No, it's not a Top

Just to show you that we here at Stock Geometry don't always agree, let me say, "No, I don't think this is a Top, for a variety of reasons".

Just for starters, I happen to think that if you're going to start calling broad market tops you really ought to be looking at broad market charts. There are plenty of stocks out there that have suffered severe reversals lately, but a quick look at the DJIA, SPY, or QQQQ charts doesn't show anything quite so severe. Among these only the SPY is trading at its own 50dma.

In fact, of the broad market indicators only IWM is significantly below its 50dma. In my opinion these charts are showing us only a slight "move to quality". I wouldn't even use the term "flight to quality" here. This move hasn't been anywhere near so profound as that.

Quite frankly, these 4 charts are not telling me we've seen a top. As Brian Shannon of Alpha Trends likes to say, "The markets are innocent until proven guilty". And these charts are not guilty, by far.


In terms of market fundamentals it may be time to review a few things that chartists just love to ignore.

One of my favorite reads is Pimco's "Featured Market Commentary", usually written by Bill Gross monthly. I don't always agree with his conclusions either, but he is wealthy and he got there on his own. He controls a lot of other peoples money too, and besides that he's a reasonably good writer. It was in his February publication that he made it crystal clear to me why it is that the stock markets have been unstoppable for the last several years.

He said to the effect that, "Petro-dollars and the dollars from our trade deficit with China continue to be recycled back into our markets, without regard for price". That situation certainly hasn't changed since February. In fact, with the slow devaluation of the dollar, it's probably fair to say that an even larger total number of dollars are now being recycled back into the markets, still without any regard for price. I'm sure Bill Gross would love to be managing Chinas trade surplus. The rest of us should be thankful that he is not.

And there are other sources of dollars that are regularly invested, without regard for price. Huge numbers of dollars are regularly deducted from most people's paychecks and are then paid into various pension funds, mutual funds, or 401-k plans. Almost all of this money too is one hundred percent invested the moment it is received.

And finally, there is plenty of discretionary money available to be invested. When CD's and term deposits are paying only a few percent per year, it is hard to leave that money aside, particularly when many blue chip stocks pay that much as a dividend. This is particularly true at a time when the true rate of inflation is so very hard to judge.

And as for the the situation in the real estate markets, lets keep in mind that many of the former speculators have just had their favorite game taken away from them, and not all of them got caught with real estate inventory. Those with cash are now looking at the stock market as being "the only game in town".

And so the cash keeps rolling into the markets, without regard for price. Thank you Bill Gross, for a great quote.