The Standard & Poor's 500 Index (SPX) has completed its broadening topping pattern. The next trend is downward.
The cycles are suggesting a potential black swan event, in multiple indices. The SPX may have made its last challenge of the upper trend line of its broadening pop. On Aug. 19, it closed beneath its Cycle Top resistance at 2185.38. The SPX has fulfilled all the fractal requirements for a completed, corrective uptrend. The uptrend from 1810 has been in a corrective phase. The next wave down will be an impulse wave.
Large divergences are real and accurate, and the momentum should quickly move to the downside. The current market is being supported by a lack of sellers, more so than aggressive buying.
With investors still thinking that there is nowhere else to place their money, they appear to be content leaving their money at risk in assets, within a market that is pushing all-time highs. This type of mentality usually leads to large losses, rather than big gains.
There is no opportunity for growth in the SPX.
Investors have become complacent with the current rally. They believe what the Federal Reserve has been saying regarding interest rates and that everything about this market depends upon the Fed. But the Fed will be irrelevant in time.
The Bank of America Merrill Lynch reports that its clients (institutions, hedge funds and private clients) who have sold stock for all but two to three weeks during 2016, have once again sold $1.9 billion of U.S. stocks while the SPX was hitting new highs. Institutional clients led sales due to poor performance. It has been the retail investors who have been flooding the market while anticipating a massive breakout and rally.
The big and smart money continues to build up massive short positions. George Soros has become more bearish on equity markets, nearly doubling his short bet against the SPX, following similar moves by Jeffrey Gundlach, Carl Icahn and David Tepper. According to his 13F filing, Soros now owns roughly four million put options on shares of the SPDR S&P 500.
We are presently living on borrowed time and vast amounts of borrowed money. This is a period of time of unprecedented economic upheaval, which was caused by financial engineering by governments and their central banks. It's a slow-motion catastrophe. We are living today at the expense of tomorrow. The Fed's balance sheet has more than quadrupled since the crash of 2008. This is unprecedented:
Remember that most of the highly successful investors mentioned above also predicted other major market moves. Their huge bets have typically played out, although they often tend to move too soon -- by many months in most cases. Still, they know when markets are nearing a major turning point.
The catch, with trying to time these major multiyear market reversals is that buying or selling habits must stall out and reverse direction for a new trend to take hold. This always seems to take longer than expected.
Still, in this case, it's clear that the bull market is about to come to an end.
The next stage will become a vicious deflationary cycle in which prices and growth crash. Prepare for another massive wave poor earnings, job layoffs, and falling stock prices.
Over the past 500 years, or so, whenever deflation emerged, gold prices always gained big, in terms of purchasing power. This time shouldn't be any different.
This article is commentary by an independent contributor. Chris Vermeulen is full-time trader and research analyst for TheGoldAndOilGuy Newsletter.