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This Technical Signaled The Last Two Market Crashes And It Just Happened
Submitted by Thad Beversdorf via FirstRebuttal.com,
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.
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.
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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I think he is correct in his comment. I even use the term PPT when a currency pair I'm trading doesn't break. Whoever is keeping it from breaking is PPT'ing it.
In the final "analysis", what really matters is: are we getting better?
The answer is, on the overwhelming whole, absolutely not.
When a heart attack victim is treated, some part of the cardiac muscle remains damaged beyond repair after the event. If that event inspires the patient to change certain risky lifestyle behaviors, they may never have to have an attack again.
On the other hand, when patients continue as always, with perhaps only a temporary commitment to making any change at all, it is not surprising, then, they well may face another serious cardiac event in the future. Only this time, it is an already damaged heart having the attack. That changes everything.
What most "analysts" minimize, if they consider it at all, is that the economy has been transformed down, and is no longer the economy that had the prequel crash of 2008. We are very much different, and given the lousy state of affairs for most people today, any kind of crash to an already damaged and struggling economic environment (that never changed its ways) would be severe.
What's left of the present, still struggling from the first crisis, may well be fatally finished off.
The meticulous examination of present market minutia is a complete waste of time; we already KNOW the economy isn't functioning properly because it was seriously damaged once before. Another "attack" is imminent, and will be devastating.
We already KNOW that too.
What we need to know is what are we going to do to replace what is, and what are we willing to do differently, now and forward, to bring that about?
m
excellent point...I wish I had a good answer.
If you have ever traded any stock you know it can go outside the band or ride the band for very long time... They will keep inflating the markets untill all streets burn and the people are fed up with the fed.
When looking at a graph these days, it is always questionable as to what it truly represents.
Does it tell a story, or is it a paint by number picture of an unfolding script.
Anytime one dispenses with fundamentals, one is exposed to the numbers game as an engineering exercise.
It doesn’t mean sharks are not in the water.
But once fundamentals are discarded, the sharks may be friendly and the water poisonous!
Sorry, just not seeing it from the lines drawn in the chart. Lines can be drawn anywhere.
It seems that somewhere, someone has a vested interest in getting people to believe that the market will fail.
I have said it before and will say it again. The market will drop ONLY when a "so called" unforeseen event happens that will give the banks cover for doing what they want to do... which is drop the market and collect collateral.
The implication from this is that any "so called" unforeseen event is actually planned and not unforeseen at all.
"The Stock Market goes up. The Stock Market goes down." "The spinning wheel goes round and round." so "Sell in May and go away." for right now is "The time to make some hay."
A different perspaective than this article, but the conclusion is the same. We are in the throes of the greatest debt bubble in the history of the world and when it pops the world as we know it will change in uncomprehensible ways. Anatomy of a bubble...
http://www.globaldeflationnews.com/anatomy-of-a-bubble-how-the-federal-r...
Graphs are just lines in the sands of time .... they are meant to be crossed .... punctuation has been changed for ever .... and I'm the one who did it !
Element called me a funny cunt .... that's the nicest thing anyone has ever said to me .... except the part about the cunt ! LOL
my broker wont let me trade the left side of the chart
So we'll know in a month if technicals matter anymore?
I am sick of being persecuted by the fucking coppers, take this morning, going about my business and parks in a 'Disabled Bay', just then the copper shouts over, 'Hey You!, whats your disability?'.
I shouts back, 'Tourettes you cunt, so fuck off and katch some real kriminals knobhead'.
And I get a ticket?? Worlds gone fucking mad...
:-)
Just tell the copper it's against the law for him to even ask such a personal medical question in the first place, HIPPA and all that. Their own rules. If/when I get asked about "my" disability by a passerby I just say that my doctor told me I was going to die. They shut up real fast.
Of course, we're all going to eventually die. In my case maybe 30 years from now when I'm 87. I love the Tourettes syndrome response, though. Too bad the cop was an control freak anal prick.
Technical analysis helps big boys to manipulate market
I'll have to withhold judgement until I hear what Jim Cramer has to say about it.
Equities will climb until China issues a gold backed currency.
Then watch all the paper burn.
Shorts will fail too.
Charts...lots of charts...I was in the Army so I know charts!
Lower left to upper right is the default condition/expectation of fiat currency regimes. Grow or die right?
If you zoom out that chart to say 1973 and draw a line you will see that the line goes just a little north of the bottoms of each bubble. This is about where the lower left to upper right line would have been without excess government and central bank intervention.
Draw the line into the future and extrapolate the time distances between bottoms and the next one should be in 2018 or 19?
If we ignore the dotcom bottom and draw a line from 1983 through the housing bust bottom and extrapolate that we can expect the next bottom 1n 2030's. Technical analysis is useless for gauging rigged markets.
There are no such things as reliable economical "signals" any longer
Who cares? Be thankful for the food in the stomach, roof over your head, clothes on your back and anything more than that is even more to be thankful for.
I would believe a correction of at least 20% is coming sooner than later.