Stock Market Crash 2009: Why Black Tuesday Should Lead to Free Fall
Stock-Markets / Financial Crash Feb 23, 2009 - 04:46 AMBy: Eric_Chevrette
After Black Tuesday did effectively materialize on February 17 with substantial losses in the US banking sector , we're going to review the various technical factors now pointing towards a further free fall for global stocks.
|
janv-02 |
feb-20 |
% var |
| VIX | 39,19 | 49,3 | 25,797 |
| USD | 81,86 | 86,49 | 5,656 |
| XJY2XEU | 0,782 | 0,836 | 6,905 |
| OIL | 46,34 | 40,03 | -13,617 |
| CRB | 233,92 | 202,47 | -13,445 |
| OXH | 79,9 | 73,11 | -8,498 |
| XAU | 123,43 | 132,64 | 7,462 |
| GOLD | 879,5 | 1002,2 | 13,951 |
| ADR | 640,72 | 512,47 | -20,017 |
| COMP | 1632,21 | 1441,23 | -11,701 |
| NYA | 5915,73 | 4804,51 | -18,784 |
| SPX | 931,8 | 770,05 | -17,359 |
| DJA | 3174,63 | 2560,4 | -19,348 |
| DJIA | 9034,69 | 7365,67 | -18,473 |
| NIKK | 8859,55 | 7416,38 | -16,289 |
| HSI | 15042,81 | 12699,17 | -15,580 |
| STI | 1829,71 | 1594,94 | -12,831 |
| MXX | 23254,68 | 18324,14 | -21,202 |
| RTSI | 631,89 | 517,22 | -18,147 |
Global Market Table_Jan 2 to Feb 20, 2009
First of all you should note from chart #1 that the market volatility ( VIX ) did behave as expected and has now entered its blue wave iii while the US $ is keeping its one week lead over VIX ; with a lot more to come on the upside for both VIX and the US $, it is now all too clear that the global deleveraging process affecting common stocks and commodities since Jan 2 is going to extend far beyond the 8 week scope initially envisioned.
As to the US $, with blue wave i as large as 4.9 points from 80.8 to 85.7 (see chart #1 ), we may expect blue wave iii to reach out for 85.2+(1.6*4.9) = 93 and blue wave v to top out around 85.2+(2.5*4.9) = 97.4. Though such a rise of the US $ might look beyond grasp amidst a global environment filled with more than enough lousy fundamental news, it should partly be explained by the fact that most people do get rid of their financial assets (common stocks) NOT in order to invest into another asset class BUT for the sole sake of holding CASH . Now that cash has become the most sought after item, its value may rise even amidst the current worldwide economic turmoil. Alas, as the waves are already telling in advance, nothing should be set for ever…
Of course, you can easily see from chart #1 that both the US $ and VIX are now staying at the very early stage of their respective blue wave iii ; in other words, it should be possible to gather more technical elements in “other places” that will support the continuation of the slide with global stocks…..
Chart #1
In this regard, a weekly view from chart #2 is quite informative: ADR (global stocks ) and the NIKKEI average index (Japan) have both clearly broken into ABSOLUTE new lows, which should now stand as a reliable hint that green wave 5 is really involved in the process of extending thru red i/ii/iii/iv/v . We have now got a confirmation that the question mark (see chart #2 in “Will US banks trigger Black Tuesday” published on Feb 16) IS definitely VOID .
Chart #2
It is also the right time to ponder about the benefits obtained from a MULTIPLE approach; what we mean here is a “multiple chart type” approach; should you only refer to daily bar charts (please see chart #3 below), you may always counter that some indexes ( ADR , NYSE Composite , etc.) still “hold” and that the renewal of the bear is not yet warranted; on the contrary, a “multiple chart type approach” referring simultaneously to daily bar charts, daily close charts, weekly close charts and weekly bar charts is opening the door wide open to less doubts unnecessarily wandering in your mind……….
Chart #3
As to the depth of the bear initiated on Jan 2 (you may refer to “Why 2009 deleveraging stock market and commodities crash is ripe” from Jan 4), it is already clear from chart #2 that we have not seen enough of red wave iii ; as a matter of fact, all that we've got to see since February 9 is SHORTER than red wave i ; as we know from the rules of the basic EWP , a 3 rd wave can NEVER be the shortest wave of the entire move. In this regard, the daily view from chart #3 has a lot more to bring: both ADR and the NYSE Composite look to have completed a FULL 5 wave move from February 9 which we did label as blue i/ii/iii/iv/v = brown wave 1 ……….
As it is brought to your attention in chart #3 , brown L1 > brown L2 …………
In plain words, we now have 2 full 5 wave moves in a row, blue 12345 as red wave i then blue i/ii/iii/iv/v ; because the main trend is down, it is impossible to view these 2 successive moves as any kind of 5-3-5 and we have no other choice than facing a FULL 5 wave move down where red wave i is indeed THE “wave one”. Because of the principle of “size relativity” between waves of the same degree AND because VIX is ONLY at the early stage of its own blue wave iii , we're easily led to the most probable conclusion that red wave iii of green wave 5 would extend as brown 1/2/3/4/5 for global stocks; of course, without the MULTIPLE backing of EWS (Elliott Wave Synchronicity), such a direct conclusion may not be easy to get.
Beyond the threat of a steep brown wave 3 that will most likely “sparkle” with a new avalanche of bad fundamental news around the globe but most likely mainly in the US , the immediate future should be envisioned as a standard counter rally into “wave 4 of previous degree”; in other words, brown wave 2 would test the level of blue wave iv next week.
Chart #4
As a matter of fact, it is even possible that the early stage of brown wave 2 was already set on Friday, February 20 around the end of the trading session: as you can see in chart #4 , an intraday view of 2 US indexes is revealing what does look like a full 5 wave move taking place after 1 pm on that day. So far, that intraday 5 wave move may be part of a 5-3-5 that would later appear as “wave a” on a daily chart within a larger abc as brown wave 2 …………
Though it is impossible yet to figure out how long brown wave 2 would last, it should be expected to last LESS than red wave ii which appeared as a somewhat stressing red abc over 12 days (see chart #3 ): as a matter of fact, the market should be expected to shift into “higher gear” which is hinting at faster corrective patterns. In other words, while we had a DOUBLE dip into blue wave 4 thru red wave ii , it would be wiser to expect brown wave 2 to be limited to a SINGLE dip, without excluding the case that the dip would be swift and fall short of blue wave iv ….
Though it is a proven fact that there is NO correlation in the % loss for the trending BKX index and the NON trending global indexes ( ADR, DJIA, SPX , etc .), it should be noted that even US banks, having hit the lower trend of their medium term channel, would like to get a temporary relief before resuming their slide (see chart #5 ); as we already know from EWS principles presented in previous articles, the local situation of US banks is very much likely to evolve in full synchronicity with global averages…….
Chart #5
Besides, it is already possible to do some fine tuning about the probable depth of the ongoing slide once brown wave 2 is thru: in the table featured below, we did envision that brown wave 2 would be limited to the high of blue wave iv (see chart #3 ) and we did use the 1.6 and 2.5 ratios to compute the respective length of brown wave 3 and brown wave 5 from the high of blue wave iv ; for example, 7650-(1.6*1050) and 7650-(2.5*1050) give respectively 5970 and 5025 for the DJIA . Under any circumstances, shapes will be there in the future to amend these prospective figures.
| high | low | length | target | target | ||
| feb 9 | feb 20 | blue iv | brown 1 | brown 3 | brown 5 | |
| NYSE | 5 500 | 4 700 | 5 000 | 800 | 3 720 | 3 000 |
| SPX | 870 | 755 | 800 | 115 | 616 | 513 |
| DJ COMP | 2 960 | 2 520 | 2 650 | 440 | 1 946 | 1 550 |
| DJIA | 8 300 | 7 250 | 7 650 | 1 050 | 5 970 | 5 025 |
| ADR | 590 | 505 | 540 | 85 | 404 | 328 |
Market table for brown 3 & 5 depth_200209
Besides, it does look interesting to take a closer look at Gold and what may happen with it in the close future: as you can see with chart #6 , we did put Gold and Goldmines together into the same EWS .
Chart #6
Though anyone is now getting convinced that Gold is THE place where to be, facts do not confirm this widespread enthusiasm: as a matter of fact, it is clear that Gold is now going parabolic while goldmines follow a flattening rise; for those who prefer figures to shapes, this can be easily gathered from the table presented below.
L1 |
L2 |
L3 |
L4 |
L5 |
|
| GOLD | 13,97 | 13,79 | 16,66 | 15,62 | 11,73 |
| XAU | 45,16 | 42,85 | 50,00 | 30,00 | 8,33 |
| % ratio | 3,23 | 3,11 | 3,00 | 1,92 | 0,71 |
Gold & XAU diverging paths_200209
While taking the blue L1 to L5 intermediate cyclical lows, we did compute the % of each impulse to the next intermediate top for both Gold and the XAU index; tough the figures are approximate, the % ratio is clearly pointing out that Gold is accelerating while goldmines are sharply DE celerating; now that goldmines do achieve less than 1x the performance of Gold, we should be near the tipping point from where goldmines would somehow “drag Gold to the downside”.
That conclusion should come with no surprise to EWS practitioners : as we all know, NO single stock should be expected to remain safe from a major 3 rd wave, no matter if that wave is going up or down.
YES , as global stock markets should be approaching brown wave 3 of green wave 5 (this is DEFINITELY a “wave 3” ), the question at stake is whether goldmines would be able to stay apart OR NOT ; according to EWS principles , it might be wiser to regard the % ratio line from the table above as an advanced warning that brown wave 3 should engulf ALL stocks. As to Gold, though one may think of a $ 100 deep but standard pullback to the green trend in the first instance (see chart #6 ), it might be wise to consider the probability of a larger $ 200 slide echoing the $ 225 lost either from July to September 2008 (975-750=225) or thru October 2008 (925-700=225); that is at least what a close EWS study of the Gold/Xau ratio would be hinting at………
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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