Stock Market: “To Buy Or Not To Buy, That Is The Question.”

Our long-standing upside target for the Nasdaq Composite as a proxy for the stock market has been reached. In our Wellington Letter we have written for the past 18 months that this index would reach the all-time high of March 2000, which was 5,133 intraday, before the bull market would end.

That high was finally reached and surpassed on June 22 and June 23, 2015. But it was for only two days on a closing basis.

Are The Wealthy Retrenching?

Are the wealthy getting cautious? The art market has been in a bubble for several years. At the Sotheby’s auction on May 7, investors were disappointed that 21 out of 71 paintings did not sell.

Other paintings sold below their expected prices. These are the type of warning signals you get when the markets are running out of juice.

Last Chance to Sell or Buying Opportunity?

The bulls say the market weakness is a buying opportunity. As usual, we have a different view based on advanced technical analysis, which Wall Street doesn’t believe in.

Contrary to what many novices believe, it is not possible to successfully and precisely predict the date of a market top in advance. Trying to do that is merely an educated guess. However, using advanced technical analysis, we have a very good chance to identify a top when it occurs, often within a day or two.

The Mirage of Strength

The “labor participation rate” (LPR) is now at 63%, the lowest in 36 years. That’s the number which doesn’t count people as “unemployed” if they haven’t had a job for a year. According to the government, it will continue to decline to a rate of 61% by 2017, the lowest ever.

But through the magic of governmental accounting, this will actually reduce the unemployment rate. Theoretically, the way it’s calculated, if no one is working, thus giving a zero “LPR,” then the unemployment rate would be zero.

The Most Reliable Indicator of an Approaching Market Top

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In my research firm we specialize in advanced technical analysis of the financial markets. We use many technical indicators, measuring changes in money flows in and out of stocks, sectors and major indices, whether U.S. or international.

The only thing that can change the price of a stock, commodity or index is a change in the supply/demand relationship. Therefore, we must measure the change in money flow.

Why Are Stocks Rising?

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During 2013, many smart analysts and money managers voiced their puzzlement of why the stock market continued to rise in spite of the lack of revenue growth of many companies, a stagnating economy, and looming problems in 2014. I wrote in our Wellington Letter that this year it would have been more productive for analysts to just “go with the flow” and head for the golf course each day then to do tedious analysis.