Stock Market Crash 2009: Will U.S. Banks Trigger Black Tuesday?
Stock-Markets / Financial Crash Feb 16, 2009 - 07:01 AMBy: Eric_Chevrette
After the world famous DJIA index did register at 7,850.41 on Friday, February 13, its lowest daily close as well as its weakest weekly close since “Why 2009 deleveraging stock market and commodities crash is ripe” was published 7 weeks ago on January 4, we should now do our best to gather the most accurate network of technical EWS evidence about the maturity of the bear leg at work since the beginning of the year.
|
janv-02 |
feb-13 |
% var |
| VIX | 39,19 | 42,93 | 9,543 |
| USD | 81,86 | 86,02 | 5,082 |
| XJY2XEU | 0,782 | 0,844 | 7,928 |
| OIL | 46,34 | 41,97 | -9,430 |
| CRB | 233,92 | 213,14 | -8,883 |
| OXH | 79,9 | 78,8 | -1,377 |
| XAU | 123,43 | 130,88 | 6,036 |
| GOLD | 879,5 | 942,2 | 7,129 |
| ADR | 640,72 | 555,23 | -13,343 |
| COMP | 1632,21 | 1534,36 | -5,995 |
| NYA | 5915,73 | 5206,76 | -11,984 |
| SPX | 931,8 | 826,84 | -11,264 |
| DJA | 3174,63 | 2762,98 | -12,967 |
| DJIA | 9034,69 | 7850,41 | -13,108 |
| NIKK | 8859,55 | 7779,4 | -12,192 |
| HSI | 15042,81 | 13554,67 | -9,893 |
| STI | 1829,71 | 1705,64 | -6,781 |
| MXX | 23254,68 | 19376,73 | -16,676 |
| RTSI | 631,89 | 624,21 | -1,215 |
Global Market Table_Jan 2 to Feb 13, 2009
As a matter of fact, the main task should be now to assess where exactly we would stand within the assumed bear leg extending as red i/ii/iii/iv/v for global stocks since January 2.
As you can see from chart #1 featuring together ADR and the NYSE Composite , there is no reason to abandon the earlier assumption that red wave i did extend as blue 12345 , especially after this impulse to the downside was supported by a renewed rise of VIX . With the extreme peak of red wave i intervening on January 15, all that we got to see over the past 20 trading sessions is easily understood as a rather large but flat red abc building red wave ii with the peaks of red wave a and red wave b slightly breaking above blue wave 4 , which is just standard behaviour thru a corrective move (see NYA in chart #1 ).
Of course, the main question is now whether red wave ii has already met its end or not. So far, this question can not be answered with chart #1 : should we register a break below the KL blue line , we would be strongly inclined to envision that red wave ii ended at the peak of red wave c on Monday, February 9; so far, nothing of the like has happened with the global indexes featured in chart #1 ……….
Chart #1
Though daily charts should be favoured in the first place to look for an answer to that question, no one should ever underestimate the possibility that a weekly chart would send a “master message” overtaking any daily view you may consider. Under this regard, chart #2 should be taken into account with the highest attention: as a matter of fact, we can note that ADR is still unable to provide any help BUT we get a different message from the DJ Composite . Indeed, the DJ Composite has already broken below the peak of red wave b as well as below the peak of red wave i ………..
Chart #2
In other words, the DJ Composite is a GLOBAL index that is now seemingly acting as a cheerleader capable of making the ADR blue question mark VOID : according to the general principles of EWS , it does look like we have got a reliable hint from the DJ Composite that red wave iii did effectively start 5 trading sessions ago on Monday, February 9………..
Of course, it would be useful and appropriate to find some complementary technical evidence at the daily level………
Chart #3
Though it is no surprise that the DJIA index (see the upper part in chart #3 ) is coming as a help to make the ADR blue question mark void, we should remember that the DJIA index , no matter how famous it has come to be over the years for various purposes, is NOTHING BUT a SECTOR index that is not capable of reflecting the collective mood we need for an appropriate application of EWS . That is exactly why the ABSOLUTE NEW low registered by the DJ Composite on Friday, February 13, though marginal, is definitely MUCH MORE relevant with regard to the ADR blue question mark .
Chart #4
In other words, a SECTOR index like the DJIA should only come SECOND to a GLOBAL index like the DJ Composite with regard to EWS and NEVER the other way round. While the DJ Composite is there at both the daily and weekly scopes to make us understand that the ADR blue question mark from chart #2 is most likely pointless, it couldn't be a wise step to disregard any message we would get from the US banking sector , especially after the so called Obama “stimulus plan” was finally adopted at the end of the week: though we did so far focus on the BKX index , it seems from chart #4 that the BANK index has even more to tell than BKX ; moreover, though none of BKX and BANK is a global index, their EWS relevance can be acknowledged as long as it is coming second to a larger EWS derived from a global index………
Chart #5
First of all, it does look like the BKX index , after breaking below the peak of red wave b at the close on Friday, February 13 (please mind the red KL level ), is willing to confirm the message from the DJ Composite and its new marginal low enforced at the very same day (see lower part of chart #3 ).
Second, the current message from BANK does look a bit more acute: as a matter of fact, not only did BANK break below the peak of red wave b , but it did at the same time clearly break below the peak of red wave i as well…
In other words, while both BKX and BANK still have the necessary room left to dive and reach out for the lower trend of their respective channel, we have all reason to assume that the US banking sector and the DJ Composite have the same EWS message to deliver: YES , red wave iii should have definitely started 5 sessions ago on February 9………
Chart #6
It is nevertheless NOT all that we can gather to fill our EWS network of technical evidence supporting the Feb 9 case for red wave iii : as a matter of fact, it does like the US $-VIX couple is playing again the same scheme which did take place around January 2. Instead of asking you to go all the way back to charts #1&5 featured in “Why 2009 deleveraging stock market and commodities crash is ripe”, we've put them for you together in chart #5 .
Chart #7
The KEY event to notice is that the US $ had already turned upwards on January 2 while VIX was reaching its final low……. In plain words, the US $ did have a ONE WEEK LEAD over VIX at the beginning of red wave i for global stocks………… If you now turn to chart #6 presenting the update of chart #5 seven weeks later, you can't miss that the US $ DID turn upwards last week while VIX did register a marginal new low; in other words, it does look like the US $ is keeping its ONE WEEK LEAD over VIX as it is entering its blue wave iii …….
Chart #8
Should that one week lead be a valid hint for the 2 nd time in a row, that would be indicating renewed strength for VIX at the early stage of VIX blue wave iii taking place thru the week from February 16 to February 20; with the backing support we've got previously from the DJ Composite index and the US banking sector , it does look like we have a complete set of EWS technical evidence supporting the case that the US banking sector would be the cheerleader if not the cause for the early stage of red wave iii taking place next week for global stock markets………
Of course, though it is tempting to envision that blue waves i/ii are now complete after February 9 (see charts #1,3&4 ), it is still possible that blue wave ii is not over yet and the global market would show some strength at the beginning of next week; in plain words, the overall EWS technical evidence presented today should be viewed more as a hint of a “bad week” confirming red wave iii than as a true foreteller of a “Black Tuesday”.
As to Gold, chart #7 is raising the question of the reliability of the current breakout; instead of trying to find out whether Gold is really going to defeat the “good money” principle in the coming weeks, it might perhaps be more sagacious to ponder about the various possibilities of return for capital in the coming weeks. As a matter of fact, after it is well known that markets slide FASTER than they rise, it does look like there should be a debate opposing 2 alternative strategies, the first one being based on ETFs like GLD to play the bull side with Gold and the second one being based on inverted ETFs like DOG to play the bear side with global stocks………. Another factor to throw into the debate should be that the TRUE acceleration of the bull with Gold should most likely take place AFTER the US $ has peaked out thru its final blue wave v of red wave 5 ………..
Chart #8 is there for you to remain alert about OIL : despite the 4.48% gain registered by WTIC last week, the twin brother of OIL/WTIC , we mean heating oil ( HOIL ), has been displaying persisting weakness over the last 5 weeks, which is in good line with the deleveraging process affecting raw materials as long as the US $ has not peaked out thru red wave 5 of blue wave C .
All in all, the coming week does look like it does have what it takes to prove that last week's article had a most appropriate title: according to the nasty look of the US banking sector to be gathered from chart #4 , we'd better set our minds ready for more bad fundamental news (possibly about US banks) triggering the definite early stage of the largest bear leg since January 2.
By Eric F.M. Chevrette
France
eric_chevrette@yahoo.fr
Fone: 00.237.9.660.53.59
© 2009 Eric F.M. Chevrette
Eric Chevrette translated Bob Prechter's “Elliott Wave Principle” in 1989 after graduating in 1984 from the ESCP (Ecole Supérieure de Commerce de Paris, see http://www.escp-eap.net ) which has been ranked 6 best business school in Europe by the Financial Times in 2006. He since has become interested in “market forecasting” and “global economical analysis” since 1987 and is currently helping people to protect and grow their assets while anticipating the big trends.
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