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The Rollover Trio

From the Slope of Hope: Let's take a step back - --  a few thousand steps back, actually - - and drink in a very long view of the stock market. We'll use the S&P 500 as our observed entity. Here it is below, spanning several decades, with three major tops tinted.

You will notice something distinct that that third "top", which is that, unlike its green-tinted predecessors, it didn't mark a top at all. It was shaped like a top. It was timed like a top. It was just about as good a top as the market gods can create. And yet it merely preceded another 35% rise in the market in a mere eighteen months. I've marked with an arrow that fateful day, February 11, 2016, which in hindsight marked one hell of a risk-free buying opportunity.

Turning the pages back on Slope, I took a look to see what kinds of things were being written. Here's an item from MPTrader which lays out precisely the same stuff I was thinking:

Of course, that notation about "...the Fed is not actively and overtly buying assets" were like famous last words, because the central bankers of the entire planet piled in and did just that. As for myself, on February 11th 2016, I made this foolish mistake:

That probably marked, within moments, the precise bottom. Suffice it to say that my pledge to never show Chocolate Rain or Let 'Em Burn is quite clearly important to heed.

Of course, over in ZeroHedge, the massive top was not lost upon them either:

So, yeah, we permabear pornsters were all excited, and we were also dead wrong. But let's examine these last three tops in a bit of detail.

The first top was the Internet bubble. Now keep in mind, since we're looking at the S&P 500, and not the NASDAQ, the gyrations aren't as extreme, but there was still a squeaky-clean equity top. We can see the peak in March 2000 tinted in yellow, but as the arrow points out, the market didn't really commit itself to an oh-my-God-everything-is-falling market for another fourteen months. At the arrow mark, the S&P was down, yes, but only 14%, and it was about to embark on a much bigger fall (including this little thing called 9/11 which was going to take place a few months later).

Seven years after the first top, the second one formed. The peak was October 2007, and as before, even though it started getting pretty wild, there was still plenty of "fight' left in the market, and 10 months later, it was like a carbon copy of the first top: a drop of about 14% which would soon to followed by something truly cataclysmic.

Which brings us to the third top, which I like to think of as an aborted top. (To quote Kay from the Godfather Part 2: "Michael, you are blind. It wasn't a miscarriage. It was an abortion. An abortion, Michael. Just like our marriage is an abortion. Something that's unholy and evil.") The market peaked in May 2015. It fell - - yep, you guessed it - - 14%.......

......and then THIS shit happened..........

It's often stated that "It's different this time" are the most dangerous words in the world of trading. Well, not this instance, huh? Because it WAS different this time, and those who foolishly bought stocks when it looked like the world was going to collapse a third time have made out like bandits.

So what now? Well, as you might imagine the utter failure of the can't-miss, totally perfect stock market top has rattled my confidence just a touch. So my honest answer is:

I will say this, however: I do believe history repeats itself. And I further believe that what the market SHOULD have been allowed to do was, God forgive me, actually be allowed to do what markets do and act as a tool for honest price discovery.

It wasn't allowed to do this, however, and I'm pretty sure I know why: the financial crisis scared the holy hell out of the entire world, particularly the central bankers. They have pledged - - and have demonstrated their commitment to this pledge - - that they will never, ever, EVER, allow such a thing to happen again. They will do whatever it takes, sacrifice any future, and use whatever "tools" they can create to prevent such a thing. It's almost like what is said of the holocaust: "NEVER AGAIN."

This was expressed quite honestly by Yellen when she made the jaw-dropping declaration that there would not be another financial crisis in our lifetimes.

As disappointed (and shocked) as I am that the picture-perfect top of 2015/2016 turned out to be a triple-decker nothing burger with special sauce, I still hold the perhaps naive viewpoint that global markets are ultimately larger than those trying to manipulate them. The decline that the third top should have preceded is still waiting in the wings, although it has grown much more powerful, since the suppression of those natural market forces will simply allow them to be expressed more violently once they are uncontrollable.

Prayers delayed are not prayers denied. Neither are market tops.