Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
How Much CHIA Coins Profit from 100 Plot 10tb Farm? Hard Drive Space Mining - 13th May 21
Stock Market Bulls Getting Caught in the Whirlwind - 13th May 21
Legoland Windsor Mini land and Sky Train Virtual Tour in VR 360 - UK London Holidays 2021 - 13th May 21
Peak Growth and Inflation - 13th May 21
Where’s The Fed? Watch Precious Metals For Signs Of Inflation Panic - 13th May 21
Coronavius Covid-19 in Italy in August 2019! - 13th May 21
India Covid Apocalypse Heralds Catastrophe for Pakistan and Bangladesh - 13th May 21
TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
Gold Price During Hyperinflation - 12th May 21
Stock Market Extending Phase Two? - 12th May 21
Crypto 101 for new traders – ETH or BTC? - 12th May 21
Stock Market Enters Early Summer Correction Trend Forecast Time Window - 11th May 21
GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
Cathy Wood Bubble Bursts as ARK Funds CRASH! Enter into a Severe Bear Market - 11th May 21
Apply This Technique to Stop Rushing into Trades - 10th May 21
Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
CHIA Getting Started SSD Crypto Mining by Plotting and Farming on Your Hard Drives Guide - 9th May 21
Yaheetech Mesh Best Cheap Computer /. Gaming Chairs on Amazon Review - 9th May 21
Breaking US Trade Embargo with Cuba - Build 7 Computers in 14 Hours Before Ship Sales Challenge - 9th May 21
Dripcoin Applies New Technology That Provides Faster Order Execution - 9th May 21
Capital Gains Tax Hike News: Was It REALLY to Blame for Sell-off? - 7th May 21
Stock Market Transportation Index Continues To Grind Higher - 7th May 21
SPX Stock Market Correction Arriving or Not? - 7th May 21
How to Invest in an Online Casino? - 7th May 21
Gold & Silver Begin New Advancing Cycle Phase - 6th May 21
Vaccine Economic Boom and Bust - 6th May 21
USDX, Gold Miners: The Lion and the Jackals - 6th May 21
What If You Turn Off Your PC During Windows Update? Stuck on Automatic Repair Nightmare! - 6th May 21
4 Insurance Policies You Should Consider Buying - 6th May 21
Fed Taper Smoke and Mirrors - 5th May 21
Global Economic Recovery 2021 and the Dark Legacies of Smoot-Hawley - 5th May 21
Utility Stocks Continue To Rally – Sending A Warning Signal Yet? - 5th May 21
ROIMAX Trading Platform Review - 5th May 21
Gas and Electricity Price Trends so far in 2021 for the United Kingdom - 5th May 21
Crypto Bubble Mania Free Money GPU Mining With NiceHash Continues... - 4th May 21
Stock Market SPX Short-term Correction - 4th May 21
Gold & Silver Wait Their Turn to Ride the Inflationary Wave - 4th May 21
Gold Can’t Wait to Fall – Even Without USDX’s Help - 4th May 21
Stock Market Investor Psychology: Here are 2 Rare Traits Now on Display - 4th May 21
Sheffield Peoples Referendum May 6th Local Elections 2021 - Vote for Committee Decision's or Dictatorship - 4th May 21
AlphaLive Brings Out Latest Trading App for Android - 4th May 21
India Covid-19 Apocalypse Heralds Catastrophe for Pakistan & Bangladesh, Covid in Italy August 2019! - 3rd May 21
Why Ryzen PBO Overclock is Better than ALL Core Under Volting - 5950x, 5900x, 5800x, 5600x Despite Benchmarks - 3rd May 21
MMT: Medieval Monetary Theory - 3rd May 21
Magical Flowering Budgies Bird of Paradise Indoor Grape Vine Flying Fun in VR 3D 180 UK - 3rd May 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Just Formed a “Death Cross” - Should You Worry?

Stock-Markets / Stock Markets 2015 Sep 21, 2015 - 05:29 PM GMT

By: Casey_Research

Stock-Markets

By Justin Spittler

The world economy appears to be stalling…

Yesterday, we got news that South Korea’s exports dropped 14.7% since last August...their largest decline since the financial crisis. It’s far worse than the 5.9% drop economists were expecting.


South Korea’s exports are important because they’re considered a “canary in the coalmine” for the global economy. South Korea is a major exporter to the largest economies in the world including China, the US, and Japan. South Korea also releases its export numbers much earlier than other major countries. That’s why a bad reading for South Korean exports is often the first sign that the global economy is in trouble.

The ugly news slammed stocks around the world. Chinese stocks dropped 1.3%…Japanese stocks dropped 3.8%…and the major indexes in Germany, the United Kingdom, France, and Spain all lost at least 2%.

•  These big drops came one day after the worst month for global stocks in over three years…

Regular Casey readers know last month’s selloff hit every major stock market on the planet. China’s Shanghai index lost 12%...Japan’s Nikkei lost 7.4%…and Europe’s STOXX 600 lost 8.5%.

The MSCI All-Country Index, a broad measure of the global stock market, fell 6.8%...its worst month since 2012.

US stocks also fell hard. The S&P 500 lost 6.3% in August. And the Dow Jones Industrial Average fell 6.6%. It was the Dow’s worst month since May 2010, and its worst August in 17 years.

•  Bearish signs are popping up everywhere…

Last month’s crash dropped the S&P 500 below an important long-term trend line.

A long-term trend line shows the general direction the market is heading. Many professional traders use it to separate normal market gyrations from something bigger. Think of it as a “line in the sand.”

The market is constantly going up and down…but as long as we’re above the long-term trend line, the dominant trend is still “up.” But when a selloff knocks the stock market below its long-term trend line, it’s a sign the trend might be changing from up to down.

As you can see from the chart below, there have been a few “normal” selloffs since 2011. On Friday, however, the S&P dropped below its long-term trend line for the first time in about 4 years.

•  The broken trend line isn’t the only bearish sign we see right now...

US stocks are also very expensive.

Robert Shiller is an economics professor at Yale University and a widely respected market observer. Shiller is best known for creating the CAPE (Cyclically Adjusted Price Earnings) ratio. It’s a cousin of the popular price-to-earnings (P/E) ratio.

The P/E ratio divides the price of an index or stock by its earnings-per-share (EPS) for the past year. A high ratio means stocks are expensive. A low ratio means stocks are cheap.

The CAPE ratio is the price/earnings ratio with one adjustment. Instead of using just one year of earnings, it incorporates earnings from the past 10 years. This smooths out the effects of booms and recessions and gives us a useful long-term view of a stock or market.

Right now, the S&P’s CAPE ratio is 24.6…about 48% more expensive than its average since 1881.

•  US stocks have only been more expensive a handful of times…

Shiller explained why he’s worried in a recent New York Times op-ed:

The average CAPE ratio between 1881 and 2015 in the United States is 17; in July, it reached 27. Levels higher than that have occurred very few times, including the years surrounding the stock market peaks of 1929, 2000 and 2007. In all three of these instances, the stock market eventually collapsed.

For the S&P’s CAPE ratio to decline to its historical average, the S&P would have to drop to around 1,300. That would be a disastrous 34% plunge from today’s prices.

To be clear, this doesn’t mean a crash is imminent. Like any metric, the CAPE ratio isn’t perfect. CAPE is helpful for spotting long-term trends, but it can’t “time” the market.

But the high CAPE ratio is one more reason you should be extra cautious about investing in US stocks right now.

•  It also means you should take steps to prepare…

As we write on Tuesday afternoon, stock markets around the world are in a free fall. The S&P 500 dropped another 3% today.

On top of that, the current bull market in US stocks is now one of the longest in history. It’s already two years longer than the average bull market since World War II.

And as we’ve explained, according to the CAPE ratio, US stocks are overpriced.

We can’t tell you for sure when the next financial crisis will hit. No one can.

But we do urge you to prepare. What’s happening right now shows how fragile the markets are. You shouldn’t ignore the mounting evidence that our financial markets just aren’t healthy.

We lay out every step you should take to prepare for the next financial crisis in our book, Going Global 2015.

This important book shows you how to get your wealth out of harm’s way and profit from the next financial disaster. It’s must-read material for anyone who’s serious about “crisis-proofing” their wealth. Right now, we’ll send it to you for practically nothing…we just ask that you pay $4.95 to cover processing costs. Click here to claim your copy.

The article Should You Worry That the Stock Market Just Formed a “Death Cross”? was originally published at caseyresearch.com.
Casey Research 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