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. 1-47
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?

Greggg
Greggg

Bond yields becoming flat and inverted much quicker this year than I had anticipated and the LIBOR scandal seems to have been brushed aside. Keep moving folks... everything normal. Nothing that a few more wars fought for Israhell couldn't cure.

Working Brain Cell
Working Brain Cell

Mish: predicting major carnage is about to begin every week since 2011. So are you going to back it up and put, say 67% of your wealth, into selling short?

UrbanDigs
UrbanDigs

Are the credit markets blowing out? high yield? I'm genuinely asking as I no longer follow these markets or trade anymore. Typically stocks follow credit so any major shift should show in credit first as a precursor. Otherwise, is there a reason for this prediction other than "it's time"? Agree valuations are high but these markets are fully engineered, so I can imagine the phrase 'markets can stay irrational longer than some can remain solvent' may ring true for a while longer. Just saying

Corto
Corto

I know it is early, and I am a permanent portfolio guy, so 25% gold, but all action over the past few years seems to make it look like gold is not going to save the day. I hope I am wrong.

Corto
Corto

I love Mish, and occasionally read Market Ticker and ZH and such, but my mental stability is better when I don't. There seems to be little one can do. Those that call bear and are short, or buy puts or try to day trade have been smoked for years. Stocks had been a great place to be, but now? Bonds, maybe a reversal if things go in the crapper so some possibility there. Gold, hell, what to say. small bounces, always majorly retraced. Silver, sucks. Foreign, eh. So where are people putting their money? I do a modified permanent portfolio, seems the reasonably best course of action (for me) given the situation. Did great last year, this year not so much, but holding its own.

Realist
Realist

Hey Corto. It’s important to be able to sleep well. Personally, I sleep very well. Partly due to being very well diversified (stocks, bonds, real estate, etc, etc). Partly due to a significant income in my semi-retirement. I am often surprised by those who place all their eggs in a few baskets like Mish (bonds and gold). Still, I like this site because of the variety of opinions, and the civility of most posters. “Sleep well and prosper!”

Mike Mish Shedlock
Mike Mish Shedlock

Editor

The risk reward is higher with gold and miners. But I am thinking about PUTs. The problem with options is one needs both the direction and timing correct. Look at Hussman, he is more pessimistic than I am and he isn't shorting. Like Hussman, I see little value here. That does not mean one should be shorting.

plashadpobedy
plashadpobedy

The time-value now on options is exorbitant. When I went to dump my "last" PUTs in April 2013 (having my margin account locked under $25K), I put in market orders, and it was like my screen had lost connectivity? I had to lower my market order several times before there was execution. I, later on, read about a trader for a hedge fund who was trying to dump some thinly-traded tech stock. He said, his orders were not seen, because the high-frequency trading created a jet stream of orders above his (fill-or-cancel in microseconds). I'm now only into gold. One of these days.........

baldski
baldski

I beg to differ , these are descending triangles which will really fall if bottom support is broken.

Greggg
Greggg
Wagner-
Wagner-

Buying Puts is a very effective way to turn any permabear into a healthy bull.

It helped me to get out of zerohedge.com addiction very quickly once I saw Theta into effect. Probably margin calls to cover shorts work equally well. Don't say I did not warn you ;)

Six000mileyear
Six000mileyear

From a pure signal processing point of view, there is little value to moving averages. They are low pass filters and lag markets by as much as half their days. This 50 day moving average is delayed by 25 days for a 50 day period, so the average could be telling you to do the complete opposite of what the market is doing. Low pass filters let many low frequencies through, so the market still appears chaotic. The best type of filter to use is a band pass. It lets through a very small range of frequencies. It is in phase with the market and gives the best buy/sell advice. The band pass filter I use is the 3.3 year. The 3.3 year cycle is past peak and issuing a vary strong sell. That is not to say one more all time high won't occur, but that would be due to a shorter frequency signal not detected by this low pass filter. Elliott waves look like a triangle. If so, a sharp rally testing new highs will be met with an equally sharp reversal into a multi-year bear market.

MorrisWR
MorrisWR

Technical analysis should be used in conjunction with where we are in the economic cycle. I agree with Mish that the break should be to the downside. We have been in a bull market for longer than most so a breakout to the upside would be statistically less likely than the downside. Obviously we are all predicting and that is never a sure thing. My family money has been moved into safer assets than stocks the past few months and I will sit back and reanalyze this fall or winter. My technical analysis and cycle analysis served is well when we pulled out late 2007. If I am wrong, it is simple enough to shift back.

KidHorn
KidHorn

With so many businesses heavily leveraged and on life support, A bear market now would be particularly disastrous. I doubt the CBs would allow a correction above 25% to occur. They would step in and buy index futures by the truckloads.

Carl_R
Carl_R

The Dow could be a descending triangle, which requires a flat bottom , but the Nasdaq and RUT both have increasing lows combined with falling highs. Certainly it could break in either direction. I also agree that economic analysis needs to be taken into account to forecast which way the break will be, but I don't see anything clearly convincing to tell me which way it will break (which is also what the market is saying - if the direction was clear, the market would already be moving that way). In time, I agree with Mish that it will move lower, but it's certainly possible to re-test the high first.
For those wanting to bet that the market will move lower, there are lots of ways to do it, each with different risk-reward profiles. Buying puts offers a high expected loss, and a very high potential profit. Buying an inverse 2x or 3x ETF offers a slightly less extreme version, again a high expected loss, and a fairly high expected profit. Selling calls offers a small expected profit, and a small potential reward, but higher risk. Buying a non-leveraged inverse ETF offers a moderate potential reward combined with a moderate expected loss (they tend to perform at about 4% under the inverse of the index). These latter ones are my personal preference. Examples include SH and RWM.

blahblahbla
blahblahbla

I love sites like this - constantly predicting a recession for years and years until one does happen and they are first to say 'I told you so'. The amount of damage you have done to readers of this site even in the last three years alone is deplorable. Obviously someone being in 100% stocks is not intelligent if their situation doesn't allow for it - but telling people to not invest at all is despicable and the mountain of data from history says it is out right wrong. I am young so I am 100% invested in Equities because I know, over a long time span, I can maximize my returns that way. I have no short term commitments, I have money aside for emergencies, and money aside for travel and other leisure activities. I PRAY for the market to collapse 50% so I can buy the best companies on sale and accelerate my returns. People have to manage risk and either educate themselves or work with a professional that they trust, but the RISKIEST thing they can do it avoid the market all together and put money in an asset class in secular decline and a metal will minimal intrinsic value.

Ambrose_Bierce
Ambrose_Bierce

It is the retail guy who is holding up this current battle of the 200ma, big money doesnt care, it prefers big round numbers away from the technical radar. First objective on S%P is 2400 which will cause some capitulation and give the market a place to build. Maybe six or eight months to find the old highs. the CBs ex America printed a ton of money, its still sloshing around. The Fed wants you to reallocated into bonds, so DJT can spend money on infrastructure, and his dollar doesn't get too sullied, the Fed needs you to sell your stock and buy their bonds. simple

RoyRudy
RoyRudy

Bot SPY 2019 June $240 puts for $11.85, selling short term puts 1-2 expiry out. Stay delta short.

RonJ
RonJ

"I love sites like this - constantly predicting a recession for years and years until one does happen and they are first to say 'I told you so'. " I don't see Mish saying i told you so. Green shoots were predicted year after year, coming out of the 2008 recession. Maybe you forgot about that part. As far as the market is concerned, what is the end result of massive record financial fraud?

RonJ
RonJ

"Spot on. Zerohedge is another similar perma bear." I lost count as to how many times said to BTFD or BTFATH. How were they a perma bear?

klausmkl
klausmkl

Only true chart to use is weekly. Daily is way to much noise. Economy is full steam ahead. Mish blog along with all the negative rhetoric are necessary to shake out the weak hands. so let them. let the dummies sell. smart money will buy it up then off we go. we do have seasonality in play here. with sell in May and go away. beside the market is very efficient at what it does, a wealth transfer mechanism.

Carl_R
Carl_R

I read Zh a few times, but it didn't take me long to determine that there was no value there as what I read was, in my opinion, crackpot economics supported with selective facts. It's a great site if you're the type that wears tinfoil helmets.
Mish has a negative bias, but he presents some interesting facts, and rarely anything I would consider to be crackpot (except when he cites ZH). The primary value of Mish's site is in the interesting data he presents, and the discussion from readers. It's a great place to get not only some economic data, but a perception of how people react to that data.
No one should blindly trade of the commentary of Mish, or any other site. Rather, they should read a variety of opinions, and reach their own conclusions. That said, some of Mish's bearish points are indisputable, particularly that PE ratios are at a historical high. Since PE=1/interest rate, that isn't surprising, since interest rates are at historic lows. Similarly, if interest rates rise as the Fed raises rates, it won't be surprising if PE ratios fall at the same time, because historically that is what happens.
I'm not saying the market is going to crash, or have a bear market, but I am saying that it is possible, and you should be aware of that in making investment choices. If you are young, investing regularly uses dollar cost averaging to buy more when stocks are lower, so crashes and dips are good things. When you are near retirement, a drop has more negative ramifications, which is why, historically, investment advisers typically used to recommend a balanced portfolio for those people, with some stocks, some bonds, and perhaps some gold. Make your own choices, and take responsibility for the choices you make.

mrutkaus
mrutkaus

I want to know if Mish's clients own yachts, and how many and how big.

bradw2k
bradw2k

"The amount of damage you have done to readers of this site even in the last three years alone is deplorable." That's some nice 20/20 hindsight, and assumes the next three years won't see any undoing of the last three years.

"I know, over a long time span, I can maximize my returns" Because US stocks always go up, they are a permanent bull market with noise, right? I read "Stocks for the Long Run" too. It is the accepted truth today. But there is nothing stopping stock prices from going sideways for a few decades. They went sideways from1928 to 1982 -- over 50 years. Or how about 1965 to 1995. I realize this is cherry-picking, but the point is that it can happen.

What I really find fascinating is that people believe any class of "investments" can vastly outperform the general rate of economic growth over the long-term. Can stocks grow at 7% for the next 30 years, if the real economy will be growing at 2%? If so, that means equity prices are essentially unhinged from the real economy, i.e., Houston we have a monetary problem.

Wagner-
Wagner-

"They went sideways from1928 to 1982 -- over 50 years."

Can you elaborate what you mean with that?

  1. what you used as reference metric? Was it S&P 500?
  2. was exponential dividend compunding included in your metric? During 1928 to 1982 S&P 500 dividend yield was 2-3x higher than today. So it is not fair to compare nominal S&P500 prices.

I just don't see how stocks "went sideways" during those 50 years. Maybe I totally misinterpreted your comment?

bradw2k
bradw2k

Sorry, I mean inflation adjusted indexes, both DOW and S&P500, as here:
http://www.macrotrends.net/1319/dow-jones-100-year-historical-chart
Although I'm always suspicious of inflation adjustments. And good point that this does not take dividends and compounding into account.

stillCJ
stillCJ

Editor

Gotta post this song for the Gloom & Doomers ~

stillCJ
stillCJ

Editor

TheLege
TheLege
Carl_R
Carl_R said: I read Zh a few times, but it didn't take me long to determine that there was no value there as what I read was, in my opinion, crackpot economics supported with selective facts. It's a great site if you're the type that wears tinfoil helmets. Mish has a negative bias, but he presents some interesting facts, and rarely anything I would consider to be crackpot (except when he cites ZH). The primary value of Mish's site is in the interesting data he presents, and the discussion from readers. It's a great place to get not only some economic data, but a perception of how people react to that data. No one should blindly trade of the commentary of Mish, or any other site. Rather, they should read a variety of opinions, and reach their own conclusions. That said, some of Mish's bearish points are indisputable, particularly that PE ratios are at a historical high. Since PE=1/interest rate, that isn't surprising, since interest rates are at historic lows. Similarly, if interest rates rise as the Fed raises rates, it won't be surprising if PE ratios fall at the same time, because historically that is what happens. I'm not saying the market is going to crash, or have a bear market, but I am saying that it is possible, and you should be aware of that in making investment choices. If you are young, investing regularly uses dollar cost averaging to buy more when stocks are lower, so crashes and dips are good things. When you are near retirement, a drop has more negative ramifications, which is why, historically, investment advisers typically used to recommend a balanced portfolio for those people, with some stocks, some bonds, and perhaps some gold. Make your own choices, and take responsibility for the choices you make.

Carl, ZH is run by traders for the finance community. There is a lot of crap on that site so it helps to have the ability to sort the wheat from the chaff but there is a lot of useful pricing information; there is a summary update of the moves in all the key asset markets; there is a ton of sell-side research and they often re-print the thoughts of many of the top hedge fund managers. If you don't have a finance background (which you quite clearly don't) I would avoid it. As for "crackpot economics", you really haven't been paying much attention as the folks at ZH are advocates of Austrian Economics (as is Mish) but you clearly didn't pick up on that. Just because ZH re-publishes the thoughts of people like Martin Armstrong doesn't mean they support his views. Can I suggest that Seeking Alpha may be more your speed ...

TheLege
TheLege

Your comments are so dim-witted it's hard to know where to begin. If I had a dollar for every time I've heard" "The bulls missed out on the rally of the last few years." Missed out? Really? Have you locked that profit in? If so, you wouldn't be 100% invested in equities -- your holding would be 0%. The entire rally of the last 3,5,7 years (whatever) could be wiped out in a matter of weeks, but you and other 'Average Joe' investors just don't get this point. You

TheLege
TheLege

are so unsophisticated that it just doesn't compute. The way to make money is to buy low and sell high. Well, guess what: the equity market is in 'insane bubble' territory and if you understood that (which you quite clearly don't) you wouldn't continue to be invested, you'd have started taking chips off the table some time ago. That is what good risk managers do. But, nah, you're from the Church of Buy 'n Hold. Lance Roberts (among several finance professionals) recently dismantled the whole buy 'n hold premise, comprehensively demonstrating how returns grossly under-performed a more active strategy over time. As I suggested to Carl R, you're another one who should really be rubbing shoulders with Seeking Alpha crowd. Good luck!

TheLege
TheLege

Gee, Wagner, English is obviously not your first language so perhaps you missed the nuances in what both Carl and I said. As for being a troll that is laughable given your sole motivation when commenting here appears to be to troll other people. Given that very many people who comment on blogs these days are nothing more than grocery-
store check-out clerks who wannabe traders perhaps you'd like to present your credentials so that readers can decide for themselves whether your opinion actually counts for anything? Over to you...

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.

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.

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...

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.