Pascal,
I visited Didier Sornette's Financial Crisis Laboratory this morning at: http://risikopedia.ethz.ch:2375/#http:// which has the following data:
Shown is a warning on S&P500. When you click on the red S&P500 warning the following image pops up:
This shows the confidence level over time that the S&P500 price data fits a Log Periodic Power Law signature. When I used to run the LPPL fit myself in excel, lacking the mathematical skills I never knew how good a fit I had achieved. Note the highest confidence on this chart was end of 2013 when I was reporting a possible fit. Didier Sornette is trying to address the confidence issue with the analysis he shows on this site. I don't really know how confident 0.11 level is. So I look at history that is available on the site for previous bubbles. The following is from 1987.
The middle historical chart is the confidence level chart for comparison with today's chart. What is common amongst the various historical bubbles is that the confidence level show multiple peaks on the way up (as we show now). From looking at other examples 0.11 really isn't all that remarkable, the historical examples showed higher confidence.
May is now in the rear view mirror, a historically weak period. The one chart that has me the most worried is the Russell 2000, shown here:
The small caps have formed a possible H&S pattern which so far has found support at the neckline. Last week the index gapped up on light volume and now sees the 50-day as resistance. Friday was a small cap distribution day on a day that the S&P saw accumulation. The S&P visually looks like stalling to me. It made smaller upward progress on substantially higher volume than the day before. It doesn't quite meet the MarketSchool definition of stalling however, missing by a small factor (up 0.18% vs. 0.10%). In 2007 the small caps were exhibiting a similar characteristic by lagging the general market from July onward to the October NASDAQ top. So my guess is that either the Russell is going to have to rally to new highs or it will eventually pull the rest of the market down. The Russell for me is the Canary in the coal mine.
I also note that the MarketSchool Exposure Model did not agree with the IBD FTD call and is at zero exposure level with the buy switch off. The exposure model however does not look at the S&P500 which has rallied to new highs which by itself would turn the buy switch on. Momentum investors however are better off following what the NASDAQ has to say. We seem to be in a narrow large cap rally which has me sleeping lightly at the exposure level I have in the market today.
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