S&P 500 Update

In early September, we noted the likely end of this current bull market in stocks by the appearance of a "death candle" on the monthly chart. In early October, we anticipated a rally that would be marked by a "green candle of hope". And now it's early December. What do you suppose comes next?

Before we begin, it is extremely important to review where we've been. The original "death candle" post is linked below. Please be sure to re-read it and note that, if history is to repeat itself, the downside target for the S&P 500 is somewhere between 1000 and 1100.

However, if history truly was repeating itself, then it was very likely that the S&P wasn't going to head straight down the drain. There would very likely be a false rally first, similar to what was seen in early 2001 and mid-2008. These rallies would give hope to those praying against the impending disaster that The Death Candle foreshadowed. We named these previous rallies "the green candles of hope" and we wrote about this on October 5. Please take the time to re-read this post, as well:

So now, here we are. It's December 1 and, in fact, history has repeated itself. There was a significant stock market rally in October and November and, indeed, fresh green candles have been painted onto the monthly chart. However, as you're about to see, if market history is going to continue to repeat or rhyme, then it appears that the next 60 days are critical. Either the stock market is about to follow the historical precedent and plunge to levels last seen in 2011 OR it will burst through stout resistance at 2120 on the S&P and move to new highs, thereby breaking the pattern of 2001 and 2008 and nullifying these warnings.

<All of this comes with an important caveat. Though there was certainly some Central Bank market manipulation in 2001 and 2008, it was NOTHING compared to what we see today. Will cycles and history be too much for the CBs to overcome? Instead, will their almost daily interventions be able to stem the tide? We're about to find out.>

So here are the numbers...

As we discussed in the Death Candle post, previous Death Candle months saw the following ranges and changes:

December 2000: Range was 9.72%. Final loss was 4.97%

January 2008: Range was 13.72%. Final loss was 6.38%

August 2015: Range was 11.64%. Final loss was 6.67%

Pretty startling similarities, wouldn't you say?

We then projected an October-November rally based upon the Green Candles of Hope in 2001 and 2008. These previous Green Candle bounces produced the following gains:

Late December 2000 - January 2001: S&P rally from 1254 low to 1383 high. Total gain of 10.3%

March 2008 - May 2008: S&P rally from 1257 low to 1440 high. Total gain of 14.6%

And this latest Green Candle of Hope?

Late September 2015 - November 2015: S&P rally from 1872 low to 2099 high. Total gain of 12.1%.

On the 25-year, monthly chart it looks like this:

Hmmm. Do I have your attention at this point? Good! Because there's more for you to consider.

Let's look at the market internals, as measured by the RSI and MACD lines. Do you notice any similarities to 2001 and 2008?

So, if you're thinking as I am...that all of this is pretty ominous...what should we be on the lookout for? What would be the signal that history is, indeed, repeating itself and the U.S. stock market is about to crash? What would be your final warning to adjust your 401(k) allocation and move to cash? For me, the answer is shown on the next chart.

In both 2001 and 2008, the door was slammed shut and the S&P collapse began in earnest when the 6-month moving average bearishly broke through and moved below the 24-month moving average. On the chart below, you can see that this occurred immediately following the previous "green candle" periods. And, once this happened, all heck broke loose:

Between February 2001 and July 2002, the S&P fell by almost exactly 600 points or more than 43%. From June 2008 to November 2008, the S&P fell 663 points or more than 47%. Therefore, IF...

  • The S&P 6-month MA moves down and through the 24-month MA either this month or in January AND IF
  • Market history continues to repeat itself, in spite of Central Bank intervention...

Then we should expect a significant decline in the S&P in 2016. How large of a decline are we talking about? Well, go back up to the top of this post and decide for yourself. The range and total loss of August 2015 was almost identical to the other "death candle" periods of 2000 and 2008. The total percentage gain of the "green candle" period of these past two months was also strikingly similar to 2001 and 2008. If history now fully repeats and we see a continuance of the pattern, a 45% drop in the S&P from current levels gives us a projection of 1150. ELEVEN FREAKING FIFTY!

Again, it's up to you to decide for yourself what actions you may need to take. You can choose to ignore all of these warnings and simply continue to hope for the best over the long term in your retirement accounts. However, if your "nest egg" would be decimated by another 50% haircut, you might want to be cautious here. For now, your best course of action is to remain alert and situationally aware...and watch those moving average lines! If they bearishly cross, look out!

As the calendar flips to 2016 we will, of course, keep you posted. In the meantime and as always, prepare accordingly.

TF

3:00 pm EST Thursday UPDATE:

With today's historic moves in the bond and currency markets...and most significantly the USDJPY...the S&P500 has fallen over 1.5% and is currently well below the always critical 200-day moving average. A breakdown toward collapse would/could/might start with a fall through S&P 2020. Below there, watch the lows from August and September near 1880. Below those levels and...

22 Comments

silver66's picture

First

Number 1

Numero Uno

no need for a participation ribbon cause I came first....lol

Silver66

edit: Turd have you put thought to the number of mini contracts the Central Banks own which they did not in 2000 and 2008. Is it possible they can manage the indexes (MOPE) better today than in the past?

proformatrillionaire's picture

2

2

Turd Ferguson's picture

Yes

MODERATOR

That caveat is contained in this post.

Response to: First
silver66's picture

That bold printing was hard to read

hidden right in front of me

Oops, what a stupid I am

Silver66

SilverHunter1985's picture

Thank You Turd

Thanks for the advice to buy today.  NUGT has been on a tear since this morning when I followed your advice to buy.  Your services are wonderful, I have only been here for 3-4 months and I don't miss a day of your wisdom. Thank you.

abguy4's picture

chartmeister

Soooo......turdmeister

You are the chartmeister

BUT, when I put a ruler thru the two lows, (on the last chart), and I follow that line over to the right column, I get a projected low of approx. 600, with a temporary over-shoot to 500-550.

But I'm just an old engineer, and perhaps I read a chart differently, but 600 is well below 1150 - ---- like one-half~!

The lows are trending lower, the highs are trending higher. Wouldn't the lows follow the same trend as the highs?

Higher high, begets a lower low?

Mr. Fix's picture

7th

I'm not a chartist, and I am not a trader, but as I see it, gold and silver will remain range bound, but the stocks will continue to sore until the dollar is revalued.

This train wreck just continues.

hammerman's picture

follow fix

i will take 8Th the money number

MiningJunkie's picture

Great analysis, Craig.

That analysis is first-rate and I've been at this for thirty eight years. 

However, charts do not count in manipulated markets so if the boys in NY and London are OK with S&P 1,150, it will go there. If they need to get off more paper, it will continue to rally until they are flat, and then short. Same routine as the Commercials pulled back in October in gold only this will be in the E-Mini. BTW, Commercials are starting to build a short position in the E-Mini too.

MiningJunkie's picture

Great analysis, Craig.

That analysis is first-rate and I've been at this for thirty eight years. 

However, charts do not count in manipulated markets so if the boys in NY and London are OK with S&P 1,150, it will go there. If they need to get off more paper, it will continue to rally until they are flat, and then short. Same routine as the Commercials pulled back in October in gold only this will be in the E-Mini. BTW, Commercials are starting to build a short position in the E-Mini too.

Complete And Utter Bollocks's picture

"but the stocks will continue to sore" ?

I've never bought any myself, but I think you meant "soar".

No, wait, "sore" it is. And become a blister on the arse of mankind. Until it drops off and takes the arse with it. cheeky

Turd Ferguson's picture

Thank you

MODERATOR

I appreciate the compliment. 

As for your concern, please be sure to see the caveat bolded in the middle of the post.

jaba's picture

Craig

An excellent analysis.

I went back and checked the performance of the HUI during these two previous periods of the S&P decline.

In the same period as the 2001/2002 decline the HUI showed strong growth, whilst during the 2008 period the HUI dropped from circa 470 to 150, an approx 67% decline.

A possible explanation for the aforementioned divergence in HUI performance was that in 2001/2002, like at present, the HUI shares had been completely washed out, whereas in 2008 they HUI companies had been guilty of the mis-allocation of capital, and failing to adequately contain costs; as such they were over valued, and due a washout.

Any comments from you on this aspect would be very welcome.

Turd Ferguson's picture

That all makes perfect sense to me

MODERATOR

It would certainly seem that the index is almost all "washed out" right now. Also, the cash that comes out of "regular" stocks has to go somewhere. Why not a sector that is already so heavily beaten down?

Response to: Craig
jaba's picture

Craig

Many thanks for your response. Seems that we are on the same page.

I am buying some more shares today, some First Majestic; plus some Coeur, who after 9 years in the toilet has got its act together, and has very impressive leverage to the bullion price; it was $70 per share in 2006 and $ 2.66 yesterday, with production at 16 million ozs of Ag and 300,00 ozs of Au, with a steadily reducing AISC, currently circa $15, cash of $205 M, and reducing debt of $540 M. Not investment advice etc., etc..

Mr. Fix's picture

@ Bollocks

I stand corrected.

Longstreet's picture

S&P drop effect on PMs?

Turd, if "a 45% drop in the S&P from current levels gives us a projection of 1150". ...what would you predict the effect would be for silver and gold?

Turd Ferguson's picture

Beats me

MODERATOR

However, since it would likely imply a sharply falling USDJPY and a solid "safe haven" bid, you'd have to think that gold would be a little higher than $1060...

brokerk22's picture

"little higher"

Yeah you would think a "little higher" try thousands higher.  The reset is coming next year. The central bankers are fucked.

Wizdum's picture

1066

Stamford bridge...I'm tellin ya~

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