable valuations, but even more importantly, trader psychology and behavior that in “normal times” would be seen as profoundly absurd.”
The quintessential example of the above has occurred over 2017-2020. We’ll list again some of the once-in-a-generation levels of speculative behavior that set up this final stage over the last three years:
“Starting after the presidential election in November 2016 and into 2018, here are just some of the record RED FLAGS 
that emerged in markets to tell us that we were back in late 1929 or early 1962 or late 1987 or mid-2000… 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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These extremely elevated new lows at SPX peaks produced the highest number of Hindenburg Omens in 2017- EVER
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The CBOE “Black Swan” Index (AKA “SKEW” registered the three highest readings in history in 2017
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The most negative readings for net declining minus advancing volume at new SPX peaks occurred in 2017-several times
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VIX expressed the lowest Fear in history, hitting 8.56 in November 2017
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The CNN/Money Greed Index at 95 registered its highest reading in history in October 2017
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The NAAIM exposure level of Hedge funds expressed its highest commitment in history in 2017:
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The Investors Intelligence Bullish Sentiment levels surpassed the unheard-of peaks of 1987 in 2017!
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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 January 2018):
These were not just extreme readings. These were records!”
Among the new records this month (January 2020), we saw these record levels of the absence of Fear and galactic levels of Greed this month, surpassing that of January 2018:
The Total CBOE PCR matched the lowest put volume at the January 26, 2018 top while the 10-day CBOE equities-only Call-Put Ratio (CPR) reached a new record for the last five years – far surpassing even the January 2018 levels:
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We said earlier that just as “a prophet goes unwelcome in his hometown,” so also in markets, “a major top or bottom goes unwelcome in its own time.” As mortals, we have an unfortunate tendency to miss the big picture as we get caught up with the minutia before us.
The decline is very close, and it will be one for the record books.
The first chart comparison displays SPX, the McClellan Oscillator, VIX, and the VIX ETF, TVIX, at the end of January 2018- at the beginning of this TOP- and then right now:
The next side-by-side comparison shows the same periods as the NYSE Advance-decline line FAILED to confirm at the TOP in each case, and the McClellan Oscillator was negative at each PEAK for SPX/COMPQ:
The number one principle of logic that guides us is Occam’s Razor:
Occam’s Razor is a principle from philosophy. Suppose there exist two explanations for an occurrence. In this case, the one that requires the least amount of assumptions is usually correct. Another way of saying it is that the more assumptions you have to make, the more unlikely an explanation- or as we like to say it “the simplest explanation is nearly always the correct one.”
Sentiment has set generational records of “Top Extremes,” both over 2017-2020 and over this month, January 2020. VIX Has carved out the same top pattern that we saw at the peaks in 1987, 2000, 2007, 2018. The ADL failed to confirm the latest top. McO was negative at the latest top. The McClellan Oscillator is leading downward now at -34 on Friday, the very day SPX tested its all-time high.
Most importantly, the Sentinels are all on SELL with just Daily COMPQ needing to cross over directly ahead.
Now is not a time to “overthink.” Now is the time to align with the trend and sit tight.
Our positioning is all about a deep sustained decline that ultimately will last years.
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