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Technical charts show the US stock market about to crash

Posted on 18 February 2013 with 2 comments from readers

Our favorite technical analyst Clive Maund has filed a particularly bearish chart today looking at the S&P 500 over the past 20 years (see below). While he does not rule out the market moving slightly higher from here the longer trend downwards is very clear.

From past experience Mr. Maund can conclude that ‘these broadening patterns do not normally break out in on their D wave’. What happens is you get the plunge to make the lower E wave first.

Past precedent

He sums up: ‘This is what happened in the 60’s and 70’s – if it happened this time bulls are going to be more than disappointed, they will be annihilated’.

There is plenty of other technical support for this extremely bearish conclusion. Mr. Maund has his finger on the pulse of these indicators too…

‘Quite clearly, if this is what is set to transpire, then we are looking at one helluva drop from here – and there are various indications that this is going to happen, including the extreme bullishness of newsletter writers, the Smart/Dumb confidence ratio, the VIX and VIX COT etc… and of course the fact that the market has arrived at a zone of massive resistance approaching its 2000 and 2007 highs, which is as good a point as any for it to turn down.’

Another sign of a market top is some increasingly absurd market stories to justify high prices. For instance, we here of a 16-year old girl whose stock picking is beating the professionals (see video below).

Or less directly a story about Chinese New Year retail sales tells us anecdotes about poor revenues for luxury shops and then gives a ridiculously high figure for overall sales growth despite the absence of national statisticians on their holidays.

Big takeovers are also a danger signal. The $28 billion Heinz deal last week is reminiscent of the AOL/Time Warner takeover just before the dot-com crash. This is certainly no guarantee of a new uptrend. AOL was absurdly overvalued and so was Heinz.

Reality check

Besides we all know, if we stop to think for a moment that the global economy is flat and anaemic at best and that there is no justification for the recent doubling of stock prices. It is another bubble created by credit, this time from a balloon in government debt.

Could technical chartists like Mr. Maund be completely wrong? It is possible but the balance of probability is now heavily stacked in their favor. We wonder if this will not be 1974 rather than 1987 when stocks went down and stayed down. It was all in the charts then too.

Sell stocks and go short is what the charts are telling you now!

Posted on 18 February 2013 Categories: Banking & Finance, Bond Markets, Global Economics, Hedge Funds, Investment Gurus, Sovereign Wealth Funds, US Stocks

2 Comments posted by readers:

Comment by desert dream - 22 February 2013

I’m with you on this one – it will crash in the next few months…retailers are going to lose big as they come into the last leg of the rally…same for Dubai prop.

Comment by Mike - 07 March 2013

1. The US fiscal cliff debate will re-emerge in April/May
2. The gold price falls will level off encouraging equities to be sold and gold to be bought
3. The equity sell in May and go-away will IMHO prove very true this year ….
4. Italy/France and the EU budget/austerity issues will re-weaken markets in April
5. US hiring for Spring will be less than expected

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