Another crazy day for markets on Thursday. That's not to say the 0.53% gain from the S&P 500 (and a similar gain for the NASDAQ) was unusual. But, given the circumstances of being so overbought as well as overvalued, it is pretty amazing the major indices were able to plow a little further into record-high territory for the fourth day in a row. All things considered, it's not the way the market should be behaving right now. Yet, there it is. Anyway, after a long internal discussion with the entire SCN crew today -- the kind you don't really plan but end up being glad it happened -- I was inspired to pass along to you some of the things we hashed out during the impromptu meeting. In simplest terms, we figured out what was wrong with the market, and why. Unfortunately we couldn't come up with a fix; there may not be one. At least knowing what's wrong and what's right about the market right now is still helpful still though. I'm just going to walk through this linearly, answering the obvious questions as they arise. That's probably more for my benefit than yours. I'm also just going to start with the premise that this market (using the S&P 500 as our proxy) is overvalued. Let's dig in. With today's close of 2163.75, the S&P 500 is not only several points into record-high territory, it's also at a ridiculous trailing P/E of 21.5 and forward-looking P/E of 17.3. The projected P/E isn't horrifying, but it's also not realistic. Analysts always overestimate future earnings success. With the S&P 500 presently trading at 17.3 expected forward earnings, it's probably trading at about 18.5 times its actual, plausible forward-looking earnings. That's too much. So, why is the market forging ahead all the same? Because, not much else -- especially gold and bonds -- aren't moving higher, so money is migrating to the next best bet... stocks. We've talked about this idea before, but today I'm going to show you what I mean. The chart below is a performance comparison of stocks, gold, and bonds going back to the middle of 2007. If you look closely, you'll see that there was (almost) always one of them moving higher at the expense of the other two, and/or one of them moving lower to benefit the other two. Beginning in late May, both bonds and gold soared, but stocks didn't. Bonds and gold ran out of room in early July, though, and stared to pull back. That money started to flow into stocks. [Click the image to see the full screen.] OK, so why are bond values falling now? Partially because the value of the U.S. dollar is still (mostly) falling, and partially because traders are starting to realize interest rates aren't necessarily going to fall. A Fed rate-hike remains on the table, and the Bank of England made a rather bold statement today by not cutting its key interest rate. And why are gold prices falling now? A couple of reasons here too. One of them is simply the fact that currency exchange rates haven't gone completely haywire (as many expected them to) following Brexit. The pound and the euro both stabilized pretty quickly, so gold isn't a necessary safe haven. The other reason gold isn't rising any more right now is that inflation [gold is an important hedge against inflation] isn't running rampant. The current consumer inflation rate is a manageable 2.2% excluding food and energy costs. Factoring in falling food and gas prices, the inflation rate is whittled down to 1.1%. Producer input prices have been even weaker. So, what inflation do we need to hedge against? Granted, the strong U.S. dollar is a key part of the reason inflation has been tame here. As long as U.S. dollar-denominated bonds don't lose a lot more value though (and it's unlikely they will), that will keep the U.S. dollar propped up relatively well.... a "does the dog wag the tail or the tail wag the dog" situation. But -- and this is a biggie -- as long as the dollar stays relatively strong, it will keep gold prices suppressed. As long as gold prices stay suppressed and bond prices remain pressured, then stocks are the best bet. Valuation doesn't become part of the equation, because most of the market just doesn't see any other alternative than to keep buying stocks until gold or bonds look better. Meanwhile, gold will only look better if the U.S. dollar falls, while bonds will only look better of the U.S. dollar stays firm. The happy medium is a stagnant dollar, which again only leaves stocks as a worthy investment right now in investors' minds. To heck with the valuation concerns. Clear as mud? Great. Now, just to stave off any confusion, reality is never as neat and tidy as I just explained. It's never this black and white. You get the idea though... it's not an ideal scenario for stocks, but what's the option? Sooner or later the dollar's got to do something. My suspicion is it will fall, boosting gold and maybe even stocks eventually, and making a victim of bonds. Further victimizing bonds will be rising interest rates, which as long as they don't rise too much too fast, won't work against stocks, and may fan the bullish flames for gold. No matter how you slice it, I just don't see a safe way out for bonds here, yet I also don't see how stocks are going to avoid a valuation-driven (even if short-term) correction. If gold rises, it may at least temporarily be at the expense of stocks before equities find a floor and rebound again. The equity pullback is going to happen sooner or later anyway though. Gold's rise and or a strong move in bonds could be that catalyst. The hard part is the waiting. The $64,000 question is, how do you make any money from all this information? That is the point, after all, right? If that's what you're looking to do, then John Monroe of the Elite Opportunity Pro is your guy. He's always looking at this dynamic, and always finds the best way of playing the opportunities as they arise. In fact, I'll just give you this mini-snippet from what he had for EO Pro members today: "Gold and long-term bonds have finally decided to back off substantially. Following a valiant attempt to hold up for several days in the face of a market-wide melt-up, both precious metals and bonds have finally cracked to the downside. If you recently entered into a gold short following our short-term call for a top in gold, you're probably pretty happy about what you're seeing today. I've included a daily chart of GLD below, the primary ETF tracking the price of gold. As you can see, the precious metal has finally started to prove our thinking out. Now, it's more a matter of where it's headed, but if we continue to be right about the markets in general, I suspect GLD will likely find its way to [removed by editor] before it could be in position to stage at least a fairly decent relief rally.... ... At this point, less is more. Meaning, unless we see something glaringly opportunistic surface, we'll continue to stick with the gold short and the index long trade, because if we can get these two to start to correlate in inverse fashion together, their moves over the next several days may end up offering us a nice opportunity to reverse our stance their and fade the trades back the other way.... ... We've seen these markets capable of some extreme volatility, and the further and further the major indices run without any sort of decent pullback, the more cautious we'll get regarding the risk associated with equities. For now, stocks continue to run, but at some point, the reversal is going to be sharp..." See how he fits them all together to generate trading ideas? What you didn't get was how we draws lines on each instrument's chart to mark the points where reversals for gold, stocks, and bonds are most likely to happen. All these things are surprisingly well correlated. The trick is figuring out where and when the three-way relationship starts to take on a new form. John's mastered that trick. You're not going to get this kind of deep, overarching analysis anywhere but the Elite Opportunity Pro. Here's how to put the power of John's team at your fingertips.