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I Guess I Hit A Nerve…

“It’s interesting to read the comments.  When a guy like this sticks his neck out with a call…and then gets made fun of in the comments.  This is a fabulous contrarian signal.  Reminds me of the 2000 Nasdaq top.  His timing may be off, but that is almost impossible to get right.  His assessment of the market’s behavior is excellent.  The S&P 500 breadth is horrible.  We used to call it bad-breadth.”

– comment from Trader 5-8-6 on YouTube.

Last Wednesday I was invited to come back on to Real Vision for an update on my thoughts regarding the market.  The title of the video, “something is ridiculously wrong,” got quite a bit of attention from viewers not just on Real Vision’s own website, but also on its YouTube channel (https://www.youtube.com/watch?v=MyDhLs3tmSc).  In truth, I didn’t even know Real Vision uploaded its videos on YouTube, but I happened to stumble on it Friday.

Apparently, the title of the video and its content hit a nerve with viewers. As of this writing, there are over 21,000 views, over 250 comments, and a lot of erroneous responses by a portion of the audience.  Frankly, I’m not that surprised.  The response in terms of attention and emotion the content has evoked is highly reminiscent of the lead-up to the Summer Crash of 2011 (https://www.marketwatch.com/story/money-managers-called-the-summer-market-plunge-2011-08-10).

My main concern, as I stated, is that 1) Lumber is trending the wrong direction, 2) yields have not risen to any real degree commensurate with the rally in equities, and 3) most areas of “the market” (which for God’s sake is NOT just the S&P 500) have not V-ed as powerfully as sentiment would have you believe.  I simply am giving voice to math and observations here.  Historically, Lumber weakness has preceded major declines in the stock market, which is why I argued it’s possible we have a “Spring Crash” in stocks.

As predicted, everyone focused on the word “crash” rather than the analysis.

“This guy is making a bold call.”  Not making a call at all actually.  Simply pointing out that historically, when these types of disconnects occur, they tend to occur prior to major declines.  That does NOT mean that EVERY time they occur you are GUARANTEED to have a collapse.  Just that when you have a collapse, these areas have historically been ahead of it.  So yes, a crash is a possibility.  And because the future is always about ever-changing variables, it is foolish to not consider probabilities relative to magnitude if Lumber is right.

If you haven’t read the paper or attended one of my hundreds of presentations across the country, take a look at “Lumber: Worth Its Weight in Gold” which I co-authored and which won the 2015 Founder’s Award.   Let’s be objective and look at the backtested results.  And consider the following charts which are not based on opinion.

So let’s cut the BS out with the following.

1987:

Comparison between Lumber and Gold in 1987

1990:

Comparison between Lumber and Gold in 1990

2000-2002:

Comparison between Gold, S&P 500 and VIX index in 2000 to 2002

2007-2009:

Comparison between Lumber and Gold in 2007 to 2009

2011:

Comparison between Lumber and Gold in 2011

Still think Lumber is worth ignoring?

Channeling my inner Johnnie Cochran: when Lumber goes timber, it’s a sell trigger.  Is it a false positive? I’ll let you know in the Summer…

Purpose:

This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. It also does not offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

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