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Why Has the Market Turned?

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A single cupcake at lunch may be a meaningless treat, but a steady diet of cupcakes over, say, five months will have an accumulated effect.

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Silly Season has Turned into Selling Season

Seasonals are a powerful, but seductive, market technology. Indeed, they are the original market methodology. I prefer to refer to them as Quasi-Seasonals because these market phases recur regularly but not exactly. For instance, "Sell in May" may become "Sell in July" in some years! Stocks have conformed to the proximate 1987 analog, which I identified back in April. That profile promised a summer melt-up followed by an autumn fall. But when you also "borrowed" from the 1990 and 1998 seasonal analogs, they additionally allowed a July high. Markets typically ignore negatives into important highs but when the turn occurs, the obvious and well-known negatives seemingly, suddenly, become recognized. Seasonals, Sentiment, Cognitive Triunity, Metanoia and Paraptakarma What? It all adds up to a new pecking order in the animal kingdom. Huh? Bears are loose in the Zoo. Bulls are on the Butcher Block. Read on.

Booya Ya, Y'all All In?

Some market highs are marked by distributive complacency and some have final dramatic spikes. The big move up on July 12 was a typical terminal technical thrust. That rally triggered a 100% bullish in the daily Semiotics Sentiment. Sentiment always has to be interpreted and the context of that 100% bullish reading was a strong signal that the end was near. It was typical for the market to squeeze up to new highs one more time. Indeed, the 14,000 Dow Booyah Rah Rah was almost perfectly foolish. Thus the Psychologicals, Technicals and Fundamentals (Re-recognition of Sub Prime) have all re-aligned for a real reversal. Markets are only a mirror of man. Humans have a triune cognitive structure and so does the market. All three brains (Fundamentals, Technicals and Psychologicals) have changed from positive to negative. The 100% bullish sentiment signaled a buying capitulation. It was an "All In."

Market Semiotics Sentiment Diagnosis

Click here to enlarge.

Accumulated Causation

Why would the market turn? Well, it is just "everything." It is all of the repressed, but obvious, negatives becoming recognized. The original term for accumulated causation is paraptakarma.

What is that? It is a little bit like this: A teenager smokes a cigarette; does he get cancer the next day? If he keeps smoking for 40 years, the accumulated causation could culminate in cancer. A single cupcake at lunch may be a meaningless treat, but a steady diet of cupcakes over, say, five months will have an accumulated effect. Stock markets also ignore effects for only so long before they become infected. Rising interest rates don't matter because they are still "at very low levels?" A falling Dollar doesn't matter because it is due to a "synchronized global expansion?" Yadda, Yadda, Yadda, Booya. Investors become hypnotized by the priests of Financial Culture in believing a particular propaganda paradigm. They ignore even the obvious. Markets climax in ignorance.

The Acme of Ignorance

Every market extreme is really an acme of ignorance. Every market high is a cohesive investor error. Market mistakes will always occur and re-occur. At an acme of ignorance, it pays to be quick to recognize the recognition of the errors of the other investors.

Market Metanoia

A Metanoia (change of mind) has occurred. Lower market prices trigger rational brain changes. In other words, if someone has cancer but doesn't know it, they may feel OK and be thinking about, say, buying a new suit. But, when they are told that they have cancer, their rational mind will affect their feelings and their body.

Similarly, if someone has a very positive outlook(great fundamentals) and is feeling fine (has a bullish sentiment) but suddenly has a sharp pain or has a sudden fall (big down Dow day,) they start to wonder what is wrong with them and their rational brain actually changes. So too when markets have technical reversals, it typically triggers negative thoughts about Financial Culture. These relational, reflexive linkages are how markets work. Thus, the cohesive global equity breakdown is changing the market "thinking." This is Metanoia. The market has changed.

Don't Dig the Dialog of Denial

Why has the market turned? Is it just the seasonals? Well, it is just "everything"… everything that already exists. It is simply the recognition of reality. It is the accumulated causation. It is the paraptakarma. The bullishness became boring. The acme of market ignorance has passed. The silly season has turned into the selling season. The paradigm has shifted from "Excellent Earnings" to "Credit Crunch." Don't look for a low. As a fond observer of bottoms of all shapes and sizes, I will be watching along with you, patiently. For now, be a happy bear on the beach just watching the bottoms go by. Financial Culture will tell you anything but the truth. Don't dig the dialog of denial.
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No positions in stocks mentioned.

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