“I am so bearish on the stock market, I am growing fur…
“The US market’s foundation is crumbling, according to my calculations – just as it did in 2000 and 2008.”
This was the verdict of Mark D. Cook, a top analyst and trader who likes to measure several internal market elements.
Cook used his analysis to correctly predict the crash of 2000 and 2008. According to Cook, we are now seeing the same exact bearish signals… again.
But is he right? Let’s discuss this in more detail…
Why is Cook so bearish on the US stock market?
He says market action in December 2014 and January 2015 have given a short term “sell signal”.
Here are Cook’s important observations, in his own words:
1) “Institutions are not buying. Without big institutional support, this market is in trouble. I can see that on the days the market goes up, institutions aren’t participating.
2) The market rallies are hollow and short-lived (based on the NYSE tick readings).
3) Good news has no lasting effect: The stock market is now lower than where it was before QE in Europe was announced.
4) Lower highs on both the price and volume shows price pattern deterioration.”
Cook says that the conditions today remind him of January 2000, four months before stock markets collapsed in April 2000.
That is interesting, because if Cook is correct, it could take months before anything major happens in the stock market.
Also as I said in the “Predictions 2015” webinar, the month of April is a better indicator of the market than January.
However, not everybody is bearish on the stock market.
Tom McClellan, the inventor of the McClellan Oscillator, has a completely different – and bullish – interpretation. Here’s what he says:
“The Dow Jones Utility Average has already pushed to a higher high. That promises more upside movement for the rest of the market. This strength is to be expected now, as we are in a period of strong seasonality at the end of January, and we are also in the 3rd year of a presidential term, which is nearly always bullish.”
I have to admit that McClellan’s “bullish” view does make logical sense. We have in the past mentioned the importance of seasonal cycles and the “presidential election cycle indicator”.
However, Cook’s “bearish” view based on the Cook Cumulative Tick (CCT) also makes sense: the lack of institutional buying is disturbing.
Personally, I believe that we should keep an eye on the Japanese yen and the S&P 500. Take a look at this chart:
As you can see, the S&P 500 has 2 important support levels: 1992 and 1972. If we close below 1992, this is the first warning of a “sell signal” – but we also need to close below 1972 to confirm this sell signal.
But the Japanese yen is the big clue and here’s why:
The Japanese yen has an inverse relationship to stocks: if yen plunges, then stocks will rally; if yen rallies, then stocks will fall.
Alessio Rastani is a stock market trader at www.leadingtrader.com