Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Crash - Are We Heading For 1987 All Over Again?

Stock-Markets / Stock Market Crash Jun 06, 2015 - 06:58 PM GMT

By: Toby_Connor

Stock-Markets

History has been pretty clear. When the Fed prints too much money, and holds interest rates too low for too long, it eventually it creates a bubble followed by a market crash. It happened in 2000 with tech stocks. Then again in 2006 with real estate. Followed not long after by a collapse in the banking system. Then a bubbling oil and commodities. And now I would argue we have the beginnings of a bubble in biotech. So the question is will we experience another crash like we did after each one of those previous bubbles? I think the odds are high we will. Especially if the Fed doesn’t immediately end its stock market interventions.


Let me show you what I’m seeing unfold.

Ever since QE3 ended, it’s been my opinion that the Fed has had to intervene much more often in US stock market to prevent it from collapsing like it did in 2010 and 2011 when QE1 and QE2 came to an end. These interventions are going to come with a price. By not allowing the market to correct naturally the Fed is causing more and more complacency to build in the market, and complacency is what triggers a market crash.

The current intermediate cycle is already extremely stretched at 33 weeks. It has for daily cycles embedded within it. It already contains one extremely stretched daily cycle, thanks to Fed intervention.

A normal intermediate cycle shouldn’t have more than three daily cycles embedded within it, and the intermediate degree decline should occur at the bottom of the third daily cycle. The Fed has artificially stretched the current intermediate cycle to include a fourth daily cycle. This market desperately needs to undergo a sharp profit-taking event this month to cleanse the sentiment extremes that are building up. The current fourth cycle needs to be allowed to move down into an intermediate degree correction over the next 3-4 weeks. At a bare minimum the market needs to drop back and at least test the 62% Fibonacci level at 1940.

Now here is where the risk of a market crash appears. If the Fed continues to intervene and prevents this fourth daily cycle from producing a strong corrective move over the next several weeks, if they stretch the intermediate cycle to include an unprecedented fifth daily cycle, then there will be no escaping some kind of crash event this fall. You just can’t hold back the natural forces of the market forever without unleashing serious consequences.

So here’s what needs to happen. The correction that started on May 22 needs to accelerate next week, and at least make it to the major support zone at 2040 before bouncing.

If the Fed intervenes again on Monday, and turns the market back up, then there is risk that the daily cycle is going to run out of time to produce an intermediate degree correction. If that happens then it would require a fifth daily cycle before the intermediate degree correction could occur. Intermediate cycles don’t naturally stretch to 4 daily cycles much less 5. If the Fed continues to intervene in the markets and forces and unheard of 5th daily cycle, there is no doubt in my mind that the consequences will be a violent crash event this fall as the pent-up corrective forces finally overwhelm the manipulation keeping the market artificially propped up.

And don’t forget that the seven-year cycle low has to at least break the cycle trendline to qualify and meet the parameters of a multiyear cycle low. That means the crash would be deep enough to test the 2000 & 2007 tops at 1550.

So unless the Fed wants to deal with another 1987 style crash this fall, they need to immediately end the manipulation preventing the market from undergoing its natural corrective patterns.

Toby Connor

Gold Scents  

    GoldScents is a financial blog focused on the analysis of the stock market and the secular gold bull market.   Subscriptions to the premium service includes a daily and weekend market update emailed to subscribers.  If you would like to be added to the email list that receives notice of new posts to GoldScents, or have questions,email Toby.

    © 2015 Copyright Toby Connor - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 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