Crack Up

Bob Prechter's latest 20-page Theorist summer edition is epic. A lot of things became crystal clear after reading it, for example: why have people gotten consistently more pissed off as the market has climbed higher since 2009?

Answer: Since the Fed's balance sheet has increased 33% per year since 2008, people see the markets going higher, but they feel ripped off.

It's not a wall of worry. It's a wall of gall.

A few other notes:

Hedge funds are the most levered ever. And still trailing the market.

Margin debt is at record levels.

Borrowing power is depleted.

Record margin debt occurs at market highs: 1987, 2000, and 2007 are great examples.

The sum of margin debt is greater than the sum of cash and available credit in all assets by $85 billion.

Margin debt as a percentage of annual GDP is 10 times the level of 1974.

The Dow/PPI chart is below the year 2000. What rally?

Housing is "recovering" back to the recessionary lows of the last 50 years.

All these points made me realize it would be a great homework assignment to re-read Schwager's Market Wizards and The New Market Wizards and study the backdrop of 1987 which was covered so well.

Two words: we're there.

Here's what I'm looking for: unless 1678.12 breaks, the market could crack up into August options expiration. I'll give more reasons in tomorrow's post.

For now though, I still think the 1778 Fib extension would make a nice frothy target.

Just like the current socionomic back drop, Prechter can be a polarizing figure to those without an appreciation of recent history, and that is where they go astray.

The market is a living, breathing thing that never forgets. Yet some would shoot the messenger who brings news from the past.