|
|
|
|||||||||||||
|
Attention Passengers on Global Equity Flight 2011: Assume Crash Positions (November 16, 2011) An array of evidence suggests that a crash in equities might be just ahead. I know, I know, retail sales are up so everything's wunnerful, but the captain of Global Equities Flight 2011 just instructed the passengers to assume crash positions. It seems the captain has the distinct advantage of being able to see what's just ahead, not to mention being able to monitor the engines and fuel levels. (Hmm, did the starboard engine just conk out? Not good....) Levity aside, there are unnerving similarities between the present and the pre-crash 2008 equities market. To make the case, let's turn to some excellent charts from The Chart Store and Ron Griess. In the first chart, Ron has traced out the basic pattern and the percentage of stocks above their 200-day moving average (MA). Notice how weak that is compared to price.
Next, a chart which shows we're right where the 2008 rally topped and tanked.
Last up, one of my favorites, an analog chart that overlays the present-day rally over the 1907 crash and rally. It is uncannily similar until QE2 saved the day for a few months. That pushed the present out beyond the 1907 line, but then current prices began falling until the most recent "6-week wonder" prop job once again saved equities from collapse.
Apparently we're supposed to believe that channel-stuffing auto dealers and Americans-self-medicating-with-shopping-on-credit are really going to power the economy to ever greater heights of sales and profits. Anything's possible, but despite the cheer and the constant calls for a year-end rally to end all rallies, the market is looking a little uncertain here. Consider the broad-based Russell 2000, which seems to have traced out a beautiful head and shoulders pattern, as good a precursor to a crash as you can get. The last time the RUT looked this ugly, the Powers That Be pulled one save after another out of their bag of tricks. Despite brave talk from Fed lackeys that "we have more amazing stimulus plans right here," everyone knows they've shot their wad and have been reduced to playing around with Treasury yields that won't do anything for the real economy. So all that brave talk about the next big Fed-rides-to-the-rescue is just that, hot air and paper-thin bravado.
For a very insightful chart of the RUT from a razor-sharp analyst, please see Technical Perspective: Repetition in the Russell 2000 (Chris Kimble). Zooming in a bit, let's take a look at the S&P 500, where we see a classic wedge/pennant, the sort of thing that breaks big up or down. Given the abundant evidence of weakness, not to mention the potential for outright panic in global credit markets, does anyone not being paid to lie really think the probabilities favor a breakout here to the upside? Based on what? I know, I know, "seasonal patterns." In other words, we're depending on Santa to deliver the rally everyone needs to stay solvent.
It doesn't take much imagination--none, really--to see the similarities between the July topping-out and the present. If volume is the weapon of the Bull, then everyone betting on the next big rally has to explain why volume has been declining. Rather than get distracted with how much low-quality crap gets sold at loss-leader prices on November 25, we might be better served to focus on the U.S. dollar. As everyone knows, equities and the buck have been on a see-saw for a long time. If the dollar rises, equities drop. If the dollar rises a lot--for any reason, or no reason, it doesn't matter-- then equities crash.
If the euro weakens, the dollar rises. If the dollar rises, equities weaken. If there is anything else to know about the current equity market, how much can it possibly be worth?
He who sells first sells best. Something to ponder in the weeks ahead.
If this recession strikes you as different from previous downturns, you might be interested in my new book An Unconventional Guide to Investing in Troubled Times (print edition) or Kindle ebook format. You can read the ebook on any computer, smart phone, iPad, etc. Click here for links to Kindle apps and Chapter One. The solution in one word: Localism.
Of Two Minds Kindle edition: Of Two Minds blog-Kindle
"This guy is THE leading visionary on reality.
He routinely discusses things which no one else has talked about, yet,
turn out to be quite relevant months later."
NOTE: contributions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Or send him coins, stamps or quatloos via mail--please request P.O. Box address. Subscribers ($5/mo) and contributors of $50 or more this year will receive a weekly email of exclusive (though not necessarily coherent) musings and amusings, and an offer of a small token of my appreciation: a signed copy of a novel or Survival+ (either work admirably as doorstops). At readers' request, there is also a $10/month option. The "unsubscribe" link is for when you find the usual drivel here insufferable.
All content, HTML coding, format design, design elements and images copyright © 2011 Charles Hugh Smith, All rights reserved in all media, unless otherwise credited or noted. I would be honored if you linked this essay to your site, or printed a copy for your own use.
|
Add oftwominds.com to your reader:
|
| Survival+ | blog fiction/novels articles my hidden history books/films what's for dinner | home email me | ||
