The Stock Market: Update On Increasing Perils And Possible Consequences

Includes: DIA, SPY
by: Ted Kavadas

On October 17, 2011 I wrote a post titled "Danger Signs In The Stock Market, Financial System And Economy." Subsequent updates can be seen on articles dated April 20, April 12, March 6, February 2, January 12, December 20, and November 21. This post represents the latest brief update to that October 17 post.

My overall analysis indicates a continuing elevated and growing level of danger which contains many worldwide and U.S.-specific "stresses" of a very complex nature. I have written numerous posts of some of what I consider both ongoing and recent "negative developments." These developments, as well as other highly problematic conditions, have presented a highly perilous economic environment that endangers the overall financial system.

My analysis continues to indicate that there are many reasons for tremendous concern, as seen in almost innumerable fundamental economic, financial-market, and proprietary measures. While it may appear that the severe financial and economic problems are limited to Europe, my analysis indicates an array of highly problematic U.S. economic problems also exist. While the vibrant stock market, which as of yesterday has risen over 12% - the best start to a year since 1998 - undoubtedly serves as comfort to many, one of the notable aspects of 2008 is how the stock market can maintain lofty levels despite an impending crisis.

Predicting the timing and extent of a stock market crash is always difficult, and the immense complexity of today's economic situation makes such a prediction even more challenging. With that being said, my analyses indicate that the danger inherent in the financial system has reached a level at which a stock market crash - that would also involve (as seen in 2008) various other markets as well - has reached a level at which a near-term crash is a substantial concern (note: the "next crash" has outsized significance and implications, as discussed in the post of January 6, "The Next Crash And Its Significance").

As reference, below is a daily chart of the S&P500 since 2007, on a LOG basis, indicating both the 50dma and 200dma as well as price labels. The current price is 1396.06:

(Click to enlarge)

(Chart courtesy of; chart creation and annotation by the author)

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.