Why we are on our way to a bigger/more violent crash than in 2007 and 2008.
"Sell in May and Go Away" has been one of the sayings traders on Wall Street use to describe their approach to the summer. The saying really means nothing other than most heavy institutional traders used to find the summer times the best time to take vacations and scale back large bets. If you are trying to get some break time in, it cannot be had if you have a lot of money invested and cannot work daily on analyzing the markets. Since the market has really become a long/short market, the saying really has no more substance any longer. Big players can come and go when they wish, and once they hit their goal, they can then take a break. This saying however, will fit appropriately to this post's theme of why we are thinking that the stock market is poised for a major crash.
If it does happen, you will likely hear that it's due to a flash crash by programmed traders, greedy hedge funds, or uncontrollable circumstances. The scape goats could not be any further from the truth, and we hope to scrape the surface of why it's coming, why it'll happen, and why you need to educate yourself more fully on the issues at hand.
Brief Preview of Catalysts:
- Technical analysis
- Increasing unemployment rate
- Increasing government intervention into the private sector
- The debt ceiling is about to be breached
- QE2 by the Federal Reserve failing and the U.S. dollar's dramatic decline
- The housing market is still in shambles and why the "real" supply of homes is much larger than what's on the market
- Fannie Mae is still posting billions of dollars in losses and the bleeding wound is getting larger... AGAIN!
- Euro-Zone worries are worse than a year ago and no "real" fixes have been made to the problem, just small band-aids to push it onto the next year
- China's holdings of U.S. Treasuries and the ballooning debt
- Food Stamp Economy: 1 and 7 Americans now on the Food Stamp Program
Charting Out The S&P 500 Thru ETF's (NYSE: SPY)
The S&P 500 is on an incredibly fallible balloon ride to the moon. We'll get into the concept behind why we think Mother Market is 10 months pregnant with a baby to be named The Stock Market Crash of 2011.
A possible candidate for the stock market top is last Friday's close. Mother Market is struggling to maintain her bubbled valuations.
If you look above, we can see that there are a lot of indications that the market could be topping. Taking an assessment of the short term charts can help us more precisely predict probable market tops. Then when you zoom out to more macro time frames, it helps to see if it is conuction with the shorter-term theories. As far as the S&P 500 SPDRs (NYSE: SPY), which tracks the S&P 500's movement, we can see the daily chart is pointing to a probable top. CCI is breaking down after super overbought signals near 200. Volume is picking up, and weird things are happening. Friday the market gapped up quite a large amount, but was met with selling pressure as the trading day played out. The market is getting a feeling of traders and investors selling any rip up as they try to scale out of positions with the QE2 near completion and the US Dollar finally starting to rebound as result. Let's look at the weekly chart of the S&P 500 SPDRs (NYSE: SPY) next!
This chart still looks strong although in Q1 we saw some breaking down. We think the 2nd round of breaking down is right now. Based on the past, we are thinking the next step could be a triple top coming. This means that if we top right now and pull back, it would be followed by a lower high, and then a sell off. This is how every major cyclical bull market ends, and major cyclical bear markets begin. The foundation is forming in front of our eyes.
As you can tell by the annotations and comments underneath the charts, we are quite possibly seeing the market top beginning to form. If the lower high follows the top we are guessing we are setting right now, then the fuel for the last little pop up will be the rest of QE2 buying completing. It will be an artificial manipulation of the markets, and unjustifiable, but nonetheless, it will be followed by a huge market sell off.
Setting The Tone: We Hope We Are Wrong