Zeppelin Downdraft

An interesting post appeared over at Tyler Durden's fantastic blog Zero Hedge. 

 

Video of an interview with Marc Faber on CNBC was presented, where Faber prognosticates that at the end of the year the stock market will be potentially over 20% lower than current levels.  While Faber, publisher of the Gloom, Boom & Doom Report, eery similarities between the fundamental and technical backdrop 1987 and today.

 

With respect to the stock market, in 1987 the market was engaged in the greatest bull market in history.  Although at the time few could see the forest for the trees, the '87 crash presented a wonderful buying opportunity, fueled in part by emerging technological advancements. Technically, the area where we deem Faber correct in his analysis, Faber has noted an ominous chart pattern that has presented itself with increasing frequency in recent days; The Hindenburg Omen.

 

 

It is noted there has been historical evidence in matching chart patterns to past performances, and when comparing the market in 1987 to the market today, we can see the movements during this period have been quite similar.  I don't know what I am having for lunch tomorrow, but I recognize the story this chart is telling.

 

Fundamentally, both the micro and macro economic realities fail to resemble the landscape of 1987. It is worth noting the economy in 1987, with the Reagan Revolution well underway, was significantly superior in virtually every measurable statistic to our current economic conditions. 

In an extremely extended market where trading levels do not match fundamentals on the ground, extreme caution should be exhibited.  Too many dollars are chasing too few assets, and even with the FED fueling the pump, the overextended stock market looks primed for a downdraft.  The economy is in very sad shape, not withstanding the propaganda saying otherwise backed my manipulated data.  The unemployment rate is the best example, as the labor participation chart is disconnected to the reported unemployment rate,

It may be time to take profits, as recommended by Guggenheim, keeping in mind pigs get slaughtered.  Although it is tough to fight the tape, it would be most prudent to proceed with caution at this time.