Best of the Week
Most Popular
1.Are UK Savings Interest Rates Finally Starting to Rise? Best Cash ISA 2017 - Nadeem_Walayat
2.Inflation Tsunami - Supermarkets, Retail Sector Crisis 2017, EU Suicide and Burning Stocks - Nadeem_Walayat
3.Big Moves in the World Stock Markets - Big Bases - Rambus_Chartology
4.The Next Financial Implosion Is Not Going To Be About The Banks! - Gordon_T_Long
5.Why EU BrExit Single Market Access Hard line is European Union Committing Suicide - Nadeem_Walayat
6.Trump Ramps Up US Military Debt Spending In Preparations for China War - Nadeem_Walayat
7.Watch What Happens When Silver Price Hits $26...  - MoneyMetals
8.Stock Market Fake Risk, Fake Return? Market Crash? - 2nd Mar 17 - Axel_Merk
9.Global Inflation Surges, Central Banks Losing Control and Triggered the Wage Price Spiral? - Nadeem_Walayat
10.Why Gold Will Boom In 2017 - James Burgess
Last 7 days
Top Ten US Dollar Risks - 27th Mar 17
The Popularity of Gambling and Investing Amongst Students - 27th Mar 17
Is Political Betting on the Rise? - 27th Mar 17
US Stock Market Consolidation Time - 27th Mar 17
Russia Crisis - Maps That Signal Growing Instability and Unrest - 27th Mar 17
Goldman Sachs Backing A Copper Boom In 2017 - 27th Mar 17
Foundation – Fall Of The American Galactic Empire - 27th Mar 17
Stock Market More Correction Ahead - 27th Mar 17
US Dollar Inflection Point - 27th Mar 17
Political Week Presurres US Stock Market - 25th Mar 17
London Terror Attack Red Herring, Real Issue is Age of Reason vs Religion - 25th Mar 17
Will Washington Risk WW3 to Block an Emerging EU-Russia Superstate - 25th Mar 17
Unaccountable Military Industrial Complex Is Destroying America and the Rest Of The World Too - 25th Mar 17
Silver Mining Stock Fundamentals - 24th Mar 17
A Walk Down the Dark Road of Bad Government - 24th Mar 17
Is Stock Market Flash Crash Postponed Until Monday? - 24th Mar 17
Stock Market Bubble and Gold - 24th Mar 17
Maps Of Past Empires That Can Tell Us About The Future - 24th Mar 17
SNP Independent Scotland's Destiny With Economic Catastrophe, the English Subsidy - IndyRef2 - 24th Mar 17
Stock Market VIX Cycles Set To Explode March/April 2017 – Part II - 23rd Mar 17
Is Now a Good Time to Invest in the US Housing Market? - 23rd Mar 17
The Stock Market Is a Present-Day Version of Pavlov’s Dog - 23rd Mar 17
US Budget - There’s Almost Nothing Left To Cut - 23rd Mar 17
Stock Market Upward Reversal Or Just Quick Rebound Before Another Leg Down? - 23rd Mar 17
Trends to Look Out For as a Modern-day Landlord - 23rd Mar 17
Here’s Why Interstate Health Insurance Won’t Fix Obamacare / Trumpcare - 23rd Mar 17
China’s Biggest Limitations Determine the Future of East Asia - 23rd Mar 17
This is About So Much More Than Trump and Brexit - 23rd Mar 17
Trump Stock Market Rally Over? 20% Bear Drop By Mid Summer? - 22nd Mar 17
Trump Added $3 Trillion in Wealth to Stock Market Participants - 22nd Mar 17
What's Next for the US Dollar, Gold and Stocks? - 22nd Mar 17
MSM Bond Market Full Nonsense Mode as ‘Trump Trades’ Unwind on Schedule - 22nd Mar 17
Peak Gold – Biggest Gold Story Not Being Reported - 22nd Mar 17
Return of Sovereign France, Europe’s Changing Landscape - 22nd Mar 17
Trump Stocks Bull Market Rolling Over? You Were Warned! - 22nd Mar 17
Stock Market Charts That Scream “This Is It” - Here’s What to Do - 22nd Mar 17
Raising the Minimum Wage Is a Jobs Killing Move - 22nd Mar 17
Potential Bottoming Patterns in Gold and Silver Precious Metals Stocks Complex... - 22nd Mar 17
UK Stagflation, Soaring Inflation CPI 2.3%, RPI 3.2%, Real 4.4% - 21st Mar 17
The Demise of the Gold and Silver Bull Run is Greatly Exaggerated - 21st Mar 17
USD Decline Continues, Pull SPX Down as well? - 21st Mar 17
Trump Watershed Budget - 21st Mar 17
How do Client Acquisition Offers Affect Businesses? - 21st Mar 17
Physical Metals Demand Plus Manipulation Suits Will Break Paper Market - 20th Mar 17
Stock Market Uncertainty Following Interest Rate Increase - Will Uptrend Continue? - 20th Mar 17
Precious Metals : Who’s in Charge ? - 20th Mar 17
Stock Market Correction Continues - 20th Mar 17
Why The Status Quo Is Under Increasing Attack By 'Populist People Power' - 20th Mar 17

Market Oracle FREE Newsletter

Elliott Wave Trading

Charting The Stock Market Crash - How Far Will The Bounce Get?...

Stock-Markets / Financial Crash Jan 24, 2016 - 04:18 PM GMT

By: Clive_Maund

Stock-Markets

The purpose of this update is to define exactly where we are on the market clock, because if we know where we are, broadly speaking we will know where we are going.

Before going any further I want to point out that so far we have tracked this nascent market crash well, first looking for the market to cave in last Summer, in the Preparing for the Crash series, calling for the Biotech sector to plunge before Christmas in Biotech Inverse ETFs update – Perfect Entry Point for New Shorts, for China to crater at the end of December in the China update and more recently calling for a waterfall decline in the US stockmarket right at the start of the year in Broad US Stockmarket Still Perched Atop a Cliff


Last week the market plunged to arrive at the last ditch support level in the 1800 - 1850 zone on the S&P500 index that we had earlier defined as marking the lower boundary of the giant Head-and-Shoulders top. Once this level is breached, the full-on crash starts. Because it arrived at this support level in an even more oversold state than it was at the depths of the plunge last August, and because Smart Money has become bullish, it made it unlikely that it would break down and crash just yet, and sure enough the market has started to bounce, which means that the danger has probably abated, for now. The stabilization of the market here is expected to generate a short covering bounce, regardless of the rotten fundamentals, and as it unfolds the "reasons" for it will be presented in the mainstream financial media as "Market responds to stimulus talk" etc. The big question now is how far this bounce is likely to get, and that is what we are going to attempt to determine here, because it is crucial for the purpose of piling on short positions at the optimum juncture at the best prices in the future.

S&P500 2-Year Dome Top Chart

Smart Money is looking for a bounce...

Smart Money / Dumb Money Confidence
Chart courtesy of www.sentimentrader.com

Whilst no-one can be sure how far this bounce will get, possibilities vary from it being over already to it making it all the way back up to the Dome boundary shown on our charts, as it did after the August plunge, it will likely be sufficient to substantially alleviate the current extremely oversold condition and so create the conditions for the full-on crash phase, which means that it is likely to rally at least to the resistance in the 1980 - 2000 area shown on the 2-year chart for the S&P500 index, and it could even make it all the way back up to the Dome boundary again, although this is considered highly unlikely, the reason being that we are not looking for symmetry on the way down - since markets drop on average twice as fast in bearmarkets as they rise in bullmarkets, the market should not keep rising up to the Dome boundary on rallies, certainly not after it breaks down from the Head-and-Shoulders top.

So, the relief rally should take the S&P500 index somewhere into the red box shown on our chart, probably to the resistance level, but perhaps a little higher or lower. We will be watching in an effort to gauge where it is going to stop, which is where we will ditch any short-term long trades and pile on the shorts again.

S&P500 5-Year Dome Top Chart

The longer-term 5-year chart provides more perspective and enables us to see the origin point of the Dome top and better appreciate the downside risk should the support at the lower boundary of the Head-and-Shoulders fail in due course as expected. Actually, you need to go back a lot further than this to understand just how far this market can drop, which is better understood on the long-term chart for the Dow Jones Industrials shown below which goes back to 1980. This chart gives a downside target in the 5,500 area (it's now at almost 17,000), achievable within a year or so, which might seem incredible to many, but is certainly well within the bounds of possibility, as this chart makes plain, and if ever the conditions existed for such a devastating decline, it's now. This means that the market should lose two-thirds of its value. Note that the Dow Jones Industrials are used in preference to our normal S&P500 index here because they fit the Bullhorn pattern better.

Dow Jones Bull Horn Top 1980-2016 Chart

Remember that we are at the end of an era, with the entire debt-wracked Ponzi scheme that the world economy has now become set to go down in a ball of flames like the Hindenburg , a reset that will involve unprecedented devastation including wars and revolutions, yet from an evolutionary standpoint is an absolute necessity. Fiscal restraint and discipline, having been abandoned for decades now, will be imposed by force, the force of the markets, and discredited Keynesian economics will be consigned to the garbage can of history where it belongs, and some sort of gold standard re-introduced.

By Clive Maund
CliveMaund.com

For billing & subscription questions: subscriptions@clivemaund.com

© 2016 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

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

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

Catching a Falling Financial Knife