The S&P got whacked again today and is now about 1 percent below its first peak of January 26, 2018, in this very long topping process.  In other words, stocks have gone nowhere for the past 18 months.

We believe a bear market began in January 2018 with the massive volatility spike and the S&P500 has been banging around with lots of volatility making three marginal new highs before peaking at the intraday high of 3027.98 and closing high of 3025.86.   That is how bull markets top.  It’s a process as you can see in the second chart.

We believe that the top is in for some time and we did call the very peak on the very day, by the way.  We are also very proud of the fact we didn’t raise our target of 3025 when it was hit on July 26th.  We try not to allow the price action to drive our narrative nor do we retrofit the fundamentals to market moves.

That is trap the central banks are caught up in.  It is not surprising, however, as the global economy has morphed into one big asset market over the years.

Bretton Woods Order Collapsing

The post-Bretton Woods order is collapsing, especially the economic relationship between China and the United States, which has been a big driver of global growth, corporate profits, and margins for the past 20 years.

The markets are holding on to the belief that one tweet can return us to the good old days.  Good luck with that one.

The politics in both countries are just not that easy.  Sure, the market is gullible and shorts could get slaughtered in the short-term by a tweet from President Trump — a self-proclaimed economic nationalist, by the way, which we believe the market truly hasn’t internalized or fully understands —  but come on, man, this is getting old.  The trade war feels like it has now crossed the Rubicon.

If Hong Kong blows, forget about it.

Key Levels

The levels to watch now to the downside are today’s low at 2822.12; the 200-day moving average at 2790.39, and the key .618 Fibo at 2767.69.  The market has sold hard over the past week and a bounce may be in store quite possibly at those levels.  In fact, in overnight trading that is exactly the level futures did find a bottom at 2775.75 after the Treasury labeled China a currency manipulator and then bounced big when the PBOC set the RMB official rate stronger than expected.

Then watch 2728.21, the June low, which is must hold.

To the upside, the first Fibo at 2867.17 and the 100-day at 2900.80.   We will sell any strength and head for safe harbors or get shorter.

Be careful out there, folks.

The Long Top

Bear Markets 200 days Prior To Top