The Carrot Top, by the Northman Trader

It’s hard to find even a single sign of a classic stock market top that’s not present right now. From the Northman Trader at northmantrader.com:

No period is worse for bears than when it’s the best time to sell stocks. It’s the polar opposite of when conditions are worst for bulls, right when it’s the best time to buy as it was in January-March 2009. The exhaustion factor is enormous. It’s called capitulation as moves get stretched to the extreme even though the set-up is valid.

November’s close marked the 13th consecutive month straight up for global markets. Nothing but up with fewer and ever smaller dips in between. Deutsche Bank’s Reid illustrated the point: “We’ve never had such a run with data going back over 90yrs”. I’d say that qualifies as the worst of time for bears.

Yet we could be sitting on a generational opportunity to sell equities as it could be argued that conditions will never be better for bulls as the game of offering carrots of free money is coming to an end. Indeed it could be argued that the prospect of tax cuts is the final carrot the free money scheme has to offer. The carrot top. No more carrots.

Consider the central banking liquidity game has peaked and is dropping off:

The 2016/2017 period saw the largest amount of central bank intervention ever. Ever. Over 8 years after the financial crisis.

The slow reduction in central bank liquidity has been supplemented by record ETF inflows this year. Retail went long and continues to buy the most expensive market since 1900 according to Goldman:

Even now via @jennablan: “U.S.-based money market funds attract inflows of $33 bln in week ended nov 29, largest inflows for the year”.

And leverage has never been higher either. Via @Schuldensuehner: 

“Dow Jones Industrial closed >24k for the first time ever. Wall St record has occurred in tandem w/record margin debt. Margin debt now at $561bn, double amount of tech bubble of 2000, 47% > than in 2007”:

Retail is in and we see it in various data charts:

Via @BN:

To continue reading: The Carrot Top

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