The DSI says the S&P & Nasdaq are Toppy
Anyone reading 321gold over the last sixteen years has probably figured out by now that I am a big fan of sentiment. As I go into at some length in Nobody Knows Anything, to invest at a profit, you need do nothing more than figure out what the mob is doing and do the opposite. The mob is always wrong.
I’m going to discuss sentiment and how to use it to determine turning points in markets but first a short discussion about why both bonds and the general stock markets are time bombs just waiting to explode.
We live in precarious times. Recently we concluded an election between the two worst presidential candidates in American history. I wasn’t a big Trump fan; he was just the less evil of two evil candidates. While he may well be a crook, he wasn’t nearly as crooked as Hillary was.
Trump won the Electoral College. Hillary managed to steal enough votes to appear to have won the popular vote. She and her supporters have been whining ever since. It wasn’t fair, the Russians did it, FBI Director Comey did it, Obama didn’t support her enough, and she didn’t really want the presidency anyway.
There are two things going on at the same time that no one seems to recognize. First is the worldwide revolution that I predicted on the last page of my prior book, The Art of Peace. That was written in November long before anyone saw a revolution incubating.
Brexit, the Trump presidency, the Italian election, riots in Paris and Brazil and chaos in Venezuela are all part of the same revolution. Basically governments around the world discovered the magic of money printing and went on an orgy of rule making and printing. All to the detriment of the ordinary person. Virtually every government in the world is bankrupt and they know it.
The EU is collapsing. I wrote about the stupidity of the European Union in a piece last summer. In it I said,
People around the world are sick and tired of unlimited government. We are to the point where eight men control the same amount of wealth as the lower half of world population has in total. The EU is going to die a natural death. It cannot survive; a small group of highly paid bureaucrats are making rules to be making rules. It’s destroying the middle class of Europe and they are pissed.
But what is happening in America is far more dangerous than just a worldwide revolution. Ever since the election, the losers have been whining and ganging up on Trump. The Fake Stream Media is nothing more than the propaganda arm of the congressional/military/industrial complex. When the revolution took place at the voting booth, they went into damage control mode with a deliberate attempt to subvert both the election process and the rule of law in the US itself.
Members of the NSA, the CIA and the FBI are deliberately leaking every negative connotation about this administration they can from illegal phone intercepts and leaking them to their useful idiots in the Fake Stream Media. They see their rice bowls in danger of being broken and no one is more dangerous than a person who is about to be handed a broken rice bowl.
One day soon Trump will start thinking about the power given to him by the Patriot Act and NDAA. After 911 when the government sprung the already written Patriot Act on the American public, I pondered how allowing the government to do anything as long as they called someone an “enemy combatant” was a sword with two edges. In fact it could be used against anyone just as the guillotine was during the Reign of Terror at the end of the French Revolution. Anyone can be an “enemy combatant,” you don’t need a membership number or ID card. If the government decides, you just became the enemy.
The Fake Stream Media makes no bones about whom they work for. The Deep State has come out of hiding. And that is perfectly understandable. If Trump really intends to “drain the swamp” a lot of staff at the NSA and CIA need to go. The CIA has been running their own sub-level government for all of their existence. They continue to ferment hate and discontent covering the world. Only now they are demonizing the President of the United States in preparation for either a civil war or a shooting war with Russia/China/Iran.
One day soon Trump is going to start to order the arrest of the traitors spread all over our government. Once he ships a few of them to Gitmo and does a little enhanced interrogation I suspect the rest of the clowns will get it pretty quickly.
I’m not in favor of either revolutions or civil wars but like the Vietnam War, no one asked my advice. I can say they tend to get messy and bloody.
As a guy who spent two years in Vietnam and wrote about it in my book, I am against all unnecessary wars. I’m not a peacenik, I’m actually a warrior but like the most decorated Marine in history, I think defense of the US begins at the border.
At the very least, Trump’s numerous enemies are going to do everything they can do to tank the US economy so they can blame him for it. The stock market and bond market have been balloons looking for a pin for a couple of years. Well, for those who understand sentiment, the time seems to have come.
At the very first of this year I wrote a piece about how I use sentiment to time markets. It works at tops and bottoms and doesn’t work at all in between tops and bottoms. On December 15th of 2016 the sentiment for gold was 5 and the sentiment for the USD was 95, one being an inverse for the other. Sentiment is nothing more than a measure going from zero to 100. If sentiment for anything measured is zero it means no one loves it, everyone hates it. If sentiment is 100 it means everyone loves it.
But humans are a strange breed. Like many other animals they want to run in herds. Since in any investment there is slippage in the form of commissions and spreads between bid and ask, mathematically any time the investment on one side goes over 50%, that group has to lose. It has nothing at all to do with Technical Analysis or fundamentals, half the group buying and selling anything have to lose. Actually due to the herd affect 85% of investors in anything will always tend to lose. To guarantee a loss, all you have to do is follow the herd.
After I wrote the article about Jake Bernstein and Trade-Futures.com I started to download the DSI for all of the futures he trades on a daily basis. Jake tracks forty commodities and posts the DSI for each an hour after the close of the market for every trading day.
I wanted to find a situation where his data showed either a pending top or pending bottom and to write about it so my readers could watch it in real time. The cocoa market seemed to fit the bill coming down to as low as a reading of 5 but since only 3.5 people in the world are interested in the price of cocoa and only two of them trade it and neither has ever read my site, I dropped cocoa as a subject.
Then I watched as the sentiment for the S&P and Nasdaq rose to nosebleed altitude. Everyone wants to know what the S&P is going to do. Well, according to the DSI, a top is at hand. The sentiment number for the S&P hit 92 on Friday and at the very least, we are in the area of a top, perhaps a major top but certainly a tradable top.
When a person subscribes to the DSI, Jake provides a spreadsheet with all of the raw data on forty commodities going back to April 1 of 1987. I did a search on the S&P to see what the highest reading had been during that thirty-year period. No readings of 99 or 98 or 97 or 96. The highest sentiment measured in thirty years topped at 95. And there were only five days where the sentiment hit 95. But where it gets really interesting is that the daily sentiment for the S&P only measured 94 ten times and the last time was in 2007 just before the major crash leading into 2008 began.
Sentiment of investors is the purest measure of herd behavior you can find. My experience in almost fifty years of investing is that most people tend to follow the herd to their detriment and virtually everyone over thinks investing. My experience is that if you buy cheap and sell dear you can almost always make money and if you can determine what the herd is doing you can always make money.
Just for your information as well, the Nasdaq is similar to the S&P and it reached 91 last Friday so it seems both are toppy. You have this data in real time and no doubt if I am wrong, the trolls will be happy to trash everything I do or say.