Guest Post: Increasing Volatility: Prelude To a Crash?

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

Increasing Volatility: Prelude To a Crash?  

The megaphone pattern in the U.S. stock market typically presages a major decline or full-blown crash.

Market observers have long noted that increasing volatility presages market crashes. If you glance at a chart of September-October 1929, just before the crash that started the Great Depression, you will note the same sort of manic swings of euphoria and fear that have characterized the U.S. stock market over the past few months.

Not only are the swings increasing in amplitude, the time between each move up or down is decreasing. Think of a series of wind storms that grow increasingly more violent even as the time between storms diminishes.

In stock charts, this widening of range traces out a megaphone pattern. The S&P 500 (SPX) has traced out a classic megaphone pattern over the past few months:


Note the eleven wild swings up and down in a mere two months. Does anyone seriously believe this sort of schizophrenia typifies a healthy Bull market?

From a technical point of view, the recent euphoric three-week rally is nothing but a last-gasp attempt to regain the critical 200-day moving average (MA), another classic sign of a market about to roll over big-time.

On the weekly chart, we can clearly see how the timespan between official "fixes" and renewed declines has shrunk from six months from the first "fix" in May 2010 to two days after the last "grand fix." Market participants are losing faith in the Status Quo's ability to effect a coherent, lasting "fix," especially as the rules governing hedges such as CDS are changed at will.


Last week I reprinted this chart from The Chart Store of the uncanny similarity of the current market to the 1907 crash. Notice the "secondary" crash that occurred right about now in the 1907 chart; history doesn't repeat exactly, and analog charts are not predictions, but it is certainly interesting how recent action has closely matched the 1907 price movements. Were the present to continue following the basic outlines of the older chart, this targets an SPX level around 900.

In the real long-term, one target for the SPX is around 600. "Impossible," Bullish observers say. Perhaps. But all sorts of "impossible" things seem to have happened in the past four years, and the line between what's "impossible" and possible has blurred.

Technically, a re-test of the March 2009 lows around 666 is certainly possible, despite protestations to the contrary.

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GeneMarchbanks's picture
'Guest Post: Increasing Volatility: Prelude To a Crash?'

No don't be ridiculous when has that ever been the case?

HelluvaEngineer's picture

Has the market ever crashed?  Sorry, I have no memory past the last football season.

redpill's picture

Shh, Rachael Ray is on soon.  And I'm streaming my favorite MagicJack infomercial on Youtube.

rosex229's picture

time to load up on tvix. if you'd done it two days ago you'd already be up 100 percent. if this market crash happens soon you can take your several hundred percent gain, and throw it all inphysical gold and silver. the market price of gold and silver wil crash just like in 2008, but the rise after the crash will make the price rise since 2008 look like peanuts.

rosex229's picture

time to load up on tvix. if you'd done it two days ago you'd already be up 100 percent. if this market crash happens soon you can take your several hundred percent gain, and throw it all inphysical gold and silver. the market price of gold and silver wil crash just like in 2008, but the rise after the crash will make the price rise since 2008 look like peanuts.

bernorange's picture

I've got a bad feeling about this. /Star Wars

redpill's picture

That's not a moon....it's a debt bomb!

TruthHunter's picture

"That's not a moon....it's a debt bomb!"

 

Your not being mooned, thats debt's Bum!

 

The dyslexic right brain reads very well thank you

redpill's picture

Well, in a shutnell, fear wucked :)

marcusfenix's picture

"zero,zero,zero...destruct...zero"- captian Kirk entering the final code to destroy the Enterprise...

 

Newsboy's picture

Soon, very soon...

homersimpson's picture

Someone let uber-intellgensia folks like No Mas know that we need his steady leadership and guidance during these turbulent times since he's so much smarter than all of us ZH readers.. *snickers*

DogSlime's picture

Do we really need charts to tell us that it's all fucked and could collapse any moment?

The collapse is inevitable.  The guessing-game is precisely when it happens.

Did the charts predict that G Pap would suddenly announce a referendum?

 

Bill Lumbergh's picture

"Did the charts predict that G Pap would suddenly announce a referendum?"

No but they did predict a pullback was inevitable sooner rather than later.

Abitdodgie's picture

Surf's please go back to working for taxes nothing is going to happen, just give it up

Spastica Rex's picture

My I Ching said exactly that, just hours before he did. And my tea leaves, too. And my wife's astrologer.

Stax Edwards's picture

Markets got hair on it fo sho!

jtmo3's picture

No...prelude to a ramp maybe.

homersimpson's picture

Yea.. a ramp off a cliff..

HelluvaEngineer's picture

Yeah. Ben's got your back.  He truly cares about you.

YesWeKahn's picture

I am sure that Bernanke will do everything in hist power, including licking someone's dick to avoid another crash.

baby_BLYTHE's picture

exactly, for if he were to allow a repeat of the Great Depression (which he dedicated his academic life studying), he knows he'll be the last FED chairman.

SheepDog-One's picture

What people seem to be missing is Bernank was chosen to ENSURE the Greatest Depression.

Randall Cabot's picture

 

 

His name is Ben Bernanke

He's the head of the Federal Banky

He loves thin air

He prints money from there

And from Nathan he gets a big thanky.

redpill's picture

There once was a guy named Bernank

Destroys the world with dollars not tanks

One day he turned gay

And looked for a lay

And wound up with one Barney Frank

Oxytan's picture

Good points baby_Blyth and SheepDog.  Could you both be right?  In other words reset the system, but only appear to be the last chairperson, while maintaining ultimate control?

viahj's picture

if and when they own most of the land and gold, then the "system" has served their purpose.  they can then let it crash and buy steal the rest.

DormRoom's picture

It's no longer a market but a global poker table.  That's the main problem with modern finance.  It is no longer pairing buyers with sellers.  Instead it pairs strong hands with weak hands.

 

government bank bailouts incentivizes this pernicious structural mutation.

#occupywallstreet

 

Spastica Rex's picture

Really pithy observation. +1

common_sense's picture

- some 250 points up in Dow.... NOT RULE AT ALL.  We can be all stupid we want and buy MF Global stocks.

- some 200 points down in Dow...Rule 48, rule 49, all the books-rule in place.  Ohhh may be you can no go short in banks because political leaders are afraid of markets speculators.

So, SYSTEM IS CORRUPTED IN THE BASE. MF global is in bankruptcy althought some banks recommended to buy... WHY FED ACCEPT THIS ?  WELL, I can imagine...they are thinking global economy is a BIG CASINO and they are the owners, good, very good, BUT the casino owners are not GOD.

Now China, USA, Europe...they think they are GOD. But they aren't, oh yes. How much time they are going to play this fucking game?

 

fnord88's picture

Bullshit, when I play poker there is a house ( government), that ensures winning bets are paid, and the rules (laws) are followed to the tee.

 

This is more like playing poker where the house (government) shows your cards to his friends (banks), refuses to let you leave the table as long as you have money left, and if you catch runner runner flush on the turn and river, changes the rules so 7 2 offsuit beats everything.

Nawaralsaadi's picture

Based on that logic after the August/Sept massive down and upward volatility, Ocotober should have witnessed an epic crash, instead we had the best October in decades, I am not saying a crash wouldn't happen, but predicting such events ia crap shot at best.

Regards,

Nawar

 

 

Nawaralsaadi's picture

Based on that logic after the August/Sept massive down and upward volatility, Ocotober should have witnessed an epic crash, instead we had the best October in decades, I am not saying a crash wouldn't happen, but predicting such events ia crap shot at best.

Regards,

Nawar

 

 

SheepDog-One's picture

Full-blown crash, bitchez. 

OH and 1 more thing, I dont know if you all caught this but in a few days the govt takes control of all internet thru 'black boxes' Chinese style...good luck and happy trade-timing!!

Huge Internet Power Grab November 9th 2011 By Fema/FCC - YouTube

rdenner's picture

I have not heard the Internet portion of this..

The EMERGENCY BROADCAST SYSTEM is to take control of the nation's airwaves on Nov 9th 2011.. All radio and TV and Cable/Sat broadcasts will be pre-empted by this 3 minute long test...

The internet aspect is HUGE if true.. The above is ABSOLUTELY happening. The internet portion I have not heard from anyone but this You tube video..

 

SheepDog-One's picture

Ive heard it several other places as well.

rdenner's picture

Saw nothing about black boxes and internet providers.. This is strictly broadcast...

 

Not saying it isn't so, but want to have a difinitive yes or no, beside a you tube guy.

 

Thanks.

tamboo's picture

coincidentally some other things occur on 11-9 (or 9-11-11 if you live in europe):

Massive Tsunami Drill Coincides With Continent Killer Asteroids

sooner or later we'll get an east coast tsunami as well:

Mega Tsunami and catastrophic effects if CUMBRE VIEJA

toss in a new madrid quake and any market activity fades to the back pages.

earleflorida's picture

not sure if this helps - you decide?

"Shock Report___the Known Unknowns"

Ref: "PrisonPlanet - Steve Watson & Paul Watson___12/16/08 

http://www.prisonplanet.com/army-strategic-shock-report-says-troops-may-...

ps. rumsfeld/ cheney from famed nixonian era, and the "Kiss-of-death-inger" have made "Marshall Law" a sure bet, via, Bush#41/ Clinton#42/Bush#43 & Obama#44,... 

Dealer's picture

Rule 1: Stocks only go up.

Rule 2: Rates will remain low forever.

prains's picture

Rule 3 corn always goes in your hole

SheepDog-One's picture

In the pie hole? Or corn hole.

Dr. Engali's picture

S&P 400 here we come.

Bill Lumbergh's picture

There is a very good case to be made for that on multiple fronts...but being too bearish in the midst of TALF, TARP, TWIST, QE1, QE2, and maybe QE3 can be dangerous.

baby_BLYTHE's picture

30 years living standards about to come apart within a few month time frame

SheepDog-One's picture

World War is their best diversion at this point.

Spastica Rex's picture

Yes - but HOW?

I don't buy the idea that nukes are part of some master plan, and that the 1% are going to live for a couple of years in hamster tubes under the ground to avoid fallout.

SheepDog-One's picture

Why did they build them then?