Entering text into the input field will update the search result below

DJIA: Best Evidence Of A Coming Crash

Apr. 08, 2021 9:40 AM ETDJI148 Comments
Man Yin To profile picture
Man Yin To


  • Minsky identified 5 stages in a typical bubble - displacement, boom, euphoria, profit-taking, and panic.
  • It is the euphoria stage that is most important in predicting when a bubble is about to pop.
  • Based on historical bubbles, a descriptive method has been invented to identify when a bubble is in the making.
  • Linear regression on the most recent 18-month DJIA closes is used to measure the intensity of the euphoria. When compared with historical norms, investors are in a better position to realize the market risk.

Economy Crash
Photo by sefa ozel/E+ via Getty Images


In a financial context, the term 'bubble' generally refers to a situation where the price of an entire market exceeds its fundamental value by a large margin. The concerned market index rises rapidly at an unprecedented

This article was written by

Man Yin To profile picture
Before joining Seeking Alpha, I was a trader at a proprietary trading firm in Hong Kong. I graduated from the University of Sydney with a Bachelor's degree in Accounting & Finance. If you like my articles, please consider subscribing and becoming a patron.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (148)

Bruh that means right now we are going to market crash based on regression is 1.3 right now
Ponti_fication profile picture
@Man Yin To @kimbillro

"U.S. consumer prices increased by the most in nearly 12 years in April as booming demand amid a reopening economy pushed against supply constraints, data on Wednesday showed. 10-year U.S. Treasury yields US10YT=RR rose to a five-week high of 1.7040%, increasing the appeal of dollar-denominated assets.

Signs of a stronger labour market and increased consumer spending would offer more evidence that inflationary pressure will pick up, which could push yields and the dollar even higher, traders said."
@Ponti_fication , Yike, Yikes, Yiko, Yikos...things look bad for da bulls.
Ponti_fication profile picture
@kimbillro @man Yin To

Hope this helps = one is never too old to learn ; there is none so blind as those will not see ; one can learn from anyone.

Yike : www.collinsdictionary.com/...
Yikes : www.youtube.com/...
Yiko : www.youtube.com/...
Yikos : www.urbandictionary.com/...
@Ponti_fication , Thanks for validating my woids. Ya dug deep to validate ma 4 woids. Even though I'm not from New Joisy or New Yoik, I still pronounce words...woids. You makin me feel bad I booted da X-man because he has dropped out. I shoulda been more inclusive I suppose you gonna tell me, but I hadda do it. No, don't forgetaboutit...what doya thinkaboutit? Bootin da X-man?
@western_deep , A top will form some day!
@kimbillro gonna go out on a limb and be a big time predictor: the GDXJ, the gold stock true bell weather, will never again trade below 50. the move today in the first hour is very impressive, and gold also looks like it is for real in the face of obvious flimsy general market. Cryptos look like crap and that too may be good for gdxj and gold (and silver). Time will tell. "Mark my words!!"....lol
@johnnyola , Mr. JohnnyPayola, I hope you are right about cryptos.
i find I cannot invest in anything. .....even the gdx and gdxj will get crushed over the next several months...
@johnnyola , Where are you putting your cash?
@kimbillro I am in gdxj, which i sold today, and hated to do it.....trying to time the market to avoid a big swoosh down.
@johnnyola , Good timing!
Somehow nobody seems to note the second most important fact, that net year's earnings will be about $200 for S&P500 and the 10 year govt bond benchmark is paying under 2%, in fact it is near the dividend yield on DJIA which is gaining in profits.
$200 at 4% earnings yield not dividends is about 25 P/E and that would be about 25x200=5000 on the S&P500, not a reasonable price next year based on what matters most, earnings vs interest rates. Never mind that the rate are historically low, they are not that temporary.
@chrisA23 , $200? I don't think so!
Ill grant you that a crash is very, VERY unlikely, but to outright say one is not coming is a bold call. The article was good, but if people knew when a crash was coming, it wouldn't happen...
Ponti_fication profile picture

You assuming people always act rationally. Many examples in life and the markets, however, where despite knowing what's coming, people yet act at odds with that particular certainty.
@Ponti_fication Haha I assume absolutely no such thing. To the contrary, I assume people will act as far from rational as they can possibly get. That is proved right every day. What I have found is that trading invloves more of trying to read people than read charts. I hate that it works that way, but it is what it is.
Ponti_fication profile picture

Bless you
Thank you for your very thoughtful analysis of historical Economic-Psychologically driven investment behavior. I believe you are on to something and look forward to your future development, data verification and eventual "fundamental theory development" that may lead your work to be a seminal advancement.

@Gordon SA , Ring me a bell at the top!
I’m thinking “sell in May and go away”.... Until December hehe
Ponti_fication profile picture
Not to worry, @iconstockkilledme , as Hussman states in his 11 April 2021 Market Comment *: " Always a reckoning" ; so, @xeloris had better take note !

You too @kimbillro OK

www.hussmanfunds.com/... : Always a Reckoning

*Seekingalpha soon publishes this Market Comment, themselves creating the introductory bullet points.

PS: Hussman's Bitcoin views attracted the "Editor's Choice" award.
@Ponti_fication , Just give me a top!
Ponti_fication profile picture

There you are :www.youtube.com/...

You are very welcome.
@Ponti_fication ,

"I see said the blind man!" - Joan of Arc
Why do you think a crash is not coming? I'm deciding if there will be a crash in the next few months and found your article...
Man Yin To profile picture
@TonyGTO I’m anticipating a nice apex to finish this bubble. In 4 months, the 18-month slope would surge to a surprising level. I’m confident in this prediction. Monitor closely.
You are spot on and I could only think of one more additional index. Of the three major indices, the one that has been stretched the farthest is the Nasdaq 100 Index. That or QQQ would potentially a worst case. I would think when that bubble bursts, the others will follow. Thanks for your analysis.
Man Yin To profile picture
@adterrier Thanks for your reminder. The NASDAQ will be the theme of another article I plan to write about.
People laugh and ridicule me when I suggest putting new money in an aggregate bond market ETF but I believe it offers a relatively good return at this point. The Schiller PE implies a stock market average annual return of 0.0% for the next ten years.
Chip Chipperson profile picture
@Vincent1966 0%? Drugs are bad, mkaaay.
Man Yin To profile picture
@Vincent1966 Interesting… People rush to buy into the stock market that renders zero returns. Maybe the biggest challenge to gravity is insanity! Scientists may need to look into this arena to discover a theory for it.
@Chip Chipperson There was a period of 17 years over which the DJIA lost one point. Google it.
UnderdogAchiever profile picture
What happened to "don't fight the FED"
Man Yin To profile picture
@UnderdogAchiever Gravity is an invention of GOD, as ‘implied’ in the Old Testament. Is FED going to remove it?
UnderdogAchiever profile picture
@Man Yin To I'm just not seeing a major correction this year, too many tailwinds. No reason to bring God into it.
@UnderdogAchiever too much money being printed up too quickly. Rates have stalled and are falling. Inflation is rising which helps corporate profits.

I agree with the tailwinds.
Pyraminsider profile picture
So many possible solutions for an overbought market.
5% and 10% corrections are fairly common and not predictable.
Bear markets often have multiple down legs that total more than 20% of the market price but what you are suggesting would mean the rally after the March 2020 major correction was a dead cat bounce at the monthly chart resolution.

In the US the default on debt news and data is being delayed primarily due to the forbearance rules and stimulus that were designed to prevent bubble bursts in banking and real estate. I thought the DJIA might be healthier after a well timed pull back in March and since then the 14 day RSI has risen to above 70 Friday in the DJIA futures market.. The Feb 2020 collapse followed a higher RSI spike to 77 so I think that might make the case for a healthy 10% correction rather than a bear market. The rise above 70 has me concerned about the possibility of an actual multi day down leg though.

So far the only supporting patterns for a trend reversal in the foreign markets are at the daily chart resolution.
For example Nikkei has had several healthy dips none over 8% though.
Man Yin To profile picture
@Pyraminsider Yes, the majority of market fluctuations are between -10% and +10%. People are concerned about the extremity in either end. If the market turns up, you are going to win small; if it turns down, you will lose big. You decide!
I used monthly closes in this analysis so as to avoid too much noise. Thus I had omitted many of the small details in the course of the DJIA development. I aim at picking out clues to the occurring of a possible crash. The results turn out to be affirmative, but its strength is a bit less than people’s expectations.
Long Time Running profile picture
We are going through a new revolution, automation, digitization, robotics, technology is changing the paradigm.

The other thing changing the world is the transition away from carbon fuels. This will not happen overnight but the transition will generate even more technologies.

These paradigm shifts will keep the economy growing, efficiency gains are supportive of growth.

In the financial markets we need a normalization of rates and some inflation to offset the asset bubbles that are forming.
Man Yin To profile picture
@Long Time Running Paradigm shifts are perhaps the best explanation for the irrational behavior of markets. Our mind is slow in catching up changes. Stories of innovations are always on the news, but only a few are materialized. The market reacts to the news before any realizations. It’s a pity.

I know of one costly stock (other than Tesla) that manufactures autos. Today it has yet a vehicle on the sales book! It claims to be able to produce one vehicle per minute, but no production lines have yet been assembled. People rush to buy its shares, for what? I can’t find a better word than ‘insanity’ to describe the situation.
I think that you’re have a good grasp on this without being an alarmist. What is somewhat interesting is how ‘proactive’ the FED is to keep this market calm. THAT IS WHAT ACTUALLY SCARES ME.

The FED and the Federal Government is rescuing us to a point where we are inflating the bubble faster. How is this possible given all the lockdowns from Covid? Better yet WHY? Why not let some air out of this bubble instead of having a goal of inflation.. there is a something going on.

One thing we know about the FED is that they fail very often. They will mess this up, either it goes too hot or it implodes. There is no Goldilocks anymore.
Man Yin To profile picture
@AbolishtheFed Is FED going to replace GOD? If GOD still reigns, it would order gravity to act its part when the time comes. No bothering even GOD is on vacation!
@Man Yin To Blasphemy aside. GOD goes back to work towards the end of Biden’s term. By then we will know why the Fed is blowing this bubble so quickly. I suspect it partially has to do with an orderly elevation of the SDR as our next reserve currency and trying to convince everyone that everything is OK.
v12fud profile picture
The only thing that matters is dollar strength- having said that, you're on the right track i believe
Man Yin To profile picture
@v12fud Thanks for your recognition.
@v12fud dollar strength higher or lower?

Yellen and Biden are undermining the dollar by supporting the SDR, basically a parallel reserve currency.

I think that all your plots say is that the market tends to go up until it doesnt. You are post-dicting, not predicting. I also think
you need to show some plots that regress back from values that are not peaks, just normal values long before peaks. I bet they look the same..
Man Yin To profile picture
@Illius I don’t know if I’m doing predicting or postdicting. If the method works, everybody benefits!
Yes, you are right. I’m waiting for a nice apex to occur in the DJIA. That will be the right moment to act.
The slope of any point on the trajectory is fixed, despite what units you are using. A % change won’t ruin it. Even if you take a log on the Y-axis, the slope remains invariant.
Dilantha De Silva profile picture
"Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves" - Peter Lynch
Man Yin To profile picture
@Dilantha De Silva Precise and to the point.
Would it mean more advice is required in this aspect?
I collected baseball cards when I was young, in the 50’s and 60’s, and kept them fortunately. I had a Willie Mays rookie card that sold for $800 back in the 90s and I saw recently that it would sell on ebay for about $3,000 now, given its condition.

I read more money has poured into the stock market in the last 5 months than the previous 12 years combined. Stocks are turning into the baseball cards in the sense that stock prices no longer connect to value, only to the selling mania. I’ll buy this Willie Mays now and sell it for 20% more in three months. The next buyer thinks the same thing and the card prices continue to soar with no regard for the underlying fundamentals. People are buying stocks with the same motives. I’ll pay whatever the price is now for the chance to sell it in two months for a profit.

At some point, investors will wake up and realize what’s happened and the crash will come. Maybe that point will come when there is less money and fewer buyers coming into the market and people are stuck with overpriced stocks that they can’t unload except for a massive loss.
Man Yin To profile picture
@hamphouse We are playing the game of musical chair. Someday, people will realize it’s meaningless to engage in. It’s a game that pays big in order to win little.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!

Related Stocks

SymbolLast Price% Chg
Dow Jones Industrial Average Index

Related Analysis

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.