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The Fed has manufactured a parabolic move in the stock market…which is much more aggressive (and thus even more 
unsustainable) than witnessed at either the 2000 or 2007 stock market tops. Parabolas always collapse – there are never any exceptions – so when the pin finds this bubble it’s going to take down not only our stock market, but unleash a destructive force on the global economy.
So says Toby Connor (goldscents.blogspot.ca) in edited excerpts from his original article* entitled ANOTHER BUBBLE LOOKING FOR A PIN.
[The following is presented by Lorimer Wilson, editor of www.munKNEE.com and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Connor goes on to say in further edited excerpts:
…The steeper the parabola the quicker the losses once the parabola breaks. It’s not unusual to see 3-6 months of gains evaporate in the space of days when one of these structures collapses. The path creating this unsustainable market behavior began in 2011. If the Fed had just allowed the market to correct naturally, and drop down into its 4 year cycle low in 2012, we would probably now be on a sustainable path into another secular bull market.
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Unfortunately, however, the Fed made a catastrophic mistake. Instead of allowing the market to function naturally they began operation Twist, then LTRO, then QE3 and QE4. The result, as you can see in the first chart below, is that they’ve created a huge unsustainable parabolic move in the stock market. Try as they have to prevent corrections, the longer they allow this to continue the more devastating the crash is going to be when the market breaks.
Based on the extremely stretched nature of the current intermediate cycle (week 27) I’m looking for:
- a top and the start of the collapse early next year – possibly as we begin earnings season. If one is in the market trying to catch the last few percent of this upside price movement, please understand we are not in an investor environment this late in the bull market. This is short term trading only and at the first sign the crash has begun, get out and stay out….
- the market to fall precipitously to test the previous bull market tops and erase most of last year’s gains in a matter of days or weeks…
- Yellen to panic at that point and all thoughts of tapering to vanish. As a matter of fact, I expect the Fed will increase QE, maybe drastically, to try and reflate the parabola…
- the Fed’s likely attempt to reflate and sustain the stock market to be futile, however, as the damage will already have been done. All they will accomplish is a violent echo rally common to all collapsing parabolas…and
- the more QE the Fed throws at the market, the more and faster the liquidity will leak into the commodity markets until inflation completely destroys the economy and the next recession gets underway….
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
*http://goldscents.blogspot.ca/2013/12/another-bubble-looking-for-pin.html
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