Since April 26th, the S&P 500 has plunged 16.2 percent, the NDX has dropped 16.1 percent, the Industrials have lost 14.0 percent, and the Wilshire 5000, which is essentially the entire U.S. stock market, has crashed 16.5 percent. $2.0 trillion has been lost from the U.S. stock market over the past two months. More downside is expected before this crash pauses, and we give downside targets in this Weekend's Expanded Weekend Newsletter at www.technicalindicatorindex.com
In last weekend's article we warned that London's FTSE was in serious trouble. Since we wrote that article, the FTSE fell 4 percent. More downside is expected.
Major markets worldwide are plunging, with downside targets suggesting many indices could eventually approach zero, believe it or not. We are starting the second leg of one of the worst Bear Markets ever. The second leg of Bear markets sees the worst. This is a Grand Supercycle degree Bear Market, correcting a wave {III} rally from the 1,700's. It will be one for the ages, and will likely usher in major political changes. What those political changes are is anyone's guess, however we would not be surprised if one change involves a powerful attempt, which could be successful, in uniting western nations into a new super-sovereign nation-state. America's founding fathers must be turning in their graves. This economy is in deep trouble. Why? Because the Central Planners forgot about the American Household, forgot about their need for cash, failed to pass a massive income tax rebate, failed to repeal property taxes, failed to grease the primary spending pump, the American Consumer. Now we are getting the second and most dangerous phase of the Bear Market, catastrophic wave (C) down. It is just starting.
Short-term, there are several Bearish developments which took place this past week, including the crossing of the 50 Day Moving Average below the declining 200 Day Moving Average in the S&P 500 and NYSE. This "Death Cross" has also occurred in several international markets. We show this Death Cross in this weekend's expanded newsletter for subscribers at www.technicalindicatorindex.com, including coverage of historical market performance after such a crossing. We can tell you the picture is not pretty.
A second Bearish Development was the breakdown of prices in several U.S. market indices below the neckline of large Head & Shoulders top patterns from November 2009. This development is a confirmation of these patterns, meaning the probability of stock prices falling to downside targets is now high. We show those charts in this weekend's report.
Markets are oversold, however some of the greatest declines in market history occurred at oversold levels. For example, our Percent Above 30 Day indicator is at zero. However, in 2008, on October 7th, 2008, this indicator hit zero, and then was followed by a two week crash. That does not mean a crash has to occur now, but it can.
Conditions are conducive to a stock market waterfall decline at this time. We have a very unhealthy market, reminiscent of the condition normally identified by the Hindenburg Omen. While we do not have an H.O. at this time, we have had ten 90 percent panic selling down days, interspersed with six 90 percent up days over the past two months. This suggests a very unhealthy market. Normal healthy markets have consistent Bullish action or consistent Bearish action (which leads to important bottoms), but not both at the same time. This is a dangerous situation.
The chart below shows a massive Head & Shoulders top in the Wilshire 5000, with a downside target of zero, possibly being reached in 3 to 5 years. Between now and then we expect a stairstep plunge, a series of crashes and countertrend bounces.
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"Jesus said to them, "I am the bread of life; he who comes to Me
shall not hunger, and he who believes in Me shall never thirst.
For I have come down from heaven,
For this is the will of My Father, that everyone who beholds
the Son and believes in Him, may have eternal life;
and I Myself will raise him up on the last day."
John 6: 35, 38, 40
