A man profits more by the sight of an idiot than by the orations of the learned.

Arabian Proverb

We have one expert after another predicting that it is time for the markets to crash; mind you these same chaps sang this same terrible song of Gloom in 2015, 2016 and now they are singing it with the same passion in 2017. There is one noteworthy factor, though; a few former Bulls have joined the pack. Does this now mean that the markets are going to crash? Apparently not, well, at least if you look at the indices, as of Jan the market continues to trend higher. Furthermore, what is a crash or for that matter a pullback or a correction? Does it not all boil down to a perception? One individual could view it as a crash, while the other views it as a mild correction and an opportunity to purchase more shares. It would all depend on when you jumped into this market. If you embraced this bull market in 2016, then a pullback in the 10%-15% ranges would feel like a crash. On the other hand, if you embraced this beast (Stock Market Bull) anywhere from 2009-2011, it would seem like a mild orderly correction. Most experts almost gleefully try to force their twisted perceptions on everyone. Just because the experts decide to label it as a crash does not mean you should follow their lead; experts are known for getting it wrong all the time. In fact, experiments have shown that monkeys throwing darts at a random list of stocks fare much better than Wall Street experts. Hence, take their so-called sage advice with a barrel of salt.

If these experts were so astute, then why have most of them missed one of the biggest bull markets of all time. Moreover, now they want to convince you that it is time to short it after failing to embrace it. How can one trust these penguins? If they failed to identify the bull market in the first place, how is it they are suddenly able to predict the top.

Several weeks ago we penned an article (excerpt provided below) where we stated that caution was warranted as the markets should let out some steam, but as the trend was still up, we did not feel it was time to short the markets. All the experts that stated it was time to bail out and short the market must be smarting from their losses. The market loves to punish arrogant self-proclaimed know it all gurus. Mass psychology is very clear when it comes to the markets; the masses need to embrace the markets before one can claim a top is close at hand. The masses so far have refused to embrace this market for a prolonged period.

When you think about it, everything comes down to perception. Alter the angle of the observation slightly, and you modify the perception. What appears bullish to one could be viewed as an extremely bearish development by another. When it comes to investing the goal should be to determine what view the masses hold whether it is valid or not is irrelevant for the difference between a truth and deception comes down to perception also. If the masses are leaning strongly towards a particular outlook, history indicates that taking a contrary position usually pays off.

The masses have for the first time embraced this bull market. From a mass psychology perspective, this is alone is not a huge negative. Mass Psychology dictates that the masses need to turn euphoric before one abandons the ship. It is not the time to abandon ship, but it is time to take a breather and let the storm clouds pass. The Dow industrials exploded upwards and have experienced a near vertical move over the past two months. Under such conditions, one should not be shocked if the markets let out a stronger dose of steam than they have over the past 24 months. Tactical Investor

The crowd appeared to embrace this market initially, but just as fast as they embraced it, they pulled back as illustrated by one of our proprietary indicators. In Jan of this year, the gauge was in the middle of the Mild Zone, but as you can see as of the last reading, the gauge has just dipped into the “severe” zone. Given the current trajectory, we expect the needle to move deeply into the “severe” area in the very near future. Instead of pulling back the markets have continued to trend higher, and at this stage of the game, patience is called for. Ideally, the markets will let out a large dose of steam, but markets do not usually cater to your needs; barring a substantial pullback a nice consolidation would suffice. Market consolidations drive key technical indicators into the oversold ranges and allow the market to build up steam for the next upward leg.

This rapid change in Crowd sentiment validates what we have stated all along last year that the final part of this ride is going to be extremely volatile. It also confirms that all sharp pullbacks have to be viewed through a bullish lens, regardless of the intensity, until the trend changes. The trend is still up, and the masses are far from euphoric. Let’s not forget that Trump continues to inject a massive dose of uncertainty into the markets. When it comes to the markets, uncertainty is a bullish factor, for it means volatility is going to soar and volatility is a trader’s best friend.

Conclusion

The markets could crash in 2017, but they could have crashed in 2016 and or 2015; could have, would have, should have are pathetic arguments put forward by individuals who thrive on fear. When it comes to the markets fear is the most useless emotion one can possess, for it yields no positive result. One day the markets will crash but as of today the bandwagon is not buckling under its weight, and the masses are not euphoric. In fact, the crowd is getting anxious because they do not know what to expect. Markets climb a wall of worry and plunge over a slope of Joy.

Given that this market has experienced such a massive run up, it goes without saying that it needs to experience one relatively sharp correction; ideally, this correction would fall in the 15%-20% ranges. Yeah, we know, now all the bears will rush out and scream “we told you so”. Our response to these agents of misery would be “go crawl back under the rock you came from”. Just look how far the markets have rallied since their 2009 lows; to view a 15-20% pullback as the end of the world is an act of insanity.

Every strong bull market has to experience one adamant correction, and we do not think this market is going to be an exception. This pullback will be followed by an even more powerful rally, and towards the tail end of this rally, the masses will embrace this market with gusto. Sentiment readings will soar, and everyone will be dancing up and down in Joy, and that is when the hammer will fall bringing an end to this bull market and triggering the first phase of a stock market crash. For now, caution is warranted, but shorting this market is not something the prudent investor should consider; at least not until the stock market experiences a trend change. Ideally, the market will shed a large dose of steam or consolidate sideways for several weeks before attempting to test the 20,800-21,000 ranges.

People deal too much with the negative, with what is wrong. Why not try and see positive things, to just touch those things and make them bloom?

Thich Nhat Hanh

In 1980, the US government – along with pretty much all of its peers – began borrowing at an accelerating rate. Note on the following chart how the trend line steepened in the 2000s and then steepened again in this decade, with a sudden and unexpected pop in 2015 and early 2016, even as the current recovery entered its 8th year.

Also in the past year, stock prices have risen from “near-record, overvalued-by-every-historical-measure” levels, to “new-record, grossly-overvalued” levels – and show no signs of slowing down. Note the massive jump in S&P 500 trading volume that began in January and has persisted throughout the year.

Investors, meanwhile, are borrowing to snag more of those apparently-easy profits, with margin debt — money borrowed against stock portfolios to buy more shares — now above both 1999 and 2007 levels.And now consumers are joining the party:

U.S. Households Ramp Up Borrowing Led by Mortgages, Credit Cards

(Bloomberg) – U.S. households increased their borrowing in the final three months of 2016 at the fastest pace in three years, according to the Federal Reserve Bank of New York.

Consumer debt rose by $226 billion, or 1.8 percent, in the fourth quarter, led by a $130 billion increase in mortgage loan balances and a $32 billion increase in credit-card borrowings, the New York Fed said Thursday. The rise brought total consumer debt to $12.58 trillion, just shy of the $12.68 trillion peak in the third quarter of 2008.

New mortgages originated totaled $617 billion, marking the biggest three months for volumes since the third quarter of 2007.

“Debt held by Americans is approaching its previous peak, yet its composition today is vastly different as the growth in balances has been driven by non-housing debt,” Wilbert van der Klaauw, a senior vice president at the New York Fed, said in a press release.

Student loan balances rose to a new record high of $1.31 trillion, and auto loan debt also increased to a record $1.16 trillion in the 18-year history of this data series.

This is clearly a credit-driven boom of some sort. But is it the long-awaited Austrian School of Economics “crack-up boom”, the exclamation point at the end of especially-frenzied and broad-based financial bubbles? That may be a question answerable only in retrospect. But when the crack-up boom finally hits, this acceleration across multiple sectors is how it will look and feel.

…more at Dollarcollapse.com

As the world continues to experience the “reflation trade,” we are witnessing historic breakouts.  What this means for the gold and silver markets is fascinating.

From top Citi analyst Tom Fitzpatrick:  “The London Metals Exchange saw a bullish breakout at the end of last week as we made higher highs and rallied through the trend line resistance (see chart below).”

….see chart HERE

With the Dow hitting new all-time highs and the U.S. dollar strengthening, this is how crazy the situation is across the globe.

Here is what Peter Boockvar wrote today as the world awaits the next round of monetary madness:  There has been a distinct disparity between the Investors Intelligence measure of stock market sentiment which survey’s newsletter writers and the AAII survey of individual investors. As stated yesterday, newsletter writers are euphoric…..

….continue reading HERE

…related from KingWorldNews:

Is The Public About To Get Torched In A Stock Market Plunge? The Answer Will Shock You

One of the biggest contributors to losses for traders in the financial market is the temptation to sell short. Borrowing shares of a company that are not owned by the seller in the hopes of making a massive profit has shipwrecked more traders than probably any other factor. With stories abounding of the quick and easy profits to be made in selling stocks which are supposedly on the verge of plummeting, it’s no wonder that the allure of “shorting” is so irresistible to so many.

Selling short is a simple enough proposition: place a short sale order with your broker for a company whose shares you believe are overvalued or technically “overbought”. Then just sit back and wait for the profits to start rolling in. If only it were that easy! The trouble with selling short is that in most cases the odds are against the short seller. This is due to a number of factors, some of which we’ll examine here.

Perhaps the biggest risk for short sellers is the crowded short trade. A high-profile example of what happens when too many traders pile into a single stock on the short side occurred recently – a cautionary tale if ever there was one. It involved the loss of one man’s entire fortune due to a misguided attempt at selling short one of the most widely traded U.S.-listed stocks.  It’s a textbook case of what can go wrong when attempting one of the most dangerous of all trading maneuvers.

According to MarketWatch, Canadian investor F.S. Comeau bet his last $249,000 against Apple Inc.(AAPL) in an attempt to reclaim $2.5 million lost in poor investments. At the time of the trade, shares were valued around $122, and MarketWatch reported that an increase of just $6 would deplete Comeau’s savings.

Apple shares screamed higher last week when the tech giant released an impressive Q1 earnings report and Comeau lost substantially. As of this writing, AAPL shares had risen to a 52-week high of $130.50.

Before Apple released its earnings report, Comeau, who live blogged his reactions while wearing a wolf mask, acknowledged the capacity of investors aware of his short position to fade his trade. “With 14,000 people watching, you guys could really mess with me,” he said. When the company released its report his reaction was terse but poignant: “Oh, no.”

YahooFinance described Comeau’s reaction to Apple earnings as follows: [Comeau] kept howling. And crying. And throwing his pre-popped, celebratory champagne bottle. There was a timeless stretch of blank camera stares, and then the sound of dry heaving. With mask still on, he pulled out a trashcan, and vomited more than his life savings.”

This misguided trader can perhaps be excused for his desperation born of inexperience.  What’s inexcusable, though, are the far more experienced trading advisors who gave assurances to their followers that Apple was a prime short-sale candidate despite all the technical and fundamental evidence to the contrary. This misleading advice undoubtedly led to many hundreds of traders making the same mistake as Comeau.

More than anything, the Apple experience provides a wonderful cautionary tale for all would-be short sellers. The lesson here is that in an established bull market it’s best to avoid selling short altogether. Trading against the prevailing trend is especially dangerous when one considers that short interest can quickly reach critical levels, thus the slightest bit of contrary news can catalyze a massive rally. Short-covering rallies tend to involve wealth-destroying upside gaps, as the latest Apple stock experience proved. These gaps are products of the urgency among short sellers to exit the trade. They frequently represent losses on an unimagined scale.

Since naked short selling involves borrowing, the debt component of this trade ensures that the volatility factor will be greatly magnified vis-à-vis buying outright. While this can sometimes work to a trader’s advantage in a bear market, it can prove catastrophic in a bull market. The best policy is to avoid shorting unless a major bear market is underway and downside momentum has been thoroughly established. Even then, your timing must sometimes be perfect.

In a bull market the trend is truly your friend, and trading against the grain is usually a fool’s errand. Best leave that to the men wearing wolf masks.

….also from Cliff Droke: The New Economy Index, Euphoria and Panic