I haven't paid much attention to the major US equity indices in recent months because I simply haven't found them to be of much interest. However, that has quickly changed in the last week. 

Suddenly everything I look at seems to be lining up and pointing to the same conclusion; equities are extremely vulnerable to a sudden and sharp correction. Here's why:

  • Sentiment is extremely elevated and has been elevated for the last few weeks. 
  • Cash allocations have reached the lowest level (according to AAII Survey) since 2000. This means that investors are getting closer to being fully invested, which means there is less potential buying power available to drive stocks to higher levels. 


  • Market leading stocks such as AMZN and TSLA have begun to top and roll over (other leaders such as NFLX are beginning to show signs of running out of fuel):

AMZN (Daily)


TSLA (Daily)


  • The President is taking regular victory laps for the recent stock market performance:


  • Rallies in the US Dollar Index have often coincided with equity market corrections. The US dollar is currently extremely oversold with an unusual extreme short positioning in US dollar futures:


Bearish momentum divergences at recent highs with 3 large red candlesticks in the last 5 trading sessions, despite strong earnings from AAPL. 

And I could go on but you get the picture. Everything is lining up for an imminent US equity market correction. I have begun accumulating (morning of 8/2/2017) puts on the S&P 500 ETF (SPY) and a short position in the Russell 2000 (IWM). 


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