Bubble market: Is this proof?

I am going to show you a chart that is very strange and may explain why the market is the way it is. How many of you are familiar with Andrews pitchfork work? How many of you are familiar with the average directional index (ADX)? In case you are not, the ADX is supposedly an indicator that measures underlying internal market strength. But here’s the problem, it doesn’t work on intraday charting at all.

So what I’ve done over the years is figure the strength of a trend based on the positioning of where it is within the confines of your traditional Andrews channel. You know the pitchfork, traditional there are 2 lanes coming out of the anchor.

In a bull move the upper channel shows strength while the lower one represents a weaker lane. That being said, take a look at the current state of the NQ:

This is the rally that started all the way back in April. You might remember the blood moon, this rally started right there. The original channel is the bold blue all the way on the left. As you can see the original move was in the stronger channel. When it comes to Andrews you want to build channels to the left, not the right. This has to be right because of all the validations. The recent action is much higher but it is hugging the weakest part of the entire mechanism. All I can tell you this is a condition that is extremely rare. Is it a paper tiger? How about a house of glass?

How about a bubble? If you listen to television, most of the analysts we’ve heard lately will tell you there is none. What is strange about this is more people were talking about the probability of a bubble back in February than right now. One of the prerequisites for a bubble is most people involved in one way or another deny the existence of it.

Think about it, how can there possibly be a bubble when GDP came in at 1%? How can there possibly be a bubble when there are tens of thousands of people who are structurally unemployed and not even counted in the rolls anymore? If that’s the case, how can people possibly try to buy the stock market when rates rise indicating an improving economy?

If you seriously study markets you’ll come to realize there are certain points in history where markets become incredibly irrational and borderline on becoming delusional. I think this is one of those times. I don’t really know what to make of this NQ chart, but what I can tell you is something is not right.

They are also wrapping up another time window with the equity markets completing a 233-236 (Fibonacci 233 to 23.6 retracement) window while the EUR-USD just hit their own 233 window on Friday. We are also looking at an important square of 9 relationship in the Dow at 17,000.

You might also be wondering what is happening over in Europe. Two weeks ago I told you our unique ratio methodology suggested a high probability peak for the FTSE but not the CAC or DAX. In case you haven’t noticed the both of those have gone on to new highs while the FTSE last hit a high on May 15 which is 11 trading days ago. Friday was also a decent red bar which suggests weakness or at least a continued trading range type correction. We have a divergence working in Europe.

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