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Todd Harrison: The Financial World in Charts


A picture speaks 1,000 words.

Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.

In March 2009, when the S&P (INDEXSP:.INX) was at 666 and investors were stopped out against Armageddon-if the tape failed from there, a P&L would be the least of our concerns-the raging bulls were few and far between.

That's what happens after the market drops 58% in a year and a half-a gambler's fallacy takes root.

Fast-forward five years. The S&P rallied 176%, in a straight line on the heels of the historic efforts by the Federal Reserve to inject liquidity and manipulate interest rates.

The bear scare is a distant memory, and hibernation followed. Respected credit watchers-some of whom once graced this space-peg fair value for stocks north of S&P 3,000, or more than 64% above current levels.

Pause to let that sink in.

While that type of target talk would have drawn criticism in the past, the tenor of the tape-infrequent and increasingly shallow market corrections-now plants a seed of doubt in the most skeptical market mind-set. Indeed, any attempt to "take the other side" of this rally has been a one-way ticket to humility and shame.

The following charts are shared courtesy of John Hussman and Didier Sornette; they offer a uniquely variant perspective on our current juncture.

Where we are now:

The same chart, 2007-2009:

A stock market crash is, by definition, an "outlier event"; it is not, however, a zero-probability event.

Reading the Tea Leaves

After year-end tax-related selling abated, gold bounced to start 2014 but failed at the 50-day moving average ($1,246); if the bugs are to avoid another windshield this year, they'll also need to push through the series of lower highs (a sign of distribution) at $1,275 and $1,375, per the chart below.

Tuesday afternoon, during the Minyanville Fireside Chat with Michael Gayed, we spoke about inflation expectations and other historical approaches, and how they've been skewed by the policies of the Federal Reserve.

Michael pointed to the emerging markets, and I noted the price action in gold as areas to watch relative to US stocks.

If equities crack this year, the signs will have been obvious to those paying attention; if they continue to lift, those aforementioned areas should play catch-up.

Broadening the Aperture

The current up-thrust, per the chart below, smacks of a blow-off rally, or the third phase of the psychological continuum. These types of moves can last a lot longer than most folks expect, but we would be wise to see it for what it is-or at the very least, for what it could be.

That, more than anything else, will separate the wheat from the chaff when the dust eventually settles.

Two Sides of the Coin

Much has been made about the current levels of margin debt. Jason Goepfert of the excellent SentimenTrader service offers his perspective-a decidedly bullish interpretation-in the chart below.

Random Thoughts:

Twitter: @todd_harrison

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