The House Of Cards Is Ready To Collapse

Bert Dohmen profile picture
Bert Dohmen


  • Bullish enthusiasm has gone on a parabolic trajectory in the month of August, guaranteeing a volatile election season for the stock market.
  • Economic indicators no longer paint an optimistic picture - now, they are showing a deceleration in the recovery, coinciding with a deterioration in sentiment.
  • Investors relying on the Fed to "stimulate" the markets with loose policy are being roped into a trap.

Note to readers: We published this article on September 1st, prior to the selloffs on the 3rd and 4th.

Despite new signs that the U.S.'s economic growth will be slow and painful, the euphoria we've seen take hold of markets over the past few months has now started to accelerate. Investors who are already overexposed to the stock market are loading themselves up with even more risky assets, even as we closely approach a volatile election season.

Bearish Divergences

The Put/Call ratio, which measures the ratio of bearish versus bullish options bets on the stock market, has fallen to record 2-year lows repeatedly over the past several months. This reflects the fact that speculative activity is the highest it has ever been over this period as SPY (orange line) has climbed to new record highs:

This confirms everything we've written over the past several weeks. It is increasingly important that investors consider the psychology and behavior currently driving the markets higher, and why it is unsustainable.

This week, one analyst on TV said, "We have to be comfortable in being uncomfortable. You have to stay fully invested." A major CEO of an investment firm said that he has "no doubt that by next year, the economy will be as strong as last year."

Attitudes like the ones above tempt fate and will ultimately lead investors to ruin if they increase their exposure in this market. The major indices continue to depict a distorted image of what's really going on for the vast majority of companies.

The divergences in market breadth we've previously highlighted have grown substantially larger during the month of August. Below, we have an hourly chart of the S&P 500 (red line) compared to its "equal-weighted" counterpart (candlesticks):

The two have veered off in different directions, with the "equal-weighted" version making

This article was written by

Bert Dohmen profile picture
Bert Dohmen is a professional trader, investor, and analyst. As founder of Dohmen Capital Research group and newly established Dohmen Strategies, LLC, he has been giving his analysis and forecasts to traders and investors for over 43 years. He has been a special guest on CNBC, Fox Business News, and CNN among others, in addition to having his analysis featured in some of the best known and reputable investment publications including the Wall Street Journal, Money Magazine, Barron’s, Future’s Magazine, and Forbes. Dohmen’s firms currently offer 4 highly valuable services for serious investors and traders, including the award-winning Wellington Letter, offering fundamental and technical analysis of the economies and investment markets. In addition, The Smarte Trader and Fearless ETF Trader is ideal for astute short-term traders, and the exciting new HedgeFolios program for active investors looking to protect their portfolios and profit from market downturns.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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