Moving Average Bounces Getting Weaker and Weaker: Major Carnage Coming

Bounces off the 200 Day exponential moving average lines keep getting weaker for all the major indexes.

S&P Daily

Russell 2000 Daily

Nasdaq 100 Daily

When those moving average bounces fail, and they will, what then?

For the answer, let's look at weekly charts.

Dow Weekly

S&P 500 Weekly

Russell 2000 Weekly

Nasdaq 100 Weekly

Those 50-week exponential moving averages will break. When that happens I expect a quick plunge to the 200-week EMA.

Will that be the end? If I am right, that's not even close.

I expect all the gains back to 2007 to be wiped out. To visualize, we need to look at monthly EMAs.

Dow Monthly

S&P 500 Monthly

Russell 2000 Monthly

Nasdaq 100 Monthly

With the exception of the Nasdaq 100, a decline to what is now the 200-month EMA would take us to where I believe we are headed.

Superbear?

Does this make me a superbear?

Hardly.

John Hussman, who does excellent technical and fundamental work is far more bearish: "I Expect the S&P 500 to Lose 2/3 of Its Value" said Hussman in January.

My charts suggest about 50% except for the Nasdaq.

Pension Fund Disaster

The sad part of this story is that despite the biggest bull market in history, pension funds are extremely underfunded.

Whether the decline is 33%, 50%, or 66%, pension funds will get crushed.

Heck, given 7% per-year assumptions, even flat returns for seven years will destroy many if not most of them.

By the way, asset bubble bursting episodes are anything but inflationary. If you think massive inflation is right around the bend, please think again: Velocity of Money Picks Up: Inflation Coming? Stagflation? How About Deflation?

Mike "Mish" Shedlock

Comments
Carl_R
Carl_R

TheLege, I quit going to ZH after a few visits something like 15 years ago, so it's entirely possible that there is additional content there now that makes the site of value. I also quit going to Seeking Alpha at about the same time, for the same reason, so again, there may be material there of value now that I am unaware of.
As for the remainder of your comments, while you personally attack me (which you are welcome to do), you seem to attribute many ideas to me which are inconsistent with my beliefs, so either I expressed myself poorly, or you have attributed to me thoughts of others. In any case, I recognize that my thoughts are often different than many/most of the posters here in many cases, especially when it comes to the Fed, which I think does a good job of dealing with a nearly impossible situation, that being the ongoing deficits.
In regards to your specific criticism regarding stock valuations, note that I have agreed with Mish that valuations are extreme, and that they will correct in time, and especially will correct as interest rates rise. Considering that I have said that I expect a total financial collapse within twenty years, I'm more than a bit surprised that you think that I favor buy and hold forever.

Boot6761
Boot6761

There is an old saying in Technical Analysis that "All Gaps must close"....you can go all the way back to 2009...where there was a double bounce that started the whole Bill Market...but beware the gap...same as 1997...

MorrisWR
MorrisWR

I get a kick out out of the people (perhaps too young to have been through decades of market activity and speculating) who say those who sell are dumb or permabears. Get in 30-40 years of market action and tell me that buying low/selling high equates to being a permabear. A strategy of lightening up or even shorting after a huge bull as we’ll as buying after a large bear move is anything but dumb. It is a simple matter to move back in if the market technicals change.

Wagner-
Wagner-

Let's assume that one was 75 years old in 2000 and followed advice to stay in stocks.

Then in 1950 he was 25 years old and, hopefully, working full time and investing all his savings in stock market. S&P500 index from 1950-2000 was in $15-$1500 range.

Yes, there was no SPY ETF back then, but it still show that stocks on average were so much cheaper back then that you would simply not care about these Dot Com or Housing Bubble crashes, because at 50 year scale they look like nothing -

Of course stuff happens. Someone may have lost all savings at age of 70 for other reasons than attempting to short market at age of 60. In that case it is a little bit harder to give advice to put all savings in stock market when P/E is so high.