On The Verge Of The "Ultimate Death Cross"

Tyler Durden's picture




 

We will get into the punchline from Albert Edwards' latest missive shortly, but first we wanted to share his view on analyst sentiment, and how it relates to the US economy:

Regular readers will know that we have always followed analyst optimism closely (optimism here defined as the percentage of analysts EPS forecast changes that are upgrades). We have shown previously that it is not the level of analyst optimism that is important for the equity market, but the change in optimism (see right-hand chart below). Somewhat surprisingly we have found that the change in analyst optimism tends to be a very good leading indicator of economic activity (it mirrors almost exactly the OECD and Conference Board leading indicators), but it is published on a far more timely basis, and more importantly it is not subject to revision in the way the economic data and leading indicators are.

 

Hence we note that the aggregate monthly analyst optimism data has slid below the previous lows of last year and the year before, to the sub-40% mark (see chart above). This has taken the 6-month change in optimism back into negative territory, which is beginning to drive the equity market back into bear market territory (see left-hand chart below).

 

My colleague Andrew Lapthorne calculates analyst optimism data on an even more timely bottom-up basis and publishes it in his weekly Global Equity Market Arithmetic- link. He notes the dramatic collapse in the US analyst optimism to below 30% for three weeks in a row! These data are entirely consistent with a US already in recession and supports that recent assertion in an interview with Lakshman Achuthan of the ECRI – link.

In short: the recession is now here, just as it was in the fall of 2011 until global coordinated easing injected trillions and masked its impact, and will manifest itself unless the global central banks step up far more aggressively and tune out reality once again (this time with a half life that will be, well, half of the prior intervention).

And now, for the main event:

Finally I want to share with you news that the S&P is on the verge of an “ultimate” death cross (see chart below). This is where a 50-month moving average (currently at 1152) falls below the 200-month average (currently 1145). The Trend blogspot (link) tries to make some sense of this very rare event. They note that the averages came close to crossing in 1978 towards the end of the 1965-82 secular bear market, but just held. By contrast Japan suffered a monthly death cross in 1998 and 14 years later we are still in the firm embrace of the bear. Watch this space.

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Mon, 07/16/2012 - 09:04 | 2619805 bigdumbnugly
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can we get this with a vincent price voiceover?

Mon, 07/16/2012 - 09:11 | 2619832 LoneStarHog
LoneStarHog's picture

Well...okay...but only with the addition of Lady Gagme and some visual TA, and I don't mean Technical Analysis...Totally contemporary and MTV material.

Mon, 07/16/2012 - 09:21 | 2619864 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

The recession is here = King Dollar!

Right?

Rong rive King Dahrah!

It has no intrinsic value, and on the supply side, Bernanke can print as many as he could dream of.  This must be bullish!

King Rahrah! [waves hands infatically]

Mon, 07/16/2012 - 09:47 | 2619962 GMadScientist
GMadScientist's picture

Short-term, yes, cash is King, and during that time it should be used to move into hard assets, for the long-term, as their nominal prices dip (you dip we dip).

This is not useful information if you do not already have Dahrah on hand, but Ancient Chinee secret is trillions of Dahrah...Benny gonna need a lotta ink and he'll hurt Ma Kettle looong before he hurts the flying monkeys.

 

Mon, 07/16/2012 - 09:49 | 2619970 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

You are suppossed to change the calender from year to year.  I suggest taking down the one marked "2008" and changing it with one marked "2012".

Mon, 07/16/2012 - 10:04 | 2620030 GMadScientist
GMadScientist's picture

Okay, but only if you'll flip your silver chart past early 2011.

Mon, 07/16/2012 - 10:20 | 2620079 Pinto Currency
Pinto Currency's picture

 

Will currency or the stock market fail first - the race is on.

Mon, 07/16/2012 - 12:14 | 2620483 zaphod
zaphod's picture

With fiat money, that chart is a massive buy signal.

The 50-month last touched the 200-month in '79 which was the start of the hugh run up to 2000. If you built it farther back, it also last touched in the mid/late '30's, which again was a great time to buy.

Under continuous QE pressure (there has always been money printing since 1913), the market bias is always up. This cross is a time to buy....

 

Mon, 07/16/2012 - 09:47 | 2619967 GMadScientist
GMadScientist's picture

"Tuckeses and Naynays", as Lenny Bruce would say.

Mon, 07/16/2012 - 17:04 | 2621745 max2205
max2205's picture

The 50 200 mthly emas aren't even close

Mon, 07/16/2012 - 17:37 | 2621854 Bertie Bear
Bertie Bear's picture

What! 1152 and 1141 Isn't close?

Mon, 07/16/2012 - 09:13 | 2619836 boogerbently
boogerbently's picture

It's hard to trust an article on finance/investment that doesn't know the difference between 200 day and 200 month moving averages.

I guess any "doom and gloom" is tolerated, here.

Mon, 07/16/2012 - 09:20 | 2619869 Stoploss
Stoploss's picture

Yeah, and Ben doesn't know the difference between the two types of debt, or, let alone, knows how to fight either one of them.

Just our little way of telling Ben he has trouble coming, so he can react in a reasonable time.

It could be worse, ZH could choose not to post these articles, but there's no fun in that.

Mon, 07/16/2012 - 09:42 | 2619949 narapoiddyslexia
narapoiddyslexia's picture

Well, it made me curious, but I can't find a site that has calculated the 200-month and 50-month moving averages, so I guess I'll have to download the raw data and run it though an excel formula. See, it stimulated my curiousity, so it was good for something.

Mon, 07/16/2012 - 09:48 | 2619959 Stoploss
Stoploss's picture

Same thing on daily avg's.

Just time diff, it's all the same.

http://stockcharts.com/h-sc/ui

Try that link.

Mon, 07/16/2012 - 12:48 | 2620638 boogerbently
boogerbently's picture

Real analysts/chartists DON'T use 200 MONTH (16.6 years) charts.

Mon, 07/16/2012 - 22:12 | 2622775 Hard Assets
Hard Assets's picture

I think you are correct, 200 months is a very long time.

 

What worries me more is the 12 year triple top. Could get VERY ugly !

Mon, 07/16/2012 - 09:56 | 2619996 Liquid Courage
Liquid Courage's picture

A swing and a miss!

Mon, 07/16/2012 - 09:16 | 2619848 GMadScientist
GMadScientist's picture

"The funk of 40,000 years..."

Mon, 07/16/2012 - 09:04 | 2619809 localpacific
localpacific's picture

great post some ideas for the day .. Monday Morning Market Playbook 

Mon, 07/16/2012 - 09:05 | 2619812 buzzsaw99
buzzsaw99's picture

Hilary Kramer is channeling Barton Biggs this a.m.. Break out the big guns, we want to hear from Dick Bove too!

Mon, 07/16/2012 - 09:06 | 2619815 qussl3
qussl3's picture

On the bright side, this means that THE generational buying opportunity is likely to be upon us within the next 2 years or so.

Mon, 07/16/2012 - 09:28 | 2619905 ghenny
ghenny's picture

or three or four or last year.  I tell you its random.

Mon, 07/16/2012 - 09:06 | 2619818 LoneStarHog
LoneStarHog's picture

The only Ultimate Death Cross will be with the death/dissolution of the Federal Reserve and PPT. Until then these morons make the charts.

Mon, 07/16/2012 - 09:09 | 2619822 LawsofPhysics
LawsofPhysics's picture

Since no one is willing to have an adult conversation and TPTB are "circling the wagons" to protect themselves, this is what muddling through looks like.  Get used to it, I don't see any real leadership on the horizan.

Mon, 07/16/2012 - 09:16 | 2619849 bshirley1968
bshirley1968's picture

What the hell is TPTB?  I was out the day that was released.

Mon, 07/16/2012 - 09:42 | 2619946 i-dog
i-dog's picture

The Pharisees That Be.

Mon, 07/16/2012 - 09:56 | 2619995 LawsofPhysics
LawsofPhysics's picture

Hey, at least now we get to find out which bank and brokerage presidents are "in the club" and which ones aren't.  Where is John Corzine?

Mon, 07/16/2012 - 10:35 | 2620134 i-dog
i-dog's picture

Just look for Jesuits 'n Ashkenazis (same thing, actually) and you'll have your list.

Corzine is, no doubt, holed up in some Jesuit palace somewhere. Maybe this one on Long Island?

http://wp.inisfada.net/wp-content/uploads/2009/04/index_art_aerial_view.jpg

Mon, 07/16/2012 - 09:08 | 2619824 MFL8240
MFL8240's picture

Bernanke will come to the short term rescue any day now and eaveryone knows this.  He and his clown show are ready to waste more money we do not have to resurect this courpse.

Mon, 07/16/2012 - 09:19 | 2619865 bshirley1968
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Not until the Dow breaks below 10,000.

Mon, 07/16/2012 - 09:27 | 2619896 ghenny
ghenny's picture

YOu mean Fisher and his DOW 20,000

Mon, 07/16/2012 - 09:12 | 2619833 duo
duo's picture

I talked to the manager of our office suite complex (about 20 companies occupying 2 floors).  Every single company has gone month-to-month when their lease expired.  They are all waiting until December to decide if they will stay, move, or shut down completely.  Not one is considering hiring

Mon, 07/16/2012 - 09:13 | 2619838 Quinvarius
Quinvarius's picture

Add that to all the for sale signs that just showed up on my block and you get a pretty decent reality check.

Mon, 07/16/2012 - 10:55 | 2620198 RobD
RobD's picture

The tax exemption for dept forgiveness on your short sale expires at the end of the year and the do nothing congress/senate most likely won't renew it. So its either put it on the market now and hope it closes before December 31st or you are stuck in your upside down money pit for the duration.

Mon, 07/16/2012 - 09:19 | 2619859 bshirley1968
bshirley1968's picture

What town are you in?  Detroit?  Non-news event.  Dallas?  Big story.

Mon, 07/16/2012 - 09:34 | 2619919 duo
duo's picture

Dallas. Good guess.  Obamacare will do to the TX economy what the housing bust did to FL, CA, Chicago, etc.

Mon, 07/16/2012 - 09:44 | 2619955 i-dog
i-dog's picture

You guys need to secede. We're counting on you to get the ball rolling!

Mon, 07/16/2012 - 09:58 | 2620000 LawsofPhysics
LawsofPhysics's picture

I'll second that.  Real world growth is dead, period.  States and regions with resources should do their own thing, while they still can.

Now where are those fusion reactors I ordered?

Mon, 07/16/2012 - 10:52 | 2620189 Debtonation
Debtonation's picture

A secession crisis would hasten the dollar collapse.  Obama would have to deal with a sovereignty crisis at the same time he's dealing with a currency crisis, there isn't anything he could do!

Mon, 07/16/2012 - 11:27 | 2620315 Buckaroo Banzai
Buckaroo Banzai's picture

<-- Moving to TX if/when they secede

<-- Staying put and watching from sidelines

Mon, 07/16/2012 - 09:36 | 2619934 world_debt_slave
world_debt_slave's picture

ha, ha, yeah, I was about ten years too early on going to month to month on my business space that started out as a lease. I hate leases.

Mon, 07/16/2012 - 09:16 | 2619846 Zen Bernanke
Zen Bernanke's picture

tough luck dooms dayers, it will never happen. 

Mon, 07/16/2012 - 09:19 | 2619862 GMadScientist
GMadScientist's picture

Shove that koan up your Cohen.

Mon, 07/16/2012 - 09:16 | 2619847 Poor Grogman
Poor Grogman's picture

What is an ALGO to make of this?

Mon, 07/16/2012 - 09:17 | 2619851 slaughterer
slaughterer's picture

Death cross?  Bullish!

Mon, 07/16/2012 - 09:19 | 2619852 Apostate2
Apostate2's picture

 

delete

Mon, 07/16/2012 - 09:18 | 2619853 orangedrinkandchips
orangedrinkandchips's picture

Oooooh....so scary!!!

WTF?

Useless shit now that this market is manipulated.....NOTHING WORKS WHEN YOU LIVE IN A VACCUM!

 

Indicators are just that...for show when we stay up....

 

hmmm....bonds (record highs/lows), the other world....down 25% avg.....BUT WE ARE AT ALL TIME HIGHS......

 

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