Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
9.WE HAVE NO CHOICE BUT TO INVEST IN STOCKS AND HOUSING MARKET - Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
Elliott Waves: Your "Rhyme & Reason" to Mainstream Stock Market Opinions - 6th Aug 22
COST OF LIVING CRISIS NIGHTMARE - Expect High INFLATION for whole of this DECADE! - 6th Aug 22
WHY PEAK INFLATION RED HERRING - 5th Aug 22
Recession Is Good for Gold, but a Crisis Would Be Even Better - 5th Aug 22
Stock Market Rallying On Slowly Thinning Air - 5th Aug 22
SILVER’S BAD BREAK - 5th Aug 22
Stock Market Trend Pattren 2022 Forecast Current State - 4th Aug 22
Should We Be Prepared For An Aggressive U.S. Fed In The Future? - 4th Aug 22
Will the S&P 500 Stock Market Index Go the Way of Meme Stocks? - 4th Aug 22
Stock Market Another Upswing Attempt - 4th Aug 22
What is our Real Economic and Financial Prognosis? - 4th Aug 22
The REAL Stocks Bear Market of 2022 - 3rd Aug 22
The ‘Wishful Thinking’ Fed Is Anything But ‘Neutral’ - 3rd Aug 22
Don’t Be Misled by Gold’s Recent Upswing - 3rd Aug 22
Aluminum, Copper, Zinc: The 3 Horsemen of the Upcoming "Econocalypse" - 31st July 22
Gold Stocks’ Rally Autumn 2022 - 31st July 22
US Fed Is Battling Excess Global Capital – Which Is Creating Inflation - 31st July 22
What it's like at a Stocks Bear Market Bottom - 29th July 22
How to lock in a Guaranteed 9.6% return from Uncle Sam With I Bonds - 29th July 22
All You Need to Know About the Increase in Building Insurance Premiums for Flats - 29th July 22
The Challenges on the Horizon for UK Landlords - 29th July 22
The Psychology of Investing in a Stocks Bear Market - 26th July 22
Claiming and Calculating The Research and Development Tax Credit - 26th July 22
Stock Market Bearish Test - 26th July 22
Social Media Tips and Writing an Effective Call to Action - 26th July 22
Has Rishi Sunak Succeeded in Buying His Way Into No 10 - Fake Tory Leadership Contest - 26th July 22
The Psychology of Investing in a Stocks Bear Market - 26th July 22
Claiming and Calculating The Research and Development Tax Credit - 26th July 22
Stock Market Bearish Test - 26th July 22
Social Media Tips and Writing an Effective Call to Action - 26th July 22
Has Rishi Sunak Succeeded in Buying His Way Into No 10 - Fake Tory Leadership Contest - 26th July 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

US Stock Markets Dome Top Signals Tragic End of the Bull Market

Stock-Markets / US Stock Markets Jan 18, 2008 - 01:03 AM GMT

By: Clive_Maund

Stock-Markets Best Financial Markets Analysis ArticleThe large top area now forming in the main US stock market indices is now approaching completion. Given the horrifying fundamentals it is a wonder that they haven't broken down and gone into freefall already. Only 2 things have supported the market since the major financial crisis burst out into the open last August. One is massive injections of liquidity - money that was created artificially out of nowhere by the Fed and central banks worldwide in order to paper over the cracks and buy time, which must feed through into higher inflation.


The other thing is Wall Street's primal need to pay itself huge Christmas bonuses, which might have become untenable had the markets nosedived. Now, with the big fat bonus checks comfortably cleared into accounts, one of the props holding the market up has fallen out. That only leaves more and more money creation and the investment community's awareness of this is driving gold higher and higher.

On the 2-year chart for the S&P500 index we can see how, following the August mini-panic, the market has zig-zagged around completing a large top area. Of particular note is the fact that the latest rally, the 'Santa Claus' rally in December, got nowhere near the earlier high in October before it petered out and went into reverse. This year then got off to a bad start with a steep drop, that has brought the index down to the top of an important zone of support. The 50-day moving average has dropped below the 200-day, which will soon turn lower, a bearish development. The index is now short-term oversold, however, so we may see some sort of rally, which is unlikely to get very far. Any near-term rallies should, of course, be sold.

Any readers interested in topiary, the art of cutting hedges into shapes and figures, will appreciate the fine symmetry displayed on the long-term 10-year S&P500 index chart, on which we can see that the long uptrend in force from early 2003 through mid-2007 was brought to a dead stop by the heavy resistance at the 2000 highs, beneath which another top can be seen to be forming. On this chart it is clear that once the lower uptrend channel line fails, and the support in the 1360 - 1400 area is breached, the risk of a devastating plunge will increase substantially. Would such a plunge take down Precious Metals stocks with it? - no, because the circumstances causing it will result in gold and silver going parabolic - we have already seen gold and PM stocks decouple from the broad stockmarket during the past week or two, and they should now stay decoupled. Note that there is one exceptional circumstance in which the US stockmarkets could rally nominally, but still be falling heavily in real terms, and that is where the money supply is expanding at a very rapid rate, and inflation is rampant, so the rising prices mean nothing except that you can't make money out of Put options.

If you are impressed by the performance of US stocks generally since 2003, then you are probably suffering from delusion, a condition which fortunately can be cured almost instantly by glancing at the 10-year chart for the $&P500 index measured in Euros. This immediately reveals the advance from March of 2003 to be nothing more than an anemic bear market rally. This rally took the form of a bearish Rising Wedge which topped out last year where you would expect it to, beneath the neckline resistance of the large loose Head-and-Shoulders top that developed between 1999 and early 2002. Having broken down from the Wedge, the index (in Euros) has fallen back quite sharply to the support level shown. Once this fails the decline is expected to accelerate.

The conclusion from all of this should be obvious - apart from some isolated pockets of strength you should be out of the broad stockmarket by now, and any remaining holdings should be sold, especially on any short-term rallies, which can also be shorted. A high weighting of funds should be deployed in commodities generally and especially in the Precious Metals sector. Things are likely to get really rough for the US economy in 2008, which promises to be the worst year for the US since The Great Depression.

By Clive Maund
CliveMaund.com

© 2007 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.


Post Comment

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