Monday, May 23, 2016

The S&P 500 Parabola Will Fail with 100% Certainty

The only thing we know with 100% certainty is that SPY will not stay in the parabolic trend channel forever. There must eventually be a trend failure, either to the upside or to the downside. It is guaranteed (for SPY can never trade below $0).

If you are a heavily leveraged momentum trader who is long the S&P 500, then you have to ask yourself a question. Will the trend fail to the upside?

There is a bonus question, of course. What if SPY stays in the parabolic trend channel longer than you can stay solvent?

No idea how panic selling ever starts. No idea at all. Boo! (Bad Mark. Bad! Bad!)

Full Disclosure: Sitting in long-term inflation protected treasuries for the long-term, with intent to hold to maturity so no greater fool is ever needed. No desire to gamble in this abnormal stock market's casino any more than I have to (neither long nor short). Doesn't stop me from watching though. Good luck!

P.S. It's a real pain to make these charts on the laptop, but some charts are definitely worth my time. Now we wait. When will the trend fail? Who will be happy? Stay tuned.

Source Data:
Yahoo Finance: SPY Historical Prices


mab said...

Some believe we can just inflate our way out of this mess. The thing is, we're having trouble generating inflation. Higher gasoline prices might bump CPI, but that won't help matters.

Some believe we can grow our way out of this mess. Forget real GDP growth, we're having trouble generating nominal GDP growth. Dismal!

Personally, I think many years of nothing burger might be the best outcome. I think poor real and nominal returns are baked into the cake.

As for higher interest rates, I still don't see it. No way can we handle that pain.

mab said...

You know, I just thought of something. You gave us a guaranteed to fail chart to go along with our guaranteed to fail eCONomic policy. Thanks. I feel so much better now.

Stagflationary Mark said...


Like you, I don't see the mechanism for rising long-term yields.

It's not going to be all nothingburger though. At the very least, the bull market in *talking* about higher long-term real yields is ongoing. Since when? Early 80s?

Stick to the short end of the curve they say. Don't lock in those rates they say. Saver paradise just around the corner they say.

Hey, I did make another chart on my iPhone that might cheer you up. Using the Social Security actuarial life tables, I was able to calculate the approximate odds of a male living 30 more years, given his current age.

At 51, my odds are roughly 50%. Seems like a sweet spot for those buying long-term TIPS. May not need to stress out too much in the race between death and retirement nest egg nothingburger growth, lol. Sigh.

Stagflationary Mark said...

At 60, odds drop to ~20%.
At 65, odds drop to ~7%.
At 70, odds drop to ~1%.

Stagflationary Mark said...

That's a tilde to show approximation, not a minus sign to defy the odds. On my phone, they look the same (using old guy eyes).

mab said...

Saver's paradise? Haha! That's one thing we can't have. Still, 1% nominal returns with 1% inflation is better than 6% nominal returns with 5% inflation after taxes.

Don't fight the Fed! Sure, but how likely is it that an "investor's paradise" is right around the corner with historically high equity valuations, ZIRP and a 1.8% 10 year treasury yield?

If we're to have an investor's paradise, the stock market has some serious work to do. Like I said, an investor's nothingburger might be a good outcome. But I wouldn't bet on a smooth ride!

We bought a new house about 18 months ago. The people we bought it from had lived there 12 years and sold at a 5% loss. How does that happen? Did we get a deal? I don't think so. I'm hoping to just keep up with inflation. Here's the thing, those that bought from 2004 to 2008 are even more underwater.

The Fed let Wall St. rob from the future with leverage. More tough sledding ahead for the majority imo.

Stagflationary Mark said...

Sure, but how likely is it that an "investor's paradise" is right around the corner with historically high equity valuations, ZIRP and a 1.8% 10 year treasury yield?

Investor's Paradise: 1 in 36
Investor's Pair of Dice: 35 in 36

Snake eyes for the win! ;)

mab said...

We had an investors paradise in 2000 and in 2007. That's like rolling snake eyes twice in a row! What are the odds of rolling three snake eyes in a row?

(1/36)^3 = 100%.

Fuzzy math? New math? Candy mountain? No, it's the new eCONomy and it is glorious!

Stagflationary Mark said...

Well, we've got cubes and dices covered. Now we just need slices and wedges for golfer's paradise!

Ronco's Veg-o-Matic

It slices, dices, cubes, and wedges! Yes!

Well, sort of. Don't let the naysayers win!

AllanF said...

Oh no, not the Rubicon. Again. It's like Ground Hog Day meets The Big Short.

Stagflationary Mark said...


At the risk of endlessly repeating myself...

Do you feel lucky?