There are times in life when being alarmed is actually a healthy defense mechanism that gives you an advantage over the many for whom "ignorance is bliss." This is one of those times. The chief purpose of this article is to make it crystal clear to you, via the following charts, that the market is at a wild extreme and will soon tip into a savage bear market that will wipe out a lot of leveraged traders.

This version of the original article, by Clive Maund, has been edited* here by munKNEE.com for length (?) and clarity ([ ]) to provide a fast & easy read. Visit our Facebook page for all the latest - and best - financial articles!

…Having created a situation of wild unsustainable extremes, the Fed has taken its metaphorical foot off the gas pedal and planted it on the brake, slowly at first to avoid rattling the markets, but slowly pressing down harder on it, as it desperately seeks to create "wiggle room" for the next crisis by raising rates and scale back its huge Treasury book.

• A massive liquidity drain is going on behind the scenes that will starve the market of funds to continue ascending and cause stock buybacks to shrivel as rates continue to rise…
• Once players fully comprehend what is going on and that "the jig is up," there will be a wild stampede for the exits, which is why the market is expected to not just drop, but crash?actually it would be odd, given the situation that is evolving, if it didn't.

The Bear Market Probability Chart

The Bear Market Probability Chart…is a very useful chart… The fact that a reading is at a high level does not necessarily mean that a bear market is imminent, but the higher the reading gets the more likely it is, and as we can see on the chart [below], it is now at readings that exceed by a significant margin those ahead of the 2000 top and the 2007 top, making the onset of a major bear market very likely soon.

Click on chart to pop-up a larger, clearer version. Chart courtesy of sentimentrader.com

The NYSE Available Cash Chart

…The NYSE Available Cash chart…[below] shows the leverage being employed in the market via margin debt. As we can see it is now at unprecedented frightening extremes, which way exceed anything that has ever been seen…[As such,] when this thing really goes down there is going to be a veritable tsunami of margin calls going out?this by itself signal that a brutal crash is not far over the horizon.

Click on chart to pop-up a larger, clearer version. Chart courtesy of sentimentrader.com

Other Market Charts

Finally, it is worth taking a sideways look at what is going on in some other markets, to see if they corroborate the signs of an imminent reversal in U.S. markets that we are seeing.

• The pan-European STOXX600 index chart certainly does, as it shows that this index looks like it about to start dropping away from a giant completed Triple Top.
• Meanwhile, the Japan Nikkei index has staged a partial recovery in recent years, but is still a long way from making it back to its 1980 bubble highs, and since it is clearly moving to some degree in lockstep with U.S. markets, when they go down it goes down, which is hardly surprising as the intensifying credit crisis that started with Emerging Markets is, of course, a global phenomenon.

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(*The author's views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.)

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