THE FORK

Absent a complete 180 by the Fed in where Janet Yellen announces another round of QE (not out of the question), the classic topping process we have been writing to you about all year long looks to be now completing itself as whatever has been holding up the major indices finally have topped.

Very simply, commodities topped out last summer. Other less important areas like disk drives, gaming and a few others joined in. It then turned into all the commodity countries like Russia and Brazil. Then the new highs topped out, the a/d lines topped out which led us into March. That’s when the all-important transports topped out badly which led to the semis topping out in May.

During all this time, we have been using the same language…narrower and narrower and narrower as new lows were outdoing new highs even though major indices were a stone’s throw from the highs. Then the China bubble burst which topped out Asia and Europe.

We then watched as all these money flows came out of all those areas and found a place in the largest of large mega-caps which held the major indices up. You remember the reaction to Amazon and Google? We then saw money flow into the most defensive of areas like food,drugs,beverages, tobacco and household products. On top of that, we have been highlighting for you the biotechs and the financials and that if they broke down, it would be party.

This all led into last month where we thought things were worsening as we started to give you out important longer-term support levels. This led us into last Wednesday where those vital levels were undercut before a major reversal occurred. At that time, we told you not to expect much on the upside. And now those major indices are back into play as today, they were sliced though like a hot knife in butter.

In fact, today:

Financials have broken through important support.

Biotechs have broken through important support.

Glamour growth names have been taken out to the woodshed.

And lastly, all major indices took out support.

The only thing that bid up today was the gold/silver as we wrote in our weekend report to start paying attention to gold as the great Stanley Druckenmiller recently spent a measly $300 million on gold.

Because of central bank intervention, we have not had a bear in over 6 years (too long) and have not even had a 10 percenter in almost 3 years (too long). So comeuppance time is at hand. Our biggest worry remains the one-sided trade. Central banks are good at one thing…creating bubbles and when the bubble pops and crashes, come up with the same elixir that caused the last bubble but this time add a crapload of steroids in the name of 0% rates and a maniacal trillions of printed money…which led to the lemmings in other countries following suit. When the world is on one side and used to only little corrections, they are not ready for the day when a serious bout of ugly happens. This usually causes dislocations, not just little drops. We are very worried about these dislocations!

Keep in mind, further downside will definitely put off any rate hike (doesn’t matter). The only thing that would matter is another round of QE (again, not out of the question). Remember last October. Markets were being blasted until Japan and Europe announced their own rounds of massive printing followed by China’s easing. This stanched the bleeding. Unless Janet turns tail and starts printing, not sure there is anyone left to save the day. Be careful of those who say this is a buying opportunity. They don’t know. Let the market decide. We highly doubt markets go through a long-winded topping process and then just stop on a dime. Careful folks!