Guest Post: Attention Passengers on Global Equity Flight 2011: Assume Crash Positions

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

Attention Passengers on Global Equity Flight 2011: Assume Crash Positions

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.

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undercover brother's picture

Ummm.  Ain't happening.

HelluvaEngineer's picture

Agreed.  Apparently this correlation no longer works.  You know, just 'cause Fraud Street changed the rules.  Didn't you get the memo?

HelluvaEngineer's picture

Junk all you want.  They're about to take it green.  Again.  What do you think is gonna happen when the Euro rebounds?  *then* the correlation will magically work again.

rocker's picture

I did not junk you. I would like to make a remark. These charts look good and factual.

Yes they will make it green all day on NO volume. Volume verifies the rallies. Not forced short covering.

I am and will remain 100% cash.   All we have to do is wait for the trigger and credit event.

It will happen because it is real. This will be a financial crash.

There is nothing to debate. Dr. Copper has spoken. Bond yeilds have spoken.

All we need now is for reality to set in. Hope is not a investment theme.   

jm's picture

Forget charts.

Not every European bank is going to implode, but just about every european is priced as if they are.

Find the ones that will weather this storm (read: their government bond holdings are beating bunds) and exceed tier 1 capital targets and take a risk.

Mugatu's picture

The buy the good bank stategy did not work in 08 and it will not work in 2011-2012.  The baby will get thrown out with the bathwater.  All banks will fall.

jm's picture

You could be right of course, but QE is out of the bag.  And even those morons at the ECB know they have to do it to save the financial system.


El Viejo's picture

Hope you are truly in cash and not in MMKTs cause a lot of MMKTs are invested in EU Banks. I was all in Bond Funds when the original crash hit and I made out. This is not a reccomendation just free info and this and $4.95 will get you a cup of coffee at Starbux.


rocker's picture

Yep. 3 Accounts all Cash. Just Waiting.  They may push this around till after Xmas.

Who knows, right now hedge funds are burning shorts. A bigger drop when they do this.

One morning we could see a 400/500 drop at the open which will cause a down ramp.

I am beginning to believe that is what they want.

11b40's picture

Short interest has dropped.  If will take a lot more this time to force a short-covering rally, unlike a few weeks ago when everybody & his brother was short.

I guess we will see soon, but the upside from here looks very limited, while the downside looks....well, it looks like it could go down a long way.

The Santa rally is facing European headwinds that even the jolly old Bernake can't tame.  I don't know what tomorrow may bring, but the Europeans are having discussions now about things that were unmentionable a few months ago.  The more they talk, the worse it looks for the Euro/European Union retaining the same character of the past.  Regardless how hard I look, finding positive things to get excited about is almost impossible.  Seems like for every plus, there are at least 2 minuses.

SheepDog-One's picture

Hows that 'takin it green' workin out? And even if and when they do 'take it green' so what?

LeonardoFibonacci's picture

Assume the fetal position & start suck your thumb.  Somehow i feel less pain when i do this! 

max2205's picture

Bennie and the Inkjets dont give a fuck about your charts  (BTW I DO), he will Penn St fuck all shorts beyond imagination....or so he thinks

11b40's picture

it will take a boatload of new debt, because more QE here won't mean much if Europe blows to insure the Ponzi extension, Ben will have to print for the ECB, too.  If it comes to light that the FED is bailing out the US banks and the Euro banks at the same time, all hell will break lose.  The politics of it all would be unbearable.

alien-IQ's picture

yeah that's right...and go long Lehman and MF Global...and all that jazz....

WhiteNight123129's picture

Yup sometimes the board where things are supposed to balance from one side to the other, well this board breaks and two sides get down. It will take more time than most people think but the USD will break.

11b40's picture

On a long enough timeline....and all that jazz.  The USD will beak against what?  Really, what breaks first?  EUR or USD?

WhiteNight123129's picture

Well open a history book and all that jazz...  Assignats, Rettenmark, Continental dollars, Greenback introduction.... yeah I know too much jazz probably, boring... History started in the 1980, on hte first day God gave Ronald Reagan to the USA on the seventh day God sent his an angel to the USA (= earth) and music was invented by Madonna... Currency crisis are just business as usual if you take a longer perspective, there are hundreds of crisis, which are either sovereign, banking, currency, just hundreds of them in history. USA already defaulted three times (continental dollars, Civil war 100% inflatipon), 70s inflation and now it is the fourth time. Currency crisis, severe inflation, banking crisis or sovereign crisis are business as usual from historical point of view. Forget about fiat, at that point they will all break in a different ways, they can break through printing (long time scale) or in shorter time scale... Take your pick

WhiteNight123129's picture

Oopsss forgot the devaluation of 1933 against Gold...

11b40's picture

Well, if you know so much, why didn't you answer my question?

The Big Ching-aso's picture



Stock Market Non-Insider Participants = Crash Test Dummies

Sopra Tutt1's picture

It can't happen, because this time is different.

Ancona's picture

I want my mommy!

Ancona's picture you're in to necrophelia?

augmister's picture

I had your mommy and she tasted pretty good!

Tsar Pointless's picture

Great timing for this post, just as US equities commence on yet another ramp job.

Dow spikes nearly 60 points in 10 minutes.

Ghordius's picture

I'd say it's too early.

First the EURUSD has to touch 1.30 (December, latest),

then (according to Gonzalo Lira) the Big Raid on EZ Sovereign Bonds might to begin in earnest (he says tomorrow's French Auction),

then we have Xmas & the biggest Bonuses of All Times

and then we have a decoupling of US Equities (down) from all Euro-related things.

See you at EURUSD 1.5 at Easter

disabledvet's picture

Who put your Dr. Evil hat on today?

Ghordius's picture

you are right, I'm slightly down the wind today - not my usual cheerful self

but the fact that the masters of the universe have found a way of having the Dutch Debt now with consistenly higher yields than Germany really makes me angry

it's not only too manipulated - it's grossly manipulated

too much hot USD searching some quck killer bets and all on "seasonal themes"

usually I'm skeptical of all conspiracy theories - idiocy explains 99% of the cases, IMO

scatterbrains's picture
and when you switch over to an hourly line chart you'll notice that the 11/11/11 high occured at 11am. This high could also be labeleda 5th of C (in an ending diagonal) from the  the Oct. 3rd lows.  We are now in the 1st leg down unless 126.81 hourly closing basis gets taken out.. or so it seems.
Ivanovich's picture

Was this before or after Mercury entered alignment with Uranus?

scatterbrains's picture

lol no actually this was the next day after a full moon and an astroid the size of a battle ship grazed past earth :o)

Mae Kadoodie's picture

There's Klingons circling Uranus.

scatterbrains's picture

I brought this up because it was within a technical market posting.  I'm calling for a plunge come friday's open bitches! 

WhiteNight123129's picture

Well you are a bit too specific, BUT....

Hard to deny that moon has behavioral impact on people, same goes for Sun apparently. There is a statistical sample of 34,000 people over 30 years that show that people commit suicide more often in Spring. There is apparently nothing in litterature or culture that spring is a sad time, or some sort other variable.... maybe it is because tax are due in April there and Sweden has a very high rate of taxes (that could be actually the reason...) Joke on teh side, assuming that Moon and Sun has 0 impact on what goes on the earth?? Hello??? Women menstrual cycle length, reproduction cycle following moon cycles, tides, inability to sleep on full moon (documented stastically). Well about zero impact of the Sun on earth, well it that would be case, we would not be blogging here on hte first place, because there would be no light and no life. That is was is powering all that is there to see, and the amount of power varies across time... There are credible evidence that total absence of sunlight on people has impact on people sleep cycle, mood ect... That is put a human being in a cave for months without sunlight and watch.... not pretty.

So while I can not accept that Sun and moon are telling us when the crash will be, it is also imprudent to accept the hypothesis that there is no impact on human behavior from stellar objects, given the ample evidence that those two somewhat massive objects have large influence on life cycles on our planet

From that point to predict when teh market crash on a given day at a given hour... yeah right...

ffart's picture

Silver barely holding 34 now.

HelluvaEngineer's picture

Why would you want silver when you can buy some delicious CRM stock?

ffart's picture

Well I guess if I listened to my broker I'd be buying all sorts of useless shit right now.

Piranhanoia's picture

They're on instruments.  The copilot is losing air, and everyone had fish but the kamikaze pilot.

ShankyS's picture

Well done, could not agree more. Nice to see you pick up the possible head and shoulders with RS forming here. Weekly fractaling nicely to '07 top. Only difference - the Fed and crony capitalism are out of control here. We may have to wait this one out till they literally implode the whole system. 

fonzanoon's picture

market coming back nicely

SheepDog-One's picture

Coming back to what, 1995 levels? DOW is 12,025, so all is well I guess.

fonzanoon's picture

These sky falling headlines get tiresome. It is especially irritating reading them while the market bounces back for the day

BandGap's picture

Then you behave as they intend.  Or not. It is not a question of if, but of when. 

The leading indicators will move after the system collapses, not before.

SheepDog-One's picture

Hows that 'market bouncin back' goin now that its back to days lows?