The Missing Link For A Stock Market Crash

Sprout Money's picture

For months we have been warning about excessive optimism on the stock market, since it was clear that it needed a break. Coincidence or not, lately it has been seemingly impossible for the market to take it to the next level. Many indices are still listed near or at their all-time highs (e.g. the S&P 500), but sensitive sectors and segments (e.g. technology and small caps) have been nervously exploring the downside. It should not be too much of a surprise, as a consequence, that investors have become increasingly hesitant in this uncomfortable ‘grey area’.

And that feeling is completely justified; most investors remember the crash of 2008 and its aftermath like it happened yesterday. Their fears nurtured a five-year long bull market, since a big correction is only preceded by a period during which everyone wants a piece of the market. In 2013 the negative sentiment turned around and retail investors returned to the market en masse, evidenced by the strong increase in online brokerage activity. But when small-time investors show up to the party, the bull market is usually on its last legs. It is the beginning of the end...

From a technical perspective, we still are in the same environment we have been talking about for weeks: the distribution pattern, which consists of dramatic down moves on high volume and unconvincing moves to the upside on declining volume. If you combine this with the falling stock prices of many leading stocks, you have the recipe for a market disaster. We are, moreover, not the only analysts who are sending out warning signals. Hedge fund god, David Tepper, is wary about this market and the godfather of technical analysis, Ralph Acampora, is even warning investors to brace for a 15 to 25 percent correction in the stock market in the coming months. That is quite the prediction! Both gentlemen were big supporters of the bull market until recently but, considering their spotless track record and timing, it would not be wise to ignore their statements.

Nevertheless, there is one item that is missing to warrant a complete ‘potential stock market crash’: stress in the credit markets. With previous market corrections there was always a lot of tension and today there is an utter lack of ‘credit stress,’ evidenced by the low TED spread. That is the difference between the interest rates on interbank loans and on short-term U.S. government debt. The TED has always been a great barometer to gauge for potential adversity on the market.

TED spread

As you can see on the above chart, an upward breakout of the TED spread has always been followed by a correction in the stock market in the weeks after. The market was able to recover every time, however, thanks to the intervention of the central banks who flooded the financial sector with fresh cash, wiping away the stress in the credit market.

Today, the market is floundering because of the fact that those same central banks, with the Fed in the lead, are indicating that their flexible monetary policies have run their course. They are even talking about an exit strategy, which would mean the end of QE and the beginning of higher short-term interest rates. Increased short-term interest rates are not desirable all the same, because that would mean that the yield curve would flatten out (less income for the financial sector), which indicates less credit activity and, consequently, trouble for economies that are overburdened with debt. The term ‘inverted yield curve’ (when the short-term yield is higher than the long-term yield) even popped up, which is a phase in the credit market that is basically a one-way ticket to an economic recession.

To be clear: we are not there yet. Central bankers will do everything it takes to avoid new credit issues and expectations have already been extensively ‘managed’ by Mario Draghi of the ECB, who was hinting at a monetary intervention. The strong euro is posing problems, but we cannot relieve ourselves of the impression that there is more trouble to come from the European credit system. The monetary authorities are particularly alert, but for now the coast remains clear.

As a consequence, we are advising investors to be cautious and there are plenty of signals coming from the market that indicate that vigilance is a wise choice at this time. Different technical elements point to (underlying) changes that have always been harbingers of corrections in the past. It is probably too early for a full-on stock market crash, however, and we would need to see more indicators of stress in the financial system to get there. But history has taught us that the way down travels fast if things go awry in the credit market. If we can hold off the credit stress and if the markets can convincingly put new highs on the board, however, we will start to feel positive about the stock market once again. Until that time, however, we are taking cover behind gold, silver, and some cash.

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Herdee's picture

Counterfeit is defined by the Comex paper gold market.When they default and they will,that'll be the trigger.

disabledvet's picture

why go whole hog on market collapse when a "mere correction" will do.

Ten percent is over 1600 points!

Sorry but i don't want to be the people calling for "corrections as unpossible" as Jim Cramer is doing on a daily basis now.

How that guy is even alive right now is beyond me. He's lost people hundreds of billions of dollars in just six weeks. At some point "someone will ring his bell."

assistedliving's picture

I'll tell you the 'end game'.  A hope and a prayer that all the damage done by CB's will be overcome by the natural spirits of Capitalism.  4% natural growth and the problems appear "manageable".  6% and they even start to diminish.  

Comte d'herblay's picture

The Missing Link heretofore has been Homo Erectus.

This is very disturbing that the word "Homo" is used to describe man. It almost makes it look for certain that men are Homosexuals as a default setting. Homo Sapiens, Homo Horribilis (bill clinton and Howard Waxman), Homo Erectus (Johnny Wad), Homo this Homo that......

...very disturbing...

eddiebe's picture

People really need to start taking an interest in what is going on around them in order to realize the massive fraud that is being forced on them by the real terrorists. The gang of thieves masquerading as central bankers, CEO's, politicians and the people that force their bullshit called 'news' down our throats mainly.

Gaining this awareness is of course painful and depressing and presupposes a certain degree of intelligence and work. Just like children wanting to believe in Santa, we want to believe that our supposedly elected leaders have our best interest at heart and so do the leaders of companies where we invest our savings. It hurts to think that they are all not just scamming us, but despise and are intent on harming us for all our toils, so we ignore it, til it hurts more to ignore the scam,and actually begin to organize and find ways to do something to regain rule of humane law.

I keep thinking that because the scam is so obvious to me ( all of it, not just the fraction I mention) that at least part of it will enter mainstream and cause more than a ripple somewhere, but a massive rejection.  Not so though. On and on it goes.

That the crooks can keep this show going is totally amazing. It should be looked at as one of the wonders of the world, or THE Wonder of the world, greater than the great pyramids, because although the fraud is in front of everyone's eyes all the time, nobody seems to care or do something about it. 

AdvancingTime's picture

Over the years we have witnessed the type of market reversal the big banks supported by the Fed can generate with a concerted effort to buy S&P 500 index futures at crucial support points late in the day. This has proved more than enough to turn the markets from red to green in the blink of an eye. 

Even a bad report on job creation is twisted and spun as to mean more Federal Reserve support for easy money policies and a reason to rally the market. It seems no suggestion of weakness no matter how subtle can exist because it may begin to unravel the already fragile consumer confidence. Even though I'm super bearish it is hard to say when thismarket will break. More on this subject in the article below.

Gold Dog's picture

It appears that the events are concurrent, not the TED spread leading the way.

PLUS- Correlation isn't causation.

Your friend,


lakecity55's picture

This just in:

Brickstreet Journal:

"Lichenstein to Buy 20 Billion$ in USTs"

"Monaco on Tap for Huge UST Purchase"

Latitude25's picture

There is no exit strategy.  The CBs are simply hiding the money printing now.  Taper is propaganda.  See Belgian bond purchases.

medium giraffe's picture

I agree, perhaps this could be the last shortest straw that broke the water off a duck's bridge.

ebworthen's picture

Let's see, record margin debt, with individual investors buying while the whales go to cash and Treasuries.

Sounds like it's about time; just as soon as maximum leverage is obtained so they can ring the register.

lakecity55's picture

Just watched a docu on the '29 crash. Man, were they using margin buying!

Then, BOOM!

I guess it is just a predictible thing. Market goes up, buyers keep buying on margin until there is no money left, then the Crashola. Repeat Again.

Duc888's picture

"Credit is the oil that keeps the machine running."


You can actually simplify that, "credit" (debt) is the machine.  The machine is debt.  All "they" can do at this point is issue more debt.

OC Sure's picture

Have a peek at the Treasury's public auctions. Primary Dealers and Indirect Bidders take down represents the creation of counterfeit by the tyranny of modern economics.

OC Sure's picture



Let's be clear on the terms we use.

There is no monetary policy.

It is a counterfeiting policy.

We are ruled by authority because of counterfeiting not money.

Also, please put volume bars on your charts. Volume is to price like fuel to an engine. Without seeing the level of acceleration depicted on the chart it is difficult to discern whether the acceleration of the trend is increasing or decreasing. Thanks.

honestann's picture

Agree.  But do any of us FULLY understand the nature and consequences of this counterfeiting?  Do we?  Seriously?

For example, what is being counterfeited, exactly?

What does "counterfeit debt" mean, because "note" == "debt", and what is counterfeited is the computer-bit equivalent of "federal reserve notes".

OC Sure's picture


I have carefully defined the origin of money and counterfeit, their nature, and how understanding each unveils the tyranny of modern economics.

Please have a look and see for yourself. I am finding the logic of my line of thinking to be irrefutable and as of yet uncontested.

The reasoning is hierarchical so please read the first post first and then the most recent.

Post one is Money or Counterfeit.

Post two is Inflation or Deflation of Currency:

The answer to your question, "what is being counterfeited, exactly?" is that it is the work of the thief that is being counterfeited. The thief impersonates doing work which is then represented by a unit of currency that appears to be the same as the unit of currency that is used by their victims.

This misrepresentation of doing work is that the thief does not introduce a real product into the economy and therefore the thieves trade nothing for something. That is the theft and that accounts for the oscillating levels of purchasing power of the currency.

Please see my post and think if it makes sense to you.


honestann's picture

Maybe so, but do you know in theory (or supposedly, according to the theives) is going on?

Explain to me...

If you give me a $1 bill for a sandwitch, that $1 is a "note" == "debt".

According to the theives:

#1:  who is the debtor?

#2:  who is the creditor?

#3:  exactly what does the debtor owe the creditor?

OC Sure's picture

It is easier to understand when thinking of it in terms of first principles (again, please review my posts as indicated above):

There are 10 of us in an economy. You produce sandwhiches and I produce dining tables.

I would not give with you a dining table for 100 sandwiches nor would I accept 100 sandwiches for my dining table.

So we agree upon a unit of measure to equalize the exchange. We let 1 unit equal 1 sandwich. Now, I can give you 1 unit and purchase your sandwich. You can sell 100 sandwiches for 1 unit each and then give me 100 units for a dining table. You and I are exchanging units that are money; the money represents our productive work embodied in the product we produce. The 8 other participants in our economy also work to produce various items that we desire and we trade our units for their products as do they trade their units for our products. 

What you are calling a bill or a note is not a debt it can only be either money or counterfeit.  The tyranny of modern economics is counting on its victims to be confused by the terms they use as the means of perpetuating the theft. It is all about the terms used and how they were induced in the first place. To answer your question then we must understand what is a debt.

You have not sold your 100 sandwiches yet but you want my dining table now. I say, fine, I know you, I trust you. I trust you enough to take you on your say so and will give you the table but you are indebted to me by giving me 100 units at some point in the future. Furthermore, I am concerned that if something happens to you that I may not receive the units that you owe me. What if something happens to you? I may need evidence that we spoke and and reached an agreement. So, I ask for more than your spoken word. I want your spoken word written. You then sign your written word that you will give me 100 units for the table. You are going to work to sell 100 sandwiches and obtain the units that we have agreed to exchange because you are honest.

So the debt represents work to be done; therefore, the debt will represent money as it is paid back to me. You are the debtor, I am the creditor. You owe me exactly the agreed upon amount of units and you are true and a producer.

But lets say your are dishonestann and instead of working to earn the units, you falsify the units. That is you do no productive work to earn units but instead they are conjured; therefore, the debt will represent counterfeit as it is paid back to me. You are the debtor, I am the creditor. You owe me exactly the agreed upon amount of units and you are false and a thief.

The term debt is a higher level concept than money, however it still is induced from the same percepts and therefore it must be defined by the first principles of money or counterfeit.

Debt is not bad because it is debt.

It is the means by which the payment of the debt ocurrs which defines whether it is good or bad.




honestann's picture

I don't disagree with you, I'm just curious what the predatory perpetrators claim the answers to my question are.

If you don't know, that's fine.  I am beginning to suspect that perhaps the perpetrators have never even provided those answers, and the entire world has not asked for answers or insisted they answers... which is mind boggling!

LawsofPhysics's picture

Of course, all these well articulated thoughts are meaningless once scarcity becomes an issue.  When I think of "first principles" I think of the only ones that really matter and yes, the earth and it's biosphere are still very much a "closed system".

Hedge accordingly.

OC Sure's picture



No. They do have very much meaning and I think you may be of the mind to agree. Please see what I mean by first principles here

Before you can hedge accordingly you must judge accordingly.

Judge accordingly.

mrdenis's picture

Oh comon' it's different this time 

espirit's picture

My chart porn reader in the Matrix is down today.

Could somebody please concur it's time to short?


what&#039;s that smell's picture

so, as long as the FED controls the TED spread, the market will never crash.

like a bear pooping in the empty forest, this cause-and-effect thing's really something.

rubiconsolutions's picture

"so, as long as the FED controls the TED spread, the market will never crash."

That may be true. The Dow could hit 50,000 and the S&P 7,000 but the purchasing power of money will go to zero. It does nobody - except for the bankers of course - any good to watch their IRA's and 401(k)'s soar in dollar terms when one has to take a Brinks truck to the store to buy groceries. 

tom a taxpayer's picture

Everyone has a chart.

swmnguy's picture

I have a chart too.  It's not very scientific or graphically sophisticated, but it represents my experience in reading stuff online.  It's a Venn diagram:

            x                     x
        x      x             x      x
       x        x          x         x
       x        x          x         x
        x      x             x      x
            x                     x

    People who           People who
    have any idea       write about
    what the fuck        the markets
    is going on

ThisIsBob's picture

If I had a nickle...

Shed Boy's picture

Just out of curiosity...what would a change in world currency do to the stock market? It seems to me that one of the biggest "black swans" that would rile everything would be a big switch up in currencies. This upside/downside/bullish/bearish stuff with all the neat charts is great....if the markets weren't all rigged. But I venture a guess that the markets no longer function on the age old concept of "supply and demand" but are now run by headline reading algos to push the buy/sell button.

I'm afraid I disagree with Mr Sprout on this one. I think most "investers" these days are more like the masses of sheep and only focused on one tiny little aspect of life. Looking at the BIGGER picture we see that "death in the economy" could come from a bunch of different directions. And most of them will be a HUGE surprise to anybody who pidgeon holes them selves into one corner of belief.

AdvancingTime's picture

A major change in currencies will most likely happen only after a major meltdown and loss of faith in the current system. Whether by design or merely as a byproduct of globalization we have weaved a web of financial transactions that circle the globe. Over the last several years as money was printed by the central Banks it was not contained in the countries where in was printed. This money flowed across borders influencing and distorting markets and prices across the world.

Some people have been calling for a "world currency" for years. the saying "one should never let a good crisis go to waste" means a meltdown with high levels of fear would present a perfect opportunity and catalyst to advance this agenda down the field. Remember many people with agendas have a lot to gain when a major shift in the currency markets takes place. More on this subject in the article below.

LawsofPhysics's picture

Yes, people have been calling for a "world currency" for many years, the issue has always been with regard to who controls it.

Far too many fucking criminals want control.  In reality, money will become fucking irrelevant once the scarcity starts to take hold.  With 7+ billion and growing and only so many calories to go around, there are hard limits on what the quality of life can be for everyone.

Let the hunger games begin!

OC Sure's picture



The issue is what is the currency comprised of.

Each current is conducted by either money or counterfeit.

The extent to which the total sum of currency is more money than counterfeit or more counterfeit than money then determines how much producers are being thieved or not.

This determination is identified by the level of purchasing power of the currency.

eddiebe's picture

Again the problem is making people aware. The usefulness of money is awesome. It makes trade possible in so many ways as you set forth.(Thanks for the link too). Sure the currency we use now is a product of a totally corrupted system. It is fraud. Still we must use it to even get our daily bread. Obviously our leaders and manipulators are aware of all that, and keep the awareness of it to themselves. Most people are so busy working to earn a living they don't have time to educate themselves about what money even is. You ask them what money is and they look at you like you are stupid. They can pull out a dollar bill and say: Here you go dipshit, this is money. How do you even begin to explain it all. It seems hopeless because perception in the context of society is reality.

Even if they or we get it and agree that things are totally fucked up, and our currency and economic systems are used to defraud and enslave us, what can be done about it? As long as we need to go to the store and use the currency of the realm no matter what form it takes, it makes little difference wether and to how much of a degree that currency is counterfeit, we have no choice to use it anyway. 

OC Sure's picture

Thanks, eddiebe.

Plenty can be done about. First step is to identify it, then to talk about it, then to act upon the discussion.

Please tell 2 friends to tell 2 friends.

If you revisit my link, please click the Recommend on Google button so it can be found on google searches.

Here is a good way to approach the subject with others that are not in the choir.

Simply ask them if we live in a democracy and a tyranny.

If we do not live in a tyranny, then how does one explain over 50trillion in debt, about 90 million people unemployed, and the annual atrophy of the middle classes being pummeled in to poverty?

That should get the ball rolling. The life blood of the tyranny is the theft of productive work as measured by the counterfeit in the currency. Much can be done politically.

The founders revolted with bullets so we could revolt by ballots.

philipat's picture

Just as a matter of interest, how is one "Cautious", especially when "Moves down are quick". This would seem to be particularly useless commentary?

zipit's picture

Credit is the oil that keeps the machine running.  Ever see what happens to an engine when you take away the oll?  That's why.