Guest Post: Before You "Buy the Dip," Look at These Two Charts

Tyler Durden's picture




 

Submitted by Charles Hugh Smith from Of Two Minds

Before You "Buy the Dip," Look at These Two Charts

The real economy has entered recession territory, while the stock market is setting up a massive downtrend from QE-juiced highs.

Our Chartist Friend from Pittsburgh recently posted two charts that should give those tempted to "buy the dip" pause.

The first is a long-term chart of the Dow Jones Industrial Average (DJIA). The recent price history has traced out a pattern that looks remarkably similar to the one that presaged the crash of 2008, with one difference: massive quantitative easing and Eurozone bailouts pushed the B leg into an overextension. If this pattern is valid, the C leg down could be a real doozy:

 

How can we tell the market is ready to roll over on fundamentals? Study the ISM PMI composite readings, which just dropped below 50 into recession territory:

Notice that the S&P 500 stock market index is highly correlated to the Composite. Those who expect stocks to rise despite the PMI Composite cratering will have to explain why "this time it's different."

The "buy the dip" crowd is counting on the Federal Reserve to launch a new round of QE (quantitative easing) that will goose the market higher even as the real economy follows the rest of the global economy into recession.

Perhaps, but for how long? Or even more sobering, suppose this entire "b" leg up was the market pricing in QE3 being unleashed on August 1.

The "buy the dip" crowd may well face a new choice: either sell at 12,500, or sell at 10,500.

Thank you, Chartist Friend from Pittsburgh for sharing two of your many insightful charts

0
Your rating: None
 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 07/24/2012 - 10:47 | 2645407 Deathrips
Deathrips's picture

Well then.....fundamentally sound crash? Youre getting my hopes up.

 

Tue, 07/24/2012 - 10:49 | 2645415 B-rock
B-rock's picture

BTFD! (and sell it in 10 minutes!)

Tue, 07/24/2012 - 10:56 | 2645441 Deathrips
Deathrips's picture

I can do anything....Ive got Dumbos magic FED-ther.

Didnt you all know?

Tue, 07/24/2012 - 11:04 | 2645468 5880
5880's picture

Elliott Wave sucks ass

Tue, 07/24/2012 - 11:11 | 2645472 Frozen IcQb
Frozen IcQb's picture

These charts are raving BS’s and painted like a Picasso. You can infer just about anything from them which makes them totally useless. The equity markets have been goosed up because it’s the only bastion that congress has at its disposal to keep the hope charade going.

Just for fun, allow me to take the other side of this chart argument: this thing ( the Dow chart) looks more like a Reverse H&S with the left shoulder at the mid 2008 period and the right shoulder at around early 2010.

Point being:

Without QE it’s going to be a H&S with a fake right.

With QE^n it’s going to be a Reverse H&S

Tue, 07/24/2012 - 11:19 | 2645511 Doña K
Doña K's picture

Be aware that MFG and PFG style events can also happen in the stock market. Think of market closings due to heavy selling in which case your money is locked and at the reopening, the exits will be bottlenecking.

Stop losses are not safe, as they are visible to the HFT and a quick downtrend with a quick uptrend will trigger your sell and then you're out. In a real panic downtrend, a bidless market will wipe you out.

GET OUT NOW. 

Tue, 07/24/2012 - 12:24 | 2645764 Precious
Precious's picture

This chart shows the market is being manipulated by Fed action.

http://finviz.com/futures_charts.ashx?t=ES&p=w1

Since the Fed is basically out of bullets now, guess what happens next.

Tue, 07/24/2012 - 12:39 | 2645891 old naughty
old naughty's picture

DK: "GET OUT NOW".

Yes, yes, the endgame is being played out right before us.

Tue, 07/24/2012 - 12:39 | 2645892 old naughty
old naughty's picture

DK: "GET OUT NOW".

Yes, yes, the endgame is being played out right before us.

Tue, 07/24/2012 - 12:02 | 2645662 DaveyJones
DaveyJones's picture

"up" like a tungsten goose

speaking of... the tungsten state has math problems

http://gregor.us/california/californias-employment-picture/#disqus_thread

Tue, 07/24/2012 - 12:58 | 2645995 TAfool
TAfool's picture

Well, if you want to be a dick about this, then let's go further on. There is no such thing as a Reverse Head and Shoulders; it's called an Inverted Head and Shoulders or an Inverse Head and Shoulders. Don't expect anyone to believe what you are saying unless you can actually use the correct terminolgy. Anyone that call the pattern a Reverse Head and Shoulders shows their lack of knowledge for all things technical.

One grumpy SOB today

Tue, 07/24/2012 - 18:55 | 2647341 Frozen IcQb
Frozen IcQb's picture

It is also called a Reverse H&S and a H&S Bottom. There are many roads to Rome as there are many textbooks. You may want to read a few.

http://en.wikipedia.org/wiki/Head_and_shoulders_%28chart_pattern%29

http://www.decisionpoint.com/tacourse/RevHeadSh.html

http://www.tradingonlinemarkets.com/Articles/Technical_Analysis/Reverse_Head_and_Shoulders_Pattern.htm

http://www.fxclub.com/chart-patterns-en/#6

Tue, 07/24/2012 - 19:32 | 2647491 TAfool
TAfool's picture

Inverted means upside down while reverse means from left to right changed to right to left. It really is that simple. Reverse Head and Shoulders comes from the fact that a Head and Shoulders pattern is a generally, not always, a reversal pattern so uninformed folks have taken to applying reverse instead of inverted to the name. There are Head and Shoulders patterns and Inverted Head and Shoulders pattern. Period. There is no such thing as a Reverse Head and Shoulders.

Just because somebody printed misinformation does not make it true. No matter how many times a lie is told, it is still a lie.

Another common one is Secondary IPO when what is actually meant is a Follow On Offering. The two are completely and totally different. I bet 90% of books, bloggers and "news" heads use the term incorrectly.

 

Still grumpy as hell today

Tue, 07/24/2012 - 21:12 | 2647674 Frozen IcQb
Frozen IcQb's picture

At this point, what it’s called is not important. It’s just semantics.

You must know the game is rigged! Don’t play and especially not with leverage.

Stack physical and take ownership of your PM shares as a direct registration out of the broker’s hands.

Why be grumpy when you can be happy and most important...be patient.

All The Best

Tue, 07/24/2012 - 11:39 | 2645581 Stoploss
Stoploss's picture

Look at a 2 year chart of the IBEX

 

God Damn... Dat aint good.

Tue, 07/24/2012 - 12:52 | 2645962 Joe Sixpack
Joe Sixpack's picture

"BTFD! (and sell it in 10 minutes!)"

 

BTFD, Sell the F---ing peak. Repeat 12,000 times per second.

Tue, 07/24/2012 - 10:58 | 2645447 Born Patriot
Born Patriot's picture

ZHers always fail to notice the good news. They are obsessed with negativity, especially when it relates to America and the dollar. It's sad that ZH readers choose to sell out their own country by shorting stocks and US treasuries.

Tue, 07/24/2012 - 11:01 | 2645459 Deathrips
Deathrips's picture

Ohhhhh...You got a FED-ther too?

Tue, 07/24/2012 - 11:03 | 2645464 RSloane
RSloane's picture

Indeedy he did! Mine's in the mail.

Tue, 07/24/2012 - 11:03 | 2645465 Conman
Conman's picture

Go troll somewhere else. I hear TMZ has the best message board trolls.

Tue, 07/24/2012 - 11:09 | 2645482 Born Patriot
Born Patriot's picture

Oh, so by expressing my patriotism I am trolling? Gimme a break son. I also don't take to this constant denigration of our Federal Reserve and elected congress. It's childish and pathetic. C'mmon folks, we know better than this.

Tue, 07/24/2012 - 11:14 | 2645498 Conman
Conman's picture

You are a troll. look in the mirror. do you feel the need to post "controversial" messages on message boards while not discussing the actual topic you are commenting on? Check. Yep you're a troll.

Tue, 07/24/2012 - 11:15 | 2645505 DogSlime
DogSlime's picture

Supporting the FED = Patriotism?

Tue, 07/24/2012 - 11:19 | 2645514 eclectic syncretist
eclectic syncretist's picture

Your form of patriotism runs contrary to that of the people who founded America.

For instance, Thomas Jefferson said "I hope we shall crush in its birth the aristocracy of our monied corporations which dare already to challenge our government to a trial by strength, and bid defiance to the laws of our country."

and

"All tyranny needs to gain a foothold is for people of good conscience to ... remain silent."

http://www.usa-patriotism.com/quotes/jefferson.htm

 

Tue, 07/24/2012 - 11:22 | 2645522 SmoothCoolSmoke
SmoothCoolSmoke's picture

Bet you are one of these folks who thinks we should have been 100% behind the Iraq war not because there was any evidence to justify going there.....but because the President said we should go and real Americans back up their President no matter how stupid a move he pulls.

Tue, 07/24/2012 - 12:09 | 2645715 DaveyJones
DaveyJones's picture

 so the "patriots," first and foremost, always assumed their government was acting in their financial interest? 

Tue, 07/24/2012 - 20:00 | 2647568 Umh
Umh's picture

Nobody said they were bright.

Tue, 07/24/2012 - 12:11 | 2645739 XitSam
XitSam's picture

MDB_?

Tue, 07/24/2012 - 12:52 | 2645956 TPTB_r_TBTF
TPTB_r_TBTF's picture

no, he's not another MDB.

Born Patriot is a professional forum spy.

He's just doin' his job.

 

Tue, 07/24/2012 - 20:37 | 2647633 Umh
Umh's picture

People respond to the trolls/forum spys and allow them to succeed at their goals. Many interesting threads become almost impossible to follow due to their tactics.

Wed, 07/25/2012 - 01:14 | 2648124 StychoKiller
StychoKiller's picture

Looking for fish in the treetops -- not smart!

:>D

Tue, 07/24/2012 - 20:04 | 2647576 I dont belong here
I dont belong here's picture

This post almost made me laugh. The FED deserves much worse than constant denigration. So do the whores in Congress that have sold this great country down the river. If you are indeed a patriot you are a blind one. Time to wake up sleeper, do some research and open your eyes to the evil in charge.

Tue, 07/24/2012 - 11:05 | 2645470 5880
5880's picture

Are you Stalin?

Tue, 07/24/2012 - 11:06 | 2645471 Gene Parmesan
Gene Parmesan's picture

I'm sorry, but could you share this good news that you have in mind? What do you see as pushing the economic situation up into a net positive position?

Tue, 07/24/2012 - 11:14 | 2645503 Born Patriot
Born Patriot's picture

If you take the time to read the news like normal averge Americans you will realize that there are many green shoots in the economy:

1. Modest GDP growth

2. Housing recovery

3. Stocks holding support

4. Consistently positive non farm payrolls

I could go on and on ...

Tue, 07/24/2012 - 11:22 | 2645519 Vic Vinegar
Vic Vinegar's picture

I'm sure you could.  But your comments are neither fun nor funny.  Why don't you go on with me on ZH Chat?  I'm gonna hang there and wait for you.

Tue, 07/24/2012 - 11:22 | 2645521 legal eagle
legal eagle's picture

Please, do go on, I like a chuckle from time to time you imbecile.  You must be watching and reading the comics and Jerry Springer, which is in fact where Americans get their news. 

 

 

Tue, 07/24/2012 - 11:22 | 2645524 Doña K
Doña K's picture

Sorry to say that you are lying to yourself.

You do want to believe what you are saying is true. But it is not. Besides looking in the mirror check the symptoms of paranoia and delusion.

Tue, 07/24/2012 - 11:25 | 2645537 malikai
malikai's picture

MDB, is that you?

I didn't see the words "Doomer libertarian" in your post so I can't say for sure.

I want to set up an alter-ego troll account on this site too, but I'm afraid I couldn't come up with good enough content.

Some day, I hope I can do it.

Tue, 07/24/2012 - 12:45 | 2645924 Vic Vinegar
Vic Vinegar's picture

No offense buddy (and I'll green you too) but apparently you haven't seen the latest Shaw Report (taken from Entertainment Weekly...but Jessica Shaw decided to humor ZH for a few moments.  Listen up)

In: noting how you are making the world a better place

5 min ago: interacting with trolls

Out: mentioning how much ammo you have

Wed, 07/25/2012 - 01:18 | 2648128 StychoKiller
StychoKiller's picture

IN:  Alleviate some suffering: http://www.worldvision.org

OUT:  Buy stawks/bonds and try to sell them at a higher p-rice, in the future...

 

Tue, 07/24/2012 - 11:30 | 2645551 superbroker1
superbroker1's picture

@born patriot

 

look who just rolled out of MDB's bed.

Tue, 07/24/2012 - 12:35 | 2645868 Vic Vinegar
Vic Vinegar's picture

Out of the bed but...

...MDB is clearly the dom in that relationship. MDB came on born pat's face, slapped his ass and reminded him of how much he loved it.

Tue, 07/24/2012 - 14:47 | 2646434 Hippocratic Oaf
Hippocratic Oaf's picture

Obviously born pat watches too much CNBC and has never sat on either side of a trading desk.

Tick Tick BOOM

Tue, 07/24/2012 - 11:31 | 2645557 Oldballplayer
Oldballplayer's picture

If your heart beat goes from 70 times a minute, down to zero...and then it creeps back up to 10 bpm....are you going to be the doctor who say's " Thank God...things are looking up."

I guess they would be if you think being in a vegetative state is better than being dead.

Tue, 07/24/2012 - 11:36 | 2645568 Deathrips
Deathrips's picture

Well buddy...its your lucky day.

Im a patriot too. Im gonna give you a wake up call.

To bad noone we pay taxes too is. They are all schills to the international mega banks (AKA Fuck You Taxpayer).

You read/follow propaganda and youre gonna fall right into their trap .....Its a dirty ass trap.

Spouting red and blue bullshit is worse than a dog chasin its tail.

It dont matter.

 

These Fools are Addicted to Money and they dont care about you. They wanna crash you into subservience.

 

Try using that thing inbetween youre ears and tell me when was the last time something the government did helped you out? Its not by accident....noones that stupid.

Do your homework off a bank owned network.

https://www.youtube.com/watch?v=20XPmsAK7Rg

A simple analogy.

They are the donkey .... You are your moms ass.

 

Tue, 07/24/2012 - 12:06 | 2645714 LooseLee
LooseLee's picture

Unfortunately, 'normal average' Americans are asleep wth their head buried in the sand regarding what is 'really' going on in the world. You, my friend, appear to be the new ZH 'Poster Boy' representing the conformist sheep who is unable to see clearly due to the relentless conditioning (propaganda) thrown at you from cradle to grave by the MSM and 'leaders' of our world. Wake up and see the ignorance of what you say.

Tue, 07/24/2012 - 12:25 | 2645819 Jena
Jena's picture

Rather than "Born Patriot" perhaps you should have chosen "Born Yesterday" as your user name.

 

You'll be popular around here -- in getting responses to what you post, that is.

Tue, 07/24/2012 - 13:12 | 2646051 A Nanny Moose
A Nanny Moose's picture

5. Unicorn Cloned from Fossilized DNA

Tue, 07/24/2012 - 14:43 | 2646416 txsilverbug
txsilverbug's picture

I could go on and on ...

 

Please do.. this is comical..

Do NOT follow this link or you will be banned from the site!