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Market Catastrophe

by Michael Nystrom | June 20, 2008

It's been a while since I've done a market update, and today was a pretty big day, so let's get started:

The Dow Tests 34 Year Trendline!

While it may not be the best representation of the overall market, everyone watches the Dow. It is a handful of the bluest of the blue chips, so whatever happens to the Dow will likely happen to the broader market as well. The Dow is in the midst of a 200 point Friday afternoon decline, in the larger context of one-month slide, falling once again below 12,000. It looks like we're headed for a retest of the January and March lows. The watchword is: CAUTION!

According to our friends at Elliott Wave International, should the Dow break its March lows, it will also break the long term trend line dating back to 1974!



(You can read the most recent three months of Elliott Wave's US Market Analysis this week only - free signup required, no obligation.)

Ladies and gentlemen, this is a big deal. The US stock market, measured by the nominal Dow, has been in an uptrend for the last 34 years. Of course, the Dow measured in gold began its crash long ago, resulting in the decimation of over 75% of the Dow's real value. Should the Dow break its 1974 uptrend line, it will send an ominous signal that inflation alone is not sufficient to keep up appearances on the Dow. This will likely signal that a long term decline is directly ahead.

In the past, I would make market pronouncements with absolute certainty, but I have since learned my lesson. I don't know what will happen, but I do know that all good things come to an end. Nearly everyone who doesn't work for the government believes the economy is in recession. The second quarter ends this month and companies will start releasing earnings reports in early July. What will they say? How was business? The market already seems to be getting the jitters.

Common sense dictates slow to no growth for a long time coming:

  • High gas prices with no sign of abating
  • Higher food prices, especially in light of Midwest floods
  • No end in sight to housing bust
  • Continued tight credit
  • Rising unemployment
  • Consumers maxed out, little savings and starting to save what they can
  • The possibility of war before the election

It is that last item that could result in catastrophe. A war with Iran, as is being discussed, would send oil prices skyrocketing overnight. Americans may be able to get by - barely - on $4 gas, but what if that doubles? What would happen to the economy at $8 gas? How would people get to work? What would happen to the price of food, and to heating our homes come winter? Printing more money for the war would send the dollar's value down further. Inflation would go into overdrive.

Considering the cavalier attitude this administration has shown towards war, it simply cannot be ruled out. The drums of war are getting louder. The stock market is clearly getting nervous about something heading into summer.

The only thing on the horizon that appears it could possibly save us all is if that Japanese car that they say runs on water along turns out to be true. I hope it is.

If not, the decline could go on for years as all the false gains of the last few decades are taken back by the market. Prechter projects a market low around 2016. Depending on how old you are, you may have never seen a decline of that length, so you might not believe it. But we all saw it happen recently in Japan (13 straight years of declines since 1990). Most of the people who remember the Great Depression in this country have died off, so the timing seems right to introduce the concept to a new generation.

Read Prechter's long term forecast (the June 9 Theorist) here for free for the next week only. You may not agree, but I guarantee it will make you think!

Apple Short Update

A couple weeks ago I suggested -- for entertainment purposes only -- a gambler's play to short Apple. From time to time, gamblers win and that was the case this time. So far, so good. Here is an updated chart of what's going on:



The stock dropped hard after the Apple show as rumors swirled about Steve Jobs' health, but then recovered just as sharply. In a bull market, that would be the perfect time to buy - weak sellers get spooked and unload the stock, and stronger hands move in for the long haul. That still may be the case, but I don't think so. In a bear market, the reasoning is exactly opposite: Strong hands sell out, and weak hands step in to be left holding the bag. Volume was weak. Even the new, cheap, 3G iPhone wasn't enough to excite the stock back to a new high.

If the above big picture scenario is correct - i.e. a slowing economy and protracted bear market - Apple will go down with the rest of the market. Their nifty gadgets will become luxuries to cash strapped and hungry Americans. I'm sticking with the short, and remaining cautious.

Emerging Markets

The thesis here is that if the Dow breaks down, as it looks like it will, it will bring the rest of the stock market down with it, including the emerging markets. Look at today's gap down from the flag consolidation in today's action. Not good, and poised to fall much further, methinks.

How to profit from it? Check out the proshares double inverse emerging markets fund, symbol EEV. It yields double the inverse of EEM's moves. But again, be careful. This is a volatile instrument - up 5+% just today!

Conclusion

Watchword of the coming days and weeks: Caution. Keep an eye on the Dow. War is a possibility that is spooking the markets, and if it becomes a reality, could be a catastrophe for the US economy. Corporate earnings season is dead ahead. For some food for thought and copious weekend reading, sign up for the U.S. Markets Free Week at EWI. Finally, if you found this letter of value, sign up for future updates via my low volume, no spam email announce list.

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I like this part!

"The only thing on the horizon that appears it could possibly save us all is if that Japanese car that they say runs on water along turns out to be true. I hope it is."

you want to learn more about it? check the HHo Gas thread.

I hope everyone was paying attention to this!!

Look where we are now! You can tell alot from chart patterns.
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Where's the happy little tire swing?

The individual has always had to struggle to keep from being overwhelmed by the tribe. If you try it, you will be lonely often, and sometimes frightened. But no price is too high to pay for the privilege of owning yourself.
Friedrich Nietzsche

bump

for Liberty

LL on Twitter: http://twitter.com/LibertyPoet
sometimes LL can suck & sometimes LL rocks!
http://www.dailypaul.com/203008/south-carolina-battle-of-cow...
Love won! Deliverance from Tyranny is on the way! Col. 2:13-15

Remeber this post?

Here we go!!!
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Where's the happy little tire swing?

The individual has always had to struggle to keep from being overwhelmed by the tribe. If you try it, you will be lonely often, and sometimes frightened. But no price is too high to pay for the privilege of owning yourself.
Friedrich Nietzsche

Keep this in perspective

Think about the years 1974, 1982, and 1992...and what they have in common with today?

"This is the beginning of the end...the dollar will collapse...America will be ruined...we'll never recover from this." I'm not old enough to remember sentiments like that from the late 1970's, but certainly from 1992.

Things always look the worst right before they start to get better...there is nothing for me to believe that there is an exception today.

The housing market is not going to continue falling significantly, outside of a few markets, we have found a bottom.

Oil may be in the process of peaking, but there's certainly arguments to be found on that subject.

There isn't a push for the market to fall, when you look at corporate earnings. The current earnings compared to the price of stocks in Dow or S&P point to either even value or only slightly over valued...P/E for those two indexes is around 16, which is historically normal. It's nowhere near the 40+ P/E that collapsed the Nasdaq in 2000. If the market falls in a day, it'll bounce back shortly because so many stocks will be undervalued based on their earnings.

I'm not seeing a full economic recovery for quite a while, but there's no storm brewing that will send us into a tailspin.

You may want to check........

the U.S.'s production and exports during those years. What was is NOT what was! As opposed to those earlier years, we now have a 850 billion annual trade defecit.....and growing. And you think this market is just going to pull back out of this problem. "No storm brewing," are you kidding me? Take a look around. The only way it won't crash is if our boys continue to bail it out......and they will do it through printing more money.......more inflation. Whether the market goes down big-time or we get hammered with 15 to 20% inflation, does it really matter? It appears that we'll be getting a big dose of both. Perhaps you'd like to explain to the good people here, how this country will get itself out of these major problems when we produce next to nothing anymore.

Bob W., Naples, FL

Exactly

It is not what our particular situation has in common with those years, it's the differences which make today much more alarming. Remember, we lost an entire segment of the financial system (Savings and Loans) during the late 70's / early 80's, all the family farms, almost all manufacturing in the 90's, and have outsourced any decent paying service sector / high tech job where possible in the 2000's. We haven't even paid for the S&L bailouts 30+ years latter.
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Where's the happy little tire swing?

The individual has always had to struggle to keep from being overwhelmed by the tribe. If you try it, you will be lonely often, and sometimes frightened. But no price is too high to pay for the privilege of owning yourself.
Friedrich Nietzsche

i don't know

i don't know what all this means but it does not sound good.
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Predicted crashes don't crash

Agreed the market sucks and will continue to do so, but, there is far too much short interest.

Too many people think the market is doomed.

This is called negative sentiment and is NOT what creates huge crashes.

Lastly, this website is about hope and constructive thought NOT horror and misery.

Jeff Rense and Alex Jones are in charge of when "we are all gonna die."

Unify

Q3 2009 ~ Q1 2010 I'm looking that this time frame.

If not sooner, DEFLATION should become obvious to most people beyond this time frame, in my opinion.

"first by inflation, then by deflation, the banks...will deprive the people of all property" -Thomas Jefferson

government of the people, by the people, for the people
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Wonderful job Michael.

The IMF looks like they would disagree with you. Makes me want to cry.

http://rawstory.com/news/afp/US_slowdown_less_than_feared_IM...

Prepare & Share the Message of Freedom through Positive-Peaceful-Activism.

great info

terrific work.

LL on Twitter: http://twitter.com/LibertyPoet
sometimes LL can suck & sometimes LL rocks!
http://www.dailypaul.com/203008/south-carolina-battle-of-cow...
Love won! Deliverance from Tyranny is on the way! Col. 2:13-15

Another Possible War

I guess they could blame the war for their failed economic policies instead of finally telling the truth. Is that the way the USA makes other countries respect the US dollar? Unbelievable!

Great analysis Michael!

One thing I noticed on your first chart was the absence of a volume spike on the recent downturn. Methinks you are ahead of the crowd as they move toward the exit. BTW, I rebalanced to 100% stable value earlier this week.

*****The Federal Reserve is neither.*****

very good Michael...

good info.

2Chronicles 7:14 If my people, which are called by my name, shall humble themselves, and pray, and seek my face, and turn from their wicked ways; then will I hear from heaven, and will forgive their sin, and will heal their land.

why it is happening.

This is a very interesting video
The Energy Non-Crisis
http://video.google.com/videoplay?docid=3340274697167011147&...
1 hr 15 min 8 sec - Oct 24, 2007
Average rating: (1122 ratings)
Description: Lindsey Williams talks about his first hand knowledge of Alaskan oil reserves larger than any on earth. And he talks about how the oil companies and U.S. government won't send it through the pipeline for U.S. citizens to use.

and Lindsey Williams definitively proves Einstein wrong.

Bullshit can travel faster than light (on the Internet).

Lindsay Williams is full of it!

Exactly! I have watched this video, and wasted however many minutes of my life doing so. The man provides NO evidence for anything he says, just hearsay and innuendo, and his statements do NOT come across as credible or even make it sound like he is very knowledgeable at all about the petroleum industry. Most of his assertions are frankly ludicrous and laughable to anyone within the petroleum industry, and get nothing but a big guffaw here in Alaska.

No War with Iran....

What is being done to Iran is a banking Strangulation. Iran will capitulate when they realize their dire situation and China, India, nor Russia can save her.

Iran just got their first sense that the fingers are now around their national banking necks. They are still in the shocked phase. Furthermore, the murderous fingers are not sure of how much pressure to apply when they cannot feel resistance. They just have to look out the window and watch closely what is happening inside Iran to know. For that, these elites will be watching Arab TV news as closely as they can. Everyone will be stunned at how effective it will be.

Will that satisfy the powers in the West? Will war be necessary? No, and no.

President Obama will get them what they want without going to war, but it will be "too slow" for the powers that be. They will look for a more aggressive American president in 2012. During 2012, the strangulation of Iran will be complete and the race to rape her will begin. Americans will be shocked that the Israelis and Turks will have the dress already off before they could even get close enough to see the goods.

By 2013, Iraq & Iran will be allowed to go "Shia", as they turn yet again on Sunnis, this time taking aim at Syria, Pakistan and Saudi Arabia.

We all have predictions, thats mine,

In Liberty & Peace,
Treg

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"first by inflation, then by deflation, the banks...will deprive the people of all property" -Thomas Jefferson

government of the people, by the people, for the people
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PEAK OIL DEMAND and PRICE OF OIL

I suspect that the oil industry had predicted that the demand for oil would peak, in the near future. If they were going to sell less oil, what would they do? I can think of two things: one is to lower the production and the other is to raise the price.

manystrom worte, "The only thing on the horizon that appears it could possibly save us all is if that Japanese car that they say runs on water along turns out to be true. I hope it is."

"first by inflation, then by deflation, the banks...will deprive the people of all property" -Thomas Jefferson

government of the people, by the people, for the people
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what prechter says about

what prechter says about gold and silver is not good but i guess we'll wait and see... prechter has not always been right

as for me and my home, we shall worship the LORD

prechter has not always been right (lol)

The understatement of the decade!

We'll never know when the market is going to crash

Way back after Martin Luther King Day there were alot of experts in the Ron Paul movement predicting the crash of the Stock Market because of the large downswing in the markets. Then, when the markets came back they were once again stabilized by the Plunge Protection team.

We don't have control on the markets and its pretty apparent the powers that be have enough fake currency to keep their illusion in check.

With the amount of "terrorist" training going on across the USA right now I think the NWO is practicing controlling the people before the collapse and they won't let the market crash until they get their practice correct.

My question is for all the daytraders out there, how do you manage to make money when the markets are controlled by someone else? And how do you feel confident in your business when the illusion of a free market is not broadcast by the media?

A lot of daytraders were slaughtered in the beginning of 2008

MLK day was a big example, but there were many other cases of market manipulation. A lot of big names who gave interviews on CNBC should be in jail for what they said.

not a trader

Fortune Favors the Bold

but the market manipulations certainly increase "speculation"

Fortune Favors the Bold

Thanks Michael

I am wondering if Gold/Silver mines shares are a good escape! What's your take on that? I remember Peter Schiff talking about mining stocks and giving pretty good forecast!?

Again, I am absolutly clueless in this field!

Precious metals mining stocks are discussed regularly

at http://www.jsmineset.com/. Be a regular visitor there and get on their email list. The information is priceless.

Would like to second the sentence...

"Ladies and gentlemen, THIS IS A BIG DEAL."
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There is no way of knowing just how many sell signals (Computer generated and otherwise) will be generated if this threshold is broken. Will be interesting to see how the PPT and the MSM handle this.
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Where's the happy little tire swing?

The individual has always had to struggle to keep from being overwhelmed by the tribe. If you try it, you will be lonely often, and sometimes frightened. But no price is too high to pay for the privilege of owning yourself.
Friedrich Nietzsche