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Familiar Signs of a Market Top
Anyway, what we have now is a rally to new highs in world stocks without an analogous rally in the U.S. stocks. We also see that this breakout in world stocks happened after a sharp decline. Moreover, there was a sizable rally in mining stocks (XAU Index in the middle part of the chart), which ended when the USD Index formed its major bottom.
All details from the previous paragraph apply to the 2008 top in world stocks / U.S. stocks and mining stocks as well. Even the double-top in the U.S. stocks – and in particular, the fact that world stocks outperformed U.S. stocks right at the top.
Why would this be the case?
Those of you who’ve been following my analyses for some time know that there’s a specific phenomenon on the markets called laggard’s catch-up. Weaker markets gain second wind right before the top as the investment public buys what’s cheap without considering that it might be cheap for a reason. We see this on a smaller scale and within sectors, but the same rule applies also to the broad markets. In the previous years, U.S. stocks outperformed other stock markets, so those other stock markets are the laggards. They just outperformed – exactly like they did in 2008 at their top.
And if that wasn’t enough, mining stocks themselves provide very interesting analogies as well. Please compare the sizes of the entire bull markets in the XAU Index that started in 2000 and 2016. I marked them with green lines. They are very similar. This time, the rally took longer, and it was a bit smaller, but overall, they are quite remarkably similar given how many years passed between them and how the world changed in the meantime.
What’s even more profound is the link between the final part of each upswing that I marked with red lines.
Plus, on top of all that, we have a major bottom in the USD Index that was confirmed by an extremely negative sentiment despite an improved fundamental outlook (tariffs are fundamentally bullish for the USD, so “logically” USDX should be higher than it was before April, not lower).
Also, Consumer Sentiment Index just moved even lower this month, which further confirms how extreme the situation has become.
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