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Tomorrow may tell us what kind of Stock Market Decline we Face

Stock-Markets / Stock Markets 2016 Jun 28, 2016 - 03:05 AM GMT

By: Anthony_Cherniawski


Let’s put this decline into perspective for a minute. The 2113.32 high is the equivalent of the December 29 high at 2081.56. In the first two days of that decline (12-29 to 31-2015) SPX declined to 2043.62, a 37.94 point drop. Today we have completed the second day of the decline from 2113.32 and have travelled 121.60 points, 3.2 times the distance of the December-January decline. Wave [iii] of C in January declined by 269.27 points. Do the math. This is huge.

That is why I have re-labeled Waves 1 and 2 to Waves (1) and (2), a full degree larger than before. The week of July 4, our next Pi date, is targeted to be the bottom of Wave (3). Should the above relationship hold, we may see Wave (3) decline to 1251.66…

…That takes SPX all the way back to its low on June 10, 2012. It makes the standard technical analysis pale in comparison. Of course, the Head & Shoulders target is a minimum, but really? This is almost too much.

If the January decline was made in 13.5 days, then this decline may do at least the same. My earlier estimate of 8.6 days (July 7) may easily stretch to 12.9 or 13.5 days (July 13-14).

So far, this is all speculation. It will depend on tomorrow’s behavior. A decline of approximately 50 points may tell us the market is still orderly, then a bounce. However, major supports have already been breached. Should SPX decline to its neckline in the next couple of days, then we may be in for the ride of our lives.

The January 4 (opening day of 2016) declined 48.52 points. That is tomorrow’s equivalent day times 3.2 (155.26 points). Should the SPX decline to the mid-1800’s, then we know for sure that we have a lion by the tail.

What may be the catalyst? Take a look at BKX. It is down nearly 16% from its May 25 high. Now look at the Bearish Flag target. This proposes nearly a 50% decline from the May high.

I have heard stories from people of margin accounts being cut to 10% in the last couple of days. This tells us that banks may be distressed and cannot afford any more losses on margin. There are more than a few banks that are candidates for a default or failure, even though they passed their stress tests.

Deutsche Bank is a prime candidate, with a reported leverage of 28.6X. By this definition, they may already be in default.

A “limit down” in the banks may tell us that there is trouble, even before the particular banks are identified.



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As a State Registered Investment Advisor, The Practical Investor (TPI) manages private client investment portfolios using a proprietary investment strategy created by Chief Investment Officer Tony Cherniawski. Throughout 2000-01, when many investors felt the pain of double digit market losses, TPI successfully navigated the choppy investment waters, creating a profit for our private investment clients. With a focus on preserving assets and capitalizing on opportunities, TPI clients benefited greatly from the TPI strategies, allowing them to stay on track with their life goals.

Disclaimer: The content in this article is written for educational and informational purposes only.  There is no offer or recommendation to buy or sell any security and no information contained here should be interpreted or construed as investment advice. Do you own due diligence as the information in this article is the opinion of Anthony M. Cherniawski and subject to change without notice.

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