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 (47)
No. 1-25
SleemoG
SleemoG

Popcorn in the microwave

GreenGrinch
GreenGrinch

All these patterns are bullish wedges.

Realist
Realist

Mish, I guess I will give you credit for sticking to your doom and gloom theme for several years, in spite of the continuing progress in both the economy and the markets. However, I’m sure that even you must be wondering how long it will take before your expected collapse comes.
I find it interesting that you expect all the market gains back to 2007 to be “wiped out”, yet you do not consider yourself a superbear! I guess it’s all relative.
I certainly do not think we are going to see a 50% pullback anytime soon, though a 20% correction would not surprise me at all.
Regarding underfunded pensions, I wish that you would preface that with “US”, as many pension plans in other countries are fully funded or better.
For what it’s worth, I continue to expect slow economic growth for the next 2 year, and volatile markets, moving mostly sideways.

Carl_R
Carl_R

I would call them pennants, but I agree - the breakout from a pennant is usually in the direction of the market prior to the pennant. In this case, I expect the market to break out of the current formation on the positive side.

AWC
AWC

Ha, here’s some blast from the past terminology used back in ‘88. “The market is backing and filling.” Want to predict market directions? Then, predict Fed action, if you’re feeling lucky. Dow should be at 50,000 in 10 years, but the buck will have lost half its value at that point. Pensions will be saved, but they will only buy half as much, as well. That’s just how the political economy works. I don’t expect a return to fundamentals anymore than I expect a return of the Inquisition,,,,oh, wait?