This Technical Signaled The Last Two Market Crashes And It Just Happened

Tyler Durden's picture

Submitted by Thad Beversdorf via,

So the fundamental case for a 20 year bull run as BMO is calling for and  certainly many other banks seem to be onboard with that is not looking great YTD.  In fact, most perma bulls have shy’d away from even mentioning fundamentals other than to say that generally they aren’t looking great but don’t worry the Fed is still engaged.   And so I feel its a worthwhile exercise to have a look at the technicals.  Thing about the technicals is that you can cherry pick any baseline point to really make any case, good or bad.  But if we take a look at a time period that encompasses several cycles we negate our ability to cherry pick the baseline and we can be much more confident in our overall analysis.

So what I’ve done is taken a two decade period of S&P pricing which encompasses several cycles.  Mid 1990′s was a market mid cycle having recovered from the short recession of the early 1990′s but before things really began heating up in the late 1990′s.  If we just have a gentle look at the chart we see we’ve had a couple large cycles with fairly extreme booms and subsequent busts.  Currently we are in the midst of the third boom which has taken us to new all time highs.  Now even a 5 year old can look at the chart and say at some point this thing has a large down turn, same as it always does.  That’s easy to see and not many will argue it.  But as so many bulls remind us we could have said the same thing about this chart a year ago and we’d have missed out on significant returns.  Very true.  So the key is then figuring out where the down turn begins.  I know I know that’s the kind of stuff you have to go to biz school for eh.  Ok so let’s first have a look at the easy chart.

Screen Shot 2015-04-17 at 3.20.32 PM

So pretty simple.  Two full cycles and into the third which doesn’t tell us much.  Let’s add some markers to see if we can’t pick up on some technical cues.

Screen Shot 2015-04-17 at 2.39.28 PM

So what we’ve done is run a 2.5 standard deviation Bollinger Band (BB) using a 100 period moving average looking at monthly returns because we are interested long cycle technical cues.  We’ve also run Relative Strength Indicator (RSI) using 20 periods.  What we find is actually quite notable.  During the tech bubble cycle we saw the S&P rise to the upper BB where it tracked the upper band for some time.   During that same period we saw the RSI move above 70.  Now as the market peaked we saw the S&P move below the upper BB and we also saw a decline in RSI.  What is very interesting is that the point where RSI dropped below 70 is the point the tech bubble burst and sent S&P into a free fall.  The market continued to sell until the RSI dropped below 30 at which point the market stabilized and reversed higher.

This took us into the start of the credit bubble cycle.  Here the RSI move up very quickly and plateaued just below 70 for several years during which time the S&P moved up but never quite made it to the upper BB.  Then in 2007 the RSI moved above 70 but then quickly reversed back down below the upper band.  Interestingly again the RSI dropping below the upper band seemed to trigger the bursting of the credit bubble as we saw S&P again move into free fall.  Then here too we saw the market stabilize as the RSI moved through the bottom band.

And again this brought us into the latest Fed bubble.  Now during this latest cycle the RSI moved up but bounced off the upper band a few times without actually breaking through 70.  At the same time the S&P moved higher but with quite heavy volatility.  Eventually we saw the RSI move up and break through the upper limit.  It was about the same time that the S&P traded higher to the upper BB where it tracked for some time.  However, at the end of November 2014 the S&P started to dislocate and moving down below the upper BB.  And then ominously January of this year we saw the RSI also move below the upper RSI band.

Remember this technical signaled the popping of the past two bubble cycles.  Now February saw the RSI move back above the upper band but March moved back down below.  I would watch this very carefully now.  I would venture to say if April remains below the upper RSI band we could very well have moved into the latest and perhaps greatest period of wealth destruction. It is time to protect those assets.

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-.-'s picture

Pearls before Swines

Truther's picture

Could that down slope be a bit watery or wet please? I would hate to see your ass get burnt sliding down.

So Close's picture

Twas the crashes before QE to infinity, ZIRP, and, "Whatever it takes."  The rules have changed.

Stroke's picture

technical analasis .......witchcraft....zzzzzzzzzzzzzzzzzzzzzz

flacon's picture

The problem isn't technical analysis, the problem is central planning. Period. Where to find the balance? - look at the central planners and trade accordingly. So far they seem willing to let the markets slide a bit before stepping in AGAIN. And it may be PLANNED that way, to give the excuse for the next round of monetary destruction (QE).

hannah's picture

The problem isn't technical analysis, the problem is.....technical analysis works when there are millions of participants. doesnt work when 5 banks manipulate the market. i love TA but when 5 banks run the world i dont put much trust in stats and numbers.

TooBearish's picture

Really nice color choice on the chart- really surprised anyone looks at this stuff seriously anymore...BTFD

Manthong's picture

Baseline my butt…

I like the proposition and analysis, but

As we ponder over the goat entrails.. we might be missing some  basic premise…



Fish Gone Bad's picture

... wait a minute.  When did you get a goat?

Headbanger's picture

So like, what's with all you English Major types here then?

And "Ram" is a truck you mook!

Thirst Mutilator's picture

The last 2 times these graphic illustrations were published, 'THE LAWNMOWER MAN' was playing in theatres!

I M DeMan's picture

Pearl River with Floating Swines...the latest Asian Fusion combo dinner!

Haus-Targaryen's picture

I just sold my weekend car, and proceeds go into stacking.  

Seems like the timing is right.  

LooseLee's picture

The age-old adage, "There is a SUCKER born every minute seems appropriate here in regards to your nigtard comment. Good luck nigtard...

Beatscape's picture

Exactly.  TA is essentially a mass psychological or crowd behavioral predictor of market action, which is based on the reaction of a critical mass of participants. But today, we have HFTs and Central banks driving market action, driving their agendas, not reacting to market action. 

Headbanger's picture

Your statement is illogical.

HFT algorithms were developed by humans who are psychological beings.

Central banks are operated by humans who are psychological beings.

Psychological beings participating in the market react irrationally to market action.

Market action is thus the result of irrationality.

Irrationality is thus the result of market action.

This irrationally based feed back control loop creates in massive instability

Massive instability results in catastrophic failure

Meaning we are completely fucked!

aint no fortunate son's picture

Of course there is that saying "It's always different this time... until it isn't."

raywolf's picture

they were blaming HFT algos for the crash in 1987 ... nothing ever changes....

theeseer's picture

Right on the mark thats why I like VIRT the new HFT IPO if you can't "licem" "joinem"

JoWazzoo's picture

ETSY upstaged VIRT on first day trading.  Would not one think that VIRT would be a 5 bagger if ETSY could be a 2 bagger?  I mean - we all know and love HFT/Algos.

Kirk2NCC1701's picture

"i love TA but when 5 banks run the world i don't put much trust in stats and numbers."

Back in the Iron Curtain days, their Central Planners also manipulated their markets, cooked the books, owned the Media and spied on their people.  We know know how that ended, don't we?

The difference between the People there and 'Mericans, is that their people didn't delude themselves, and knew what was going on, and created a Parallel Economy (barter, black market) to improve their survivability.  'Mericans are as clueless as ever.  No wonder they keep taking it up the rear end -- figuratively, politically and economically speaking.

HungryPorkChop's picture

Open Disclosure: I'm long on ink, security paper and industrial printing presses.

Technical Analysis: As long as the banks can print moar' money its stawks to da' moon.

Fun Facts's picture

One problem with technical analysis in today's environment is that it fails to predict in advance when the central banks are going to press the buy button, which is the only thing that's been propping up this lipsticked pig since 2008.

GMadScientist's picture

"The problem isn't technical analysis,..."

The problem is collecting one's potential proceeds in nominal confetti so debased as to be useless for wiping one's ass.

Omen IV's picture

with CB's supporting indexes in mulitple market they can create the technical signals they want - and delude and put to sleep those that follow technicals


the system is broken for signals of all kinds especially economic metrics

Laowei Gweilo's picture

technical analysis also assumes the market remains fundamentally the same in terms of its variables


using any sort of trend from a pre-QE market to predict a QE market throws that out the window


using data from 30 or 40 years ago is hilarious.. the market has alsmost changed more in the last 5 years than the previous 50 combined

Bananamerican's picture

yeah, there you go again Thad...using charts an' shit.....

Janet's GOT this, baby...

This time...IS different™

Bendromeda Strain's picture

2015.75 - When Martin Armstrong's ECM (the basis for Aranofsky's Pi?) lines up with the end of the Shemitah, you gotta figure something's up. If nothing else, "superstitious" Jews will hit the exits - but I don't believe there will be nothing else.

Tall Tom's picture

And just who else, but the "superstitious Jews", controls large investments in the Ponzi Stawk Market?


If they want their crash to validate the Shemitah then they will have it. It will be a SELF FULFILLING PROPHECY.


You'd be wise to front run that....which will also help fulfill the prophecy.


Or you can lose massively also because you are "rational" and not buy into superstition.

Pool Shark's picture




In mid-1999, the market also pulled away from the upper BB while the RSI dropped below 70.

Then, the market proceeded to make new highs for an entire year before the crash.


It seems to me the timing of Thad's 'Technical Indicator' is a bit suspect...

Keltner Channel Surf's picture

Exactly, according to Michael Harris’ great work on his Price Action Lab blog, RSI is simply correlated to daily price changes and offers no useful predictive information regarding “overbought” signals beyond 1-2 days forward.

For those who like to dig into the weeds, here’s a link to  the recent “Correlation of Relative Strength Index With Price Changes”

neidermeyer's picture

Timing is of utmost importance... however you don't need to be a hero and be short on day#1 ,,, you can wait for it to become a solid trend first. Stay liquid and be patient.

chilli sauce's picture
chilli sauce (not verified) -.- Apr 19, 2015 3:55 AM

I freelance over th? internet and earn about 80-85$ an hour. I was without a job for 7 months but last month my paycheck with big fat bonus was $15000 just working on my computer from my home for 5-6 hours. Here's what i have been doing...

WakeUpPeeeeeople's picture

Sir chilli sauce


BLOW ME  (sans chili peppers)

ZH Snob's picture

I work with a permabull.  thinks he's clever by buying energy at the bottom.  and in a normal normal that would be a great pick, but in our new normal you better have that energy in some kind of storage facility (kidding). also thinks he'll retire in a year from his outstanding market analysis.

these guys just don't get it.  things have changed.

the great rift's picture
the great rift (not verified) -.- Apr 19, 2015 2:59 PM

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do...

Crabshacker's picture

Here,...let me give it a shot.

(Climbs to roof top)

This time its different!!

Because you know it is!

TheReplacement's picture

Technically speaking, worse IS different.

HonkyShogun's picture
HonkyShogun (not verified) Apr 18, 2015 10:07 AM

It'd be worth paying attention to if there was actually a market.

booboo's picture

The PPT has been around since Reagan, it didn't help did it? These phoney market moves are scripted to violently shake the apple tree or put another way, big boys playing "fire sale", consolidation is all they have left since the consumer has tapped out. I mean you can't just raid a pension fund with two guy's a van and a revolver. Look, the same people that say that the Fed has the markets back are the same people that will tell you the banking cabal (The Fed) don't give a rats ass about the masses, you only get to choose one or the other.

Beam Me Up Scotty's picture

"Look, the same people that say that the Fed has the markets back are the same people that will tell you the banking cabal (The Fed) don't give a rats ass about the masses, you only get to choose one or the other."

They don't give a rats ass, but they look a whole lot better if the stawk market is going UP not down.  They won't face the pitchforks if the market is going up.  You think the idiot on the street bitching about the high cost of food and fuel is shaking his fist at the Fed and its policies?  No.  He's blaming the merchant or the farmer---the gougers of society.  He will call his legislator and the legislator will vote for price controls on the merchant before he ever dreams of doing anything to stop the Fed.

booboo's picture

Name the last time the pitchforks came out with a crash....uh huh, never. All you hear is mid level lackeys moaning years later about how their execs made out alright and they got fucked as they unbox another crate of Creamed Corn in their stock boy job.

farmboy's picture

The storming of the Bastille :)

Tall Tom's picture

Add in a California drought with a resultant famine and I think that the elements are in place...

LooseLee's picture

Actually, the people that say that the Fed has the markets back are PINKO FASCIST COMMIES who are traitors to the once great America! Off with THEIR heads!

Kirk2NCC1701's picture

For the 5th time... I humbly suggest that... just about the only Bellwether you need to pay attention to is...

(a) Global Yields, and (b) the FED'S YIELD.  Especially the latter. 

When it approaches zero, watch out!  Head for the life rafts -- in spite of the band on the ship's deck, playing comfort songs for the doomed masses.  Note that the calm allows the Elite to escape unimpeded, before the rest get sucked down by the ship.

FoolsAdvice's picture

Curve fitting comes to mind...