Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Gold Bull Market Ultimate Upside Target - 17th Sep 19
Gold Spikes on the Saudi Oil Attacks: Can It Last? - 17th Sep 19
Stock Market VIX To Begin A New Uptrend and What it Means - 17th Sep 19
Philippines, China and US: Joint Exploration Vs Rearmament and Nuclear Weapons - 17th Sep 19
What Are The Real Upside Targets For Crude Oil Price Post Drone Attack? - 17th Sep 19
Curse of Technology Weapons - 17th Sep 19
Media Hypes Recession Whilst Trump Proposes a Tax on Savings - 17th Sep 19
Understanding Ways To Stretch Your Investments Further - 17th Sep 19
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19
Boris Johnson's "Do or Die, Dead in a Ditch" Brexit Strategy - 11th Sep 19
Precious Metals, US Dollar: How It All Relates – Part I - 11th Sep 19
Bank of England’s Carney Delivers Dollar Shocker at Jackson Hole meeting - 11th Sep 19
Gold and Silver Wounded Animals, Indeed - 11th Sep 19
Boris Johnson a Crippled Prime Minister - 11th Sep 19
Gold Significant Correction Has Started - 11th Sep 19
Reasons To Follow Experienced Traders In Automated Trading - 11th Sep 19
Silver's Sharp Reaction Back - 11th Sep 19
2020 Will Be the Most Volatile Market Year in History - 11th Sep 19
Westminister BrExit Extreme Chaos Puts Britain into a Pre-Civil War State - 10th Sep 19
Gold to Correct as Stocks Rally - 10th Sep 19
Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - 10th Sep 19
Stock Market Sector Rotation Giving Mixed Signals About The Future - 10th Sep 19
The Online Gaming Industry is Going Up - 10th Sep 19

Market Oracle FREE Newsletter

The No1 Tech Stock for 2019

Stock Market Heading for Black Monday Crash?

Stock-Markets / Financial Crash Jan 24, 2010 - 12:26 PM GMT

By: Clive_Maund

Stock-Markets

Diamond Rated - Best Financial Markets Analysis ArticleOn Friday Goldman Sachs and J P Morgan broke down decisively from their Head-and-Shoulders tops, a development that we predicted before the open based in large part on the huge downside volume in these stocks on Thursday. The Put options that we bought in the early trade in GS and JPM soared, some contracts rising by about 50% by the close. This bearish development caused shockwaves to spread through the market which accelerated to the downside late in the day. After 2 days of heavy losses the Precious Metals stocks indices stopped for a breather just above their 200-day moving averages, and closed virtually unchanged on the day.


The big question now of course is whether the broad stockmarket will accelerate into a severe decline or even a crash, which would of course take resource stocks with it. Before attempting to answer this question, we will step back and make some general observations about the "bullmarket" of the past year.

The first point we need to make about the broad US stockmarket rally of the past year is that it has been ABNORMAL and still only ranks as a bearmarket rally, rather like those that occurred in the early 30's. It certainly has not been been due to a return to anything like normal business conditions. For the most part it has simply been a bounceback relief rally from the oversold extremes resulting from the state of crisis that prevailed early last year, made possible by massive infusions of manufactured money and bailouts. The vaunted return to profitability, which was largely due to aggressive cost cutting measures rather than any broad-based recovery in demand, masks a continued state of debt-wracked atrophy across the economy. The rally has also been encouraged by a prolonged zero interest rate environment, which has discouraged saving and genuine investment and instead fuelled a massive dollar carry trade and a renewed speculative binge in commodities and stocks.

Because the United States is drowning in debt, at all levels - Federal, State, corporate and personal, rising interest rates are unthinkable and would cause immediate economic implosion. Policymakers are thus in a classic catch 22 situation, backed completely into a corner - raise interest rates to support the dollar and face economic implosion - or keep interest rates low and watch the currency and Treasury market collapse. Faced with this horrendous dilemma they are taking the only option open to them, which is to buy time. Thus they are engaged in widespread accounting fraud and obfuscation to whitewash the awful reality of the situation, and in sheer desperation are propping up the Treasury market by means of large scale monetization - and hoping that foreigners don't put 2 and 2 together. This monetisation requires the creation of money on a large scale out of nowhere and is thus highly inflationary, and represents a reckless attempt to keep the powerful deflationary forces that have been building for many years from doing their grim but necessary work of purging the economy of excesses.

The wild card in this situation is that at some point they are going to lose control - to a large extent they have lost it already and are merely reacting to events. They are taking the inflationary / hyperinflationary route because that buys them the most time and enables them to keep interest rates at zero for as long as possible - but if they lose control of the ball and the market decides that IT is going to set real world interest rates, and set them considerably higher, then the jig is up. The moment the stockmarket, which has risen in large part because of the zero interest rate environment, gets the scent of higher interest rates, it will cave in, and we may have actually arrived at the point where policymakers WANT the commodity and stockmarkets to cave in, in order that they can sluice the outpouring of funds back into the dollar and the Treasury market.

A reader wrote me that this story about Obama moving to restrict the banks was all just a bluff designed to spook the markets and shake a lot of people out of their positions ahead of another bullmarket run, and that big money would coming storming in and drive GS and JPM stock prices back up on equally impressive volume. However, this interpretation is thought to attribute too much power and control to these people. Being wealthy and having tremendous power does not necessarily make you infallible, even if everyone laughs at your terrible jokes - look at how Bill Gates and Warren Buffett lost a huge slice of their fortunes in the financial crisis - which they most certainly would have avoided if they could have gotten their hands on Biff Tannen's almanac. While anything is possible and everything may reverse to the upside and carry on happily higher as before, it certainly doesn't look like it on the charts shown below. The breakdowns in Goldman Sachs and J P Morgan are not just some 2-day wonder that came out of nowhere - they are major breakdowns from clear top patterns that have been forming from last July - August, a period of 5 to 6 months, and thus have seriously bearish implications.

The charts for Goldman Sachs and J P Morgan are remarkably similar - so similar in fact that we can save ourselves time and effort as what is written for one of them applies equally to both - so much for the fundamentals! They have both completed Head-and-Shoulders top reversals that have taken 5 to 6 months to form, and both broke down from these patterns last week on huge volume on the news of impending restrictions on banks' activities, which has major bearish implications not just for these individual stocks but for the market as whole. This is because Goldman Sachs and J P Morgan are the elite cornerstones of Wall St. They are to Wall St what the Bismarck and Prinz Eugen were to the German navy during World War 2. If they go down they will take Wall St with them and their charts are saying that this is exactly what is going to happen.

The only question now is a minor one of timing - they are both short-term oversold and close to rising 200-day moving averages and so we MAY see a feeble bounce near-term to alleviate this, which should of course be sold, or a sideways holding pattern. On the other hand with support having just failed and the entire market having accelerated to the downside during the final hour or two of trading on Friday, there is plenty for investors and traders to worry about this weekend which could easily lead to a severe decline as we go into next week, and we could conceivably witness a classic Black Monday.

Anyone wondering what effect this might have on the resource sector only has to refer to the charts for last year, which quickly reveal that when the broad market collapses it takes the resource sector with it. Precious Metals stocks broke down from their year-long uptrend last week, and are thus clearly acutely vulnerable, even if they already look oversold. We saw this coming on the site and took evasive action on Tuesday before the steep drop and breakdown occurred.

By Clive Maund
CliveMaund.com

For billing & subscription questions: subscriptions@clivemaund.com

© 2010 Clive Maund - The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

Clive Maund Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Liam
25 Jan 10, 15:32
Black Monday Crash

Clive Maund, wrong as usual, just do the opposite.


Geoffrey
26 Jan 10, 01:34
Up, Down or Sideways

So he predicted that the market will go Up, Down or Sideways:

"we MAY see a feeble bounce near-term to alleviate this... or a sideways holding pattern. On the other hand ...could easily lead to a severe decline as we go into next week,"


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules