Stocks Post Longest Multi-Week Drop Since 2002 - History Predicts Much More Pain In Store

Tyler Durden's picture

As the superimposed chart below demonstrates, the current 6 week drop, which is the longest in the last 9 years, or since 2002, may just be the beginning. And while our prediction that 2011 is a replica of 2010 is now confirmed, the far scarier possibility is that the next comparison to 2011 is 2002 - if that year is any indication, the SPX will drop to ~1000 before rebounding: obviously at that point the Fed will have no choice but to proceed with QE3, or the downward momentum will accelerate in what may then become a repeat of October 2008, and all those predictions for an S&P 400 would promptly be validated.

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mynhair's picture

As long as Oblahma goes.

GeneMarchbanks's picture

wait so 1000 point drop, then QE3, then ?, then gold confiscation, then _____

Go ZHers fill in my ? &______ I dare ya

 

Alienated Serf's picture

The D word will now be spoken. 

Look at the other Great Depression for guidance.  Mass state gov layoffs (school closures especially), sovereign defaults didn't really get going until 1932-3. 

Same pattern now.  Capitulation is near.

Missiondweller's picture

Its already started but is generally confined to "housing depression". Its just a matter of time before the use of the word begins to expand into wider usage. Its a process where people begin to accept the idea.

A recent poll showed a large % of Americans believe we're headed towards a depression so acceptance is already underway.

 

Raynja's picture

i'm of the belief that this is gonna turn out like 1937-1938

Cdad's picture

http://stockcharts.com/freecharts/historical/djia19201940.html

Take careful note of where the actual "Great Depression" occured in 1929 on the chart...and then look at the rest of the chart.  If you believe, like you say, that we are in a repeat, well then we have an awful lot of downside beneath our feet.

I, for one, agree with you.

 

WonderDawg's picture

If you bought at the bottom, you made 500% over the next five years. That's kind of my strategy. Ride it down in a bear fund with the money I feel comfortable putting at risk, which for me is about 25% of the portfolio, then when absolutely no one wants to own stocks, reverse course and go long.

Sounds good in theory, but there are so many uncertainties these days, it's all a roll of the dice. The only thing I believe is absolutely certain is that we're in a deflationary depression, and try though they might, TPTB can't paper over it forever.

jeff montanye's picture

note the pm miners didn't participate in the 30-32 decline (sideways to up) but did in the subsequent rise: http://www.oilngold.com/analysis/research/gold-a-gold-stocks-during-peri... that's one way to play it. 

knowless's picture

https://secure.wikimedia.org/wikipedia/en/wiki/Demographics_of_the_Unite...

the difference is the concentration of huge segments of the population in dense urban areas reliant nearly entirely on global trade for necessities.

Sunshine n Lollipops's picture

Spoke to a couple of state employees at the department of child support today. They've had 7 'furlough' days (unpaid days off) so far this year, a result of state budget cutbacks. Their wages have also been cut 3% and they're now having to pay more each month into their medical plans. They were telling me it's a bad time to be a gov't worker. They probably have no idea what's coming.

Hedgetard55's picture

"Help us, Obi Wan Bernanke!"

wombats's picture

The force is strong with him.

Troublehoff's picture

I think you mean:

'the bourse is strong with him'

PhD's picture

Haakon på bilderberg. Snodig verden vi lever i

buzzsaw99's picture

The Dark Side of the Schwartz is strong with him more likely.

AladdinSaneGirl's picture

Are certain investors trying to force a QE3 by taking money out of the markets? And sitting on it? If so, it amounts to robbery of the taxpayer/state. Or do I misunderstand where the QE1/2 funds have gone?

Rynak's picture

Look at the dollar. Yes, folks are going fiat and sitting on it. What else is there to do, when the economy tanks even while it is on steroids, and when certain big players provide the direction?

I mean, if i had cash in the stockmarket, i certainly wouldn't want to stay in, while stocks and commodities become a capital-sink?

P.S.: The big picture is simple: Both the stockmarket as well as commodities are massively overvalued, thanks to QE1 + 2. It's a baloon that wants to deflate, yet constantly is resupplied with more fiat-air. The fed is threatining to stop pumping air..... what else is one supposed to do, than jump off the sinking ship? Of course, this in turn will send the market down.... which in turn is just the excuse which bernanke needs, to announce the next round of air infusion, at which time stocks and commodities will explode in price.

AladdinSaneGirl's picture

Well the problem is there: "certain big players": it's not their own cash these "players" have taken out, it's the taxpayers'. Meanwhile a lot of good stable companies remain undervalued (from what i've read). How can it help the economy when share price is so volatile? Maybe the QE funds should've gone straight into the companies, ie into jobs, R&D, production, etc. The whole thing sounds totally stupid.

PS Just read your ps! Yes i get that the market may be overvalued due to QE1 and 2. Yet i have read last week that some companies are undervalued (according to the usual measures, NAV and whatnot). I'm not an economist but surely there has/d to be a smarter way of solving these issues. 

rocker's picture

Jamie Dimon cried to the FED, and it failed. So Jamie Dimon tried to do it diabolically for us to see, and it failed.

Do you think Jamie would take all that money back out of the markets? Of course he and the other hedge funds will too.

Remember, JPM, GS and BAC traded 90 days straight and only one had one day that they lost money. Hmmmmm.

I am willing to bet they all made money this month too. No QE so they will destroy the markets. That is how it works.

Risk off, totally now.  Could change, but they will have to have a fresh diaper and powder first.

Vampyroteuthis infernalis's picture

Remember, JPM, GS and BAC traded 90 days straight and only one had one day that they lost money. Hmmmmm.

Yes hmmmmmm, the big boys are going to shake out the small hedgies and other investors not in the know. HFTs better watch their backs. They are robbing the elite. It it time to stop that. The mafia whacks their enemies, big money bankrupts theirs. They will crash the market, then QE 3 will appear at the proper moment.

AccreditedEYE's picture

+1 However, you also have to keep in mind that big money has plenty of hft programs all their own. Also, with PD's net short the market right now the evidence would indicate you are correct.

Rynak's picture

The problem is with you - you're thinking too "Sane" :)

This whole stupid experiment never was supposed to actually help the economy. As you correctly point out, there are about a few hundred better ways to fix the broken economy (and many of them do not require much cash - just pissing off a lot of lobbies and campaign contributors)... rather than bailing out banks, who have already shown that they are parasites and a hazard to the economy. Heck, even thowing all those billions out of the window, by throwing a really big party in every major city, every day, would have been better - not because it would have fixed anything, but because it at least wouldn't have helped to sustain the issues which caused the whole crisis.

But alas, that's not what they have been doing, and are doing. It's neither about the bottom 90% of the population, nor is it about small to midsized companies. Those actually are now worse off than before. The only ones who benefitted, were large banks and megacorps. So yes, it is robbery... but on a much larger scale, than just the recent stockmarket drop.

AladdinSaneGirl's picture

Brilliant comments from everybody. Yeah they'd have been better giving every law-abiding citizen $50 shopping vouchers or something. Well the dollar is going to suffer as the Chinese and other economies move into the IMF. Wonder how long it's gonna take before the dollar is superceded.

PS Oh yeah Sane i get u ... Well it's inSane as we know!

SwingForce's picture

Nomi Prins in "IT TAKES A PILLAGE" said they could have paid off EVERYBODY's mortgage in the whole country by now with what they have spent on the banks.

Rynak's picture

They also could have "cushioned" the supposed big evil crash, that according to them would have happened, if they do not bail out the megabanks. I'm sceptical if said crash would actually have been as severe as they claimed - but it doesn't matter, because even if it would have been that bad, all the trillions of dollars printed, could have softened such a crash.

So, two of the choices they had were:

1) Print massive amounts of cash to conserve the problem.

2) Print massive amounts of cash to get rid of the problem, and soften the consequences.

They did choose 1. And they didn't do so, because they're incompetent.

Rynak's picture

$50 ?

You're still underestimating the in-sanity of the whole program :)

They are each month printing almost 50% of a low-income wage..... multiplied by the total population of the USA.

Yes.

P.S.: In case you are not aware about it - taxpayers are not paying any taxes for this. Taxes are collected IN ADDITION to this. The way how *all holders of US Dollars* pay for this instead, is inflation. It really isn't so different to taxation, but is not called taxation (the population would instantly turn washington into a blootbath, if they figured this out). It works like this: When you print money and give it to people, those people now hold more weatlh, while everyone elses wealth (buying power) is reduced. And the killer is that this type of "taxation" knows no national borders - as i mentioned, every holder of US dollars is affected, regardless of where on the planet he lives.

Rynak's picture

Woah, holly shit! Well, if there was any doubt left, that people are escaping the market, then look at friday's close. Neither traders nor bots wanted to stay in the market over the weekend - no trust in consistency left in the market. Pick any stock or commodity index.... everyone was fleeing the market near the close.... and where did the capital go? Well, look at the dollar, heh.

Prediction: At this rate, the market will crash before the end of QE2, unless the "dealers" stabilize it, or QE3 is announced already in the next week.

mynhair's picture

I thought S&P 666 was the target?

dwdollar's picture

I kind of doubt either.  I just don't see them giving back that much.  It would look really bad and discredit QE2.  Either way it's going to be a roller coaster.

But... on the other hand.  They have to wait long enough so QE3 can have a lasting impact going into the presidential debates.

hamurobby's picture

Either way it's going to be a roller coaster.

 

I agree, Im long volatility with both calls (C and dollahs) and puts (spy), should be interesting.

Rynak's picture

At the current speed, they cannot wait for long. Look at the speed at which the market is going down... SP will reach 1000 in weeks, if not less.... perfectly timed to coincide with the end of QE2. At that point, there will be only two routes left: 1. Do nothing, and the broken market will go down vertical. 2. Inflate the broken market with more stimulus.

It's a matter of weeks, not months.

Vampyroteuthis infernalis's picture

dwdollar, the big boys never lose when the market goes into a known crash. They short it and make a killing in the process.

snowball777's picture

The "giving back" would be from 401k holders, not the big boys; sheeple make more attentive voters when their retirement isn't being sacrificed at the altar.

dwdollar's picture

Exactly.  As long as people believe in their 401k retirement fantasy, they won't make too big a fuss.

A general uprising of angry voters can still displace any accounting irregularities at the tally machine.

buzzsaw99's picture

They KNOW what the number is. We can only speculate.

Troublehoff's picture

Given all the wage inflation, I guess we can assume that this QE trigger number may be a little higher this time...

 

...oh wait

buzzsaw99's picture

QE1 ~ 666

QE2 ~ 1050

QE3 ~ ????

Troublehoff's picture

i still cant get my head around this Deflation and Inflation both being good for Gold  - surely that makes about as much sense as piling debt on top of more debt to get ourselves out of this mess?

buzzsaw99's picture

I disagree with that premise. Gold is historically a hedge against monetary inflation. The "gold is money" crowd has yet to prove their (good in periods of deflation) thesis with me.

Rynak's picture

Well, in pure THEORY, the real value of gold should not change much, if it is constantly used as a stable wealth storage.

But in practice, that does not happen. When fiat devalues, or is rather stable, people prefer it over PMs. I can understand why... easier to transfer than PMs, plus it's less complicated if you do not constantly need to exchange between PM and fiat. And so, as long as fiat is strong, PM demand decreases and thus sends it's prices down.

I guess, in theory the best solution would be something, which long ago was the case in the USA.

Urban Redneck's picture

http://seekingalpha.com/search/?source=search_general&q=gold+inflation+deflation&cx=001514237567335583750%3Acdhc2yeo2ko&cof=FORID%3A11%3BNB%3A1&goto_search_tab=#997

Read the articles from 2008-2009.  Sorry about the source- but the search function worked easily.  The was some more substantial analysis that came out during the same period but I can't find it online now.

RobotTrader's picture

IYR was finally destroyed today.

 

Richard Head's picture

"Destroyed", you mean like that TZOO stock you were pumping?  Funny how we never hear about your lame stock picks after they blow up.  Keep pretending you're a real trader, asshole.

PeterB's picture

The youth of today, no respect. RT was one of the reasons ZH became popular before it was invaded by one eyed fanatics who will only get more & more irate as the truth unfolds. I suggest you search the archives more deeply before hurling criticism.