The Market's 'Horoscope': Downside Correction

OK this is a story for the silly season, perhaps. But if you do a Google search ’stock market crash astrology 2009′ then an article appears that claims the author first forecast August 14th for a big stock market crash as long ago as July 1996.'

It is but a year ago that I scoffed at another astrological prediction about a coming autumn stock market crash, although I did write a number of articles at that time endorsing this view. That said, I was far too positive about oil, gold and Dubai property last summer and would have been better off listening to the astrologers.

So what are they saying now?

Worldwide, housing prices have risen to near frightening levels. Most economically active people in the world are up to their eyes in debt. People own luxuries and properties that they can barely afford. America is in debt as a country. Most of the world is in debt, and we have just come through the greatest rise in the stock markets ever!

What is happening? The stage is being set for a massive wipeout in equities worldwide. The days of this supercycle peak that fund managers believe they can ride for much longer are numbered. People are going to wait too long and when the stampede begins, they won’t be able to find buyers for their stocks. Hedge fund strategies will fail. Absolute returns will fail. Pension funds will suffer.

Civil infrastructures will be tested to their limits against growing numbers of the poor as they migrate to richer countries. Companies will be going bankrupt by the dozen.

It is time you began to reflect on this possibility very seriously. It could be many years before the equity markets even begin to regain their current levels. If you do not have five to 10 years to spend waiting for your investments to recover, then the stock markets are definitely not the place you should be at the end of this decade.

My Own Take

Personally this is what I expect to happen: weakness in global stock markets could well set in next week, and the S&P has faltered at a 49 per cent retracement from March lows, already a historic rally that surely can not head much higher.

The sell-off should gain momentum and the risk is that a panic ensues and stocks over correct to the downside. That is what they normally do, and this is the worst recession in living memory, so logically it ought to be a worse market downturn than normal (and certainly not better as it is now).

Stock market slumps are usually quick, however, although a long-term secular bear market does not mean that the low of this cycle is necessarily the final bottom. That could still take two, three or even five or ten years (like Japan).

It would not be unreasonable to expect a capitulation this autumn to hit 50 per cent of current levels, or 500 points on the S&P.

Comments

[Spartacuss:]

Interesting comments here, however, the astrological stuff, well, "tha's entertaninment", however, I must say that I stayed away from this rally. Sure, I could have jumped in on a number of fronts, but I had two trepidations. First this sizing problem and then the sudden abrupt fall to follow.

The problem is the "when" thing. What usually happens is that greed sets in. You are booking great profits day by day, but then you let a little euphoria set in. In other words you are reluctant to get out. And then, of a sudden a dip starts, a retracement, but these retracements are normal aren't they. Hang in, it will bounce back as it always does.

The big problem is simply when to accept loss and get out. When a dynamic is as big as the one before us we can safely conclude that there is big money to be made and there is big money to lose and in the latter sense we can see, historically, when the good folks are runnning for the exits things can go to hell faster than you can say Jack Robinson. That was my fear, that the bottom could fall out so fast that by the time you realized it was time to get out it was too late...all gains lost.

Second to all that it appears that this fall will provide tattles on just how bad things really are and precipitate a gigantic sell off and will catch the lumpins right in the pocket book. I won't go into all the garish details as they are right there in your face if you can tear yourself away from charting long enough to look at the real world out there.

Aug 09 09:03 AM

[Moon Kil Woong:]

Historically, November used to be the month most likely to see a large market selloff. Then it moved to October. It is possible that inevitably it will move to September. Although, the market tends to have a lot of worries before Christmas and it's good to hedge a bit, if the market does not pull back at least some during this period then the bull is back in the big way. Hedging your short is a smart thing to do too in light of that. If you want to play seasonal downturn you might get really burned.

As for government stimulus. It tends to work in the short term and tends to hurt in the long term. Thus, I am not expecting any major correction as the brunt of the last stimulus hits next year. The only real hiccup can be a complete erosion of our debt funding. So in my mind US Treasury auctions and the erosion of the dollar are my principal worries right now.

Aug 09 10:09 PM

[Burticus:]

Supplement with predictions from other gurus and the web bots...

My theory is that TPTB will pump stocks to around Dow 10,000 S&P 1,100 then, after Goldman's leveraged positions are in place, reverse the media propaganda and pull their fingers out of the dyke, shorting stocks to a new low, sheering the sheeple the whole way down into October, interrupted only by a September bank holiday. Then, after covering their shorts and putting new positions in place, TPTB will give the nod and the unwitting sucker-dupes who stampeded to the "safety" of the FRN, treasuries and bonds will get vaporized by the dollar collapse and hyper-inflation in early November. Derivative defaults will close the emergency exits to commodities on the bloodied, panicked herd.

Real physical gold and silver will be the only things left standing among the crispy critters in the twisted smoking wreckage.

Waddaya think, Mr. Cooper?

Aug 09 11:12 PM

[Peter Cooper:]

Yes that could be right or they may be ahead of you and the rally reverse is already happening - but gold and silver would fall along with everything else, apart from bonds and short positions. Not that I think precious metals have that much downside - and they have a great upside to follow when the bond market tops out.

Aug 10 04:16 PM

[Peter Cooper:]

It seems to be continuing today (Monday) and the short ETFs have gone wild, see:
finance.yahoo.com/etf/...

I think it is a ride down now until early November unless governments intervene...

Aug 17 06:08 PM

[AM qureshi:]

I have a request for Mr. Peter. I am big fan of your articles.I want to know your vision on the EMAAR's near future share price.EMAAr certainly has issues i.e merger,( dilution i.e EMAAR 68 Billion assets VS 120 Billion of the other two),Lost case in Saudi worth Billions, and an uncorrected rally from 2.25 in August to 4.35 on October 6 th,2009.
What is your view on what will happen to EMAAR share price in near future.
Thanks in advance for your comments.

Oct 06 09:31 AM