S&P 500 "Death Candle" Update

47
Mon, Feb 1, 2016 - 10:21am

As you know, the U.S. stock market just began the year with its worst January performance since 2008. Hmmm. And what happened later in 2008? To that end, we have been projecting an end to this current bull market in stocks since the August 2015 appearance of a "death candle" on the charts. Today, we provide an update.

It's important to note that this forecast is not something we just stumbled into a couple of weeks ago. We first noticed the stock market rolling over in early August of last year and, at the conclusion of that month, we wrote this:

  • https://www.tfmetalsreport.com/blog/7107/death-candle-sp-500
  • Next, we noticed that rallies of "hope" typically follow the appearance of the death candle so, on October 5 of last year, we wrote this:

    But history told us that hope was fleeting so, on December 1, we wrote this:

    And now here we are on February 1, 2016. The year began with a steep, global selloff in stocks but the past 10 days have seen global equity markets bounce back a little on a $5 bounce in crude oil and some overt currency manipulation by the Bank of Japan. So, is that it? Are equity investors "safe" as the markets resume their bullish trends? Well, please allow me to remind you of how we got here and the similarities to years gone by. After that, you can decide for yourself.

    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%

    What did August of 2015 bring:

    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%.

    As you can see, the market action in late 2015 was eerily similar to what foreshadowed the massive bear markets of 2001 and 2008. So, do the similarities continue? See for yourself.

    After the Green Candle of Hope is early 2001, the market's bubble finally burst as the month of February 2001 saw a total S&P range of 11.7% with a final monthly loss of 9.2%.

    After the Green Candle of Hope in the spring of 2008, the market's bubble finally burst as the month of June 2008 saw a total S&P range of 9.4% with a final monthly loss of 8.6%.

    And what just transpired in January of 2016? After the Green Candles of Hope last autumn, did the market's bubble finally burst? The total S&P range in January was 11.1% and the total monthly loss was 4.8%. However, without the startling announcement of negative interest rates by the BoJ on Friday...spiking the USDJPY and taking the S&P futures with it...the total loss for January would have been 7.1%.

    <And, again, here's where we need to insert our disclaimer as 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, the numbers continue to repeat themselves and the overall pattern certainly seems to "rhyme" with the bear market patterns of 2001 and 2008. But we're talking about predicting the future here and pattern recognition alone isn't going to get the job done. How will we know that the bull market has ended? How will we know that the final nails have been driven into the bulls' collective coffin? Well, in that early December update, we offered you the chart below. Please take another good look now:

    Please be sure to note the text in the bubble with the arrows. It states:

    • "The door slams shut when the 6-month moving average bearishly crosses the 24-month moving average"

    We noticed that the final piece of the puzzle...the final "nail in the coffin"...from both 2001 and 2008 was this bearish cross of these two S&P moving average lines. After these lines crossed in January of 2001, the bear market began in earnest and the index fell nearly 600 points or more than 40% over the next 18 months. After these lines crossed in April of 2008, the bear market began in earnest and the index fell nearly 700 points or nearly 50% over the next 9 months.

    Please take a close look at the chart below. The lines are very close to crossing again. In fact, had the Bank of Japan not sparked that 2% rally back on Friday, the lines would have crossed with the close of the month of January. Instead, the lines remain just one point apart.

    THIS PATTERN CONTINUES TO REPEAT ITSELF...FROM THE DEATH CANDLES...TO THE HOPE CANDLES...TO THE MERGING OF THE MOVING AVERAGES. NEXT, IF THE MOVING AVERAGES DO FINALLY CROSS IN FEBRUARY, THEN WE MUST CONCLUDE THAT A DROP IN THE S&P 500, SIMILAR TO WHAT WE SAW IN 2001 AND 2008, WILL BE RIGHT AROUND THE CORNER. USING THOSE YEARS AS A GUIDE, A DROP OF 40-50% FROM CURRENT LEVELS YIELDS A TARGET OF 1050-1150 ON THE S&P, WITH THE LOWS OCCURRING SOMETIME OVER THE NEXT 12 MONTHS.

    Again though, before you make any rash decisions, please be sure to fully consider these two points:

    1. Please scroll back up this page and re-read the disclaimer and caveat. The amount of direct central bank intervention in global equity markets has never before been this significant. Perhaps The Central Planners will keep the plates spinning with renewed QE and negative interest rates? Maybe. Again, something tells me that we're about to find out.
    2. To that end, look at what just happened last Friday. The Bank of Japan unexpectedly announced a new, negative interest rate policy and this caused a huge decline in the Japanese yen. High Frequency Trading computers around the globe use as a key input the dollar-yen exchange rate as measured by the USDJPY. When these computers, which control over 80% of all U.S. equity trading, "saw" the rapidly rising USDJPY, they aggressively bought U.S. equity futures and drove the "stock market" more than 2% higher on the day. See the chart below:

    At the end of the day, what you do with this information is entirely up to you. If you own stocks, ETFs and/or mutual funds in your regular accounts, IRAs and 401(k)s, it certainly appears that NOW is the time to be VERY cautious as history suggests that a major bear market in stocks is on our doorstep. Perhaps it would be prudent to take some time to review your current asset allocation and measure it against your risk tolerance and investment/retirement timeline. If another 50% drop in the "stock market" would decimate your accounts and ruin your retirement plans, it might be wise to consider taking some action before it's too late. Hope in central planning and central banks cannot keep global equity markets afloat indefinitely. Our study of chart candles and market history suggests that the next central bank "policy failure" may be right around the corner.

    TF

    About the Author

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    turd [at] tfmetalsreport [dot] com ()

      47 Comments

    · Feb 1, 2016 - 10:12am

    Additional context

    Here are two interviews from late last week where the possibility of a stock market crash is discussed:

    infometron · Feb 1, 2016 - 10:22am

    segundo!

    ole!

    ArtL · Feb 1, 2016 - 10:24am

    nice to see PMs rising today

    the NAV for PSLV went positive. this morning.

    LostMind · Feb 1, 2016 - 10:26am

    Thurd-

    Hoping for the break out this week!

    Swineflogger · Feb 1, 2016 - 10:48am

    Quatro

    Turds post doesn't count

    EDIT: Apologies to Marchas

    ​EDIT2: Turd your intellect is truly dizzying

    · Feb 1, 2016 - 10:50am

    All the cool kids are now

    All the cool kids are now saying that "the stock market appears to follow crude oil". Since the beginning of the year it has...at least a little bit. HOWEVER, THE PRIMARY HFT INPUT HAS BEEN, AND REMAINS TODAY, CHANGES TO THE USDJPY. As an example, crude is down 5% as I type yet the S&P is only down 6 points. WHY? Because the USDJPY has barely budged so far today.

    J Siefert · Feb 1, 2016 - 10:53am

    By the End of February

    ...we will most probably know if this is a major market crash or not. Maybe a lot depends on what the Chinese do in the next few weeks in the way of Yuan devaluation to compensate for the recent interest rate drop in the Japanese Yen and the lowered exchange rates of most other national currencies - excluding the US dollar which has gone up.

    We live in interesting times!

    brokerk22 · Feb 1, 2016 - 11:06am

    Turd

    I have a clueless broker in my office that I work with and he doesnt believe me that the USD/JPY carry trade pretty much runs the S&P. Can you give me a 3- 5 year chart so that I can show him just how clueless he is?

    BarnacleBill · Feb 1, 2016 - 11:17am

    As mentioned

    in the article, the greater amount of intervention in the "markets" since the previous two by TPTB, is the most important factor to consider in the present death candle. I do believe that they will stop at nothing to maintain stock markets for as long as possible. However, it seems like a good time to put on some long expiry, slightly out of the money puts on the S&P.

    brokerk22 · Feb 1, 2016 - 11:25am

    OK, but I must warn you

    Regardless of what you show him, he'll likely NEVER believe it. Too much normalcy bias and, once you realize that HFT is in control and everything you thought you knew was actually wrong...that you've been lied to by your boss, by your company, by your analysts, by the media...what are you going to do? It's much easier to simply keep your head in the sand, instead, and silently soldier along believing that all you were taught is still, in fact, true.

    ONE DAY

    ONE WEEK:

    TWO MONTHS:

    SIX MONTHS:

    ONE YEAR:

    canary · Feb 1, 2016 - 11:29am

    Goldman sees oil between $20 and $40 in until 2H of 2016

    With new lows still likely to come.....What Goldman wants, Goldman gets......We've seen that with gold, right?

    Marchas45 · Feb 1, 2016 - 11:30am

    I Won't Forgive You

    Quatro. Lol Keep Stacking

    Great heads-up write-up Turd. I'm going to print out and give this to a few friends, maybe they will listen, maybe not. Their choice.

    idahosinker · Feb 1, 2016 - 11:41am

    IMF

    Guess what was in the spending bill?

    This seems to me the biggest news that no one knows about.

    SDR take over from the dollar on Oct 2016.

    Global Currency Reset Delayed to October 2016
    · Feb 1, 2016 - 11:43am

    And not that it matters...

    But, as of the close on Friday, there were still 4,194 contracts of Feb16 gold still open. IF all stood for "delivery", that's 419,400 ounces of "gold"...and the Comex only shows 96,802 ounces of registered.

    What will happen? Will the Comex default?

    OF COURSE NOT!!!

    No doubt it will be the same old circle jerk. There likely won't even be an attempt to journal things around for appearance's sake. Contracts will be sold and closed and the whole month will pass as if everything is just fine. The Apologists will claim that it's all about warrants and warehouse receipts and that we're all too stupid and naive to understand that actual metal doesn't need to be delivered on Comex, anyway. And besides, we're all just trying to sell something...metal, coins, subscriptions etc and therefore not trustworthy.

    · Feb 1, 2016 - 11:52am

    And your initial Atlanta Fed

    And your initial Atlanta Fed GDPnow Q1 guesstimate comes in at a whopping +1.2%.

    Clearly the economy is burning so white hot that The Fed must soon tap the brakes with some rate hikes...

    tyberious · Feb 1, 2016 - 12:38pm

    January Perth Mint silver

    January Perth Mint silver sales of 1,473,408 ounces were up 151% year over year.

    Silver Kangaroo bullion coin continues to drive massive silver sales.

    January Perth Mint gold sales of 47,759 were up 106% year over year.

    https://smaulgld.com/perth-mint-sales-january-2016/

    Antony von Clearwell · Feb 1, 2016 - 12:49pm
    JQuest · Feb 1, 2016 - 12:54pm

    Something I noticed...

    First I want to say thank you Turd for all the great interviews and posts this last week, your the man!

    IMHO,

    The "something I noticed" was that in the 2001 and 2008 crashes the market peaked and at stalled and bounced up and down for about 12 months, in support of Turd's comment on the impact of CB/ESF manipulation the total stalled peak looks like it's about 18 months in 2015/16, I believe this time around the TPTB have successfully extended the peak/stall an additional 6 months to the inevitable market crash in 2016 only because they have refined and developed their skill and ability to manipulate ALL markets which makes it near impossible for us good guys to predict what comes next fundamentals be damned.

    JQ

    SlobberingBull · Feb 1, 2016 - 1:10pm

    Re-classification

    I think I'll reclassify my debts as assets. Wow that made a difference, I like it!

    <sheepish grin>

    · Feb 1, 2016 - 1:17pm

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    tyberious · Feb 1, 2016 - 1:29pm

    exactly what I've been saying

    60 Minutes Raises the Question: Are Dirty Lawyers Running the U.S.

    https://www.brotherjohnf.com/60-minutes-raises-the-question-are-dirty-la...

    · Feb 1, 2016 - 1:30pm

    Next time??

    Will silver finally break through $14.60 and the 100-day MA...and then begin another short squeeze-induced spike toward $15+?

    TF · Feb 1, 2016 - 1:39pm

    I couldn't help myself

    Those SMI "Morgans" look pretty cool. Ordered 22 so I can give one to each of the LTs.

    s1lverbullet · Feb 1, 2016 - 1:42pm

    @ Turd

    If silver breaks the 100DMA and shoots toward 15, doesn't that mean it will have successfully broken the downtrend from the past 3 years?

    Angry Chef · Feb 1, 2016 - 1:48pm

    Turd...22 SMI Morgan's ?

    Turd,

    Mrs. Turd must be very busy with 22 little Turdites running around the house.

    Angry Chef · Feb 1, 2016 - 1:51pm

    Big Short Update

    I received this message from a friend of mine this morning. He stacks and is very very much prepared for almost any scenario.

    Friend wrote:

    Yesterday I tried to talk to a fellow agent in my office about the The Big Short Movie his excuse was I am not sure that I want to know to much!!!

    Read all the other excuses 

    https://www.charismanews.com/opinion/54811-the-rapture-obama-donald-trump-and-50-other-excuses-people-use-to-avoid-prepping

    Can somebody please point out exactly when the male population became a bunch of neutered pansies ? Seriously. At a time when the world needs Warriors we're surrounded by poofters !

    SilverX3 · Feb 1, 2016 - 2:03pm

    What is gold's 200 DMA

    What is gold's 200 DMA currently, anyone?

    Fatso · Feb 1, 2016 - 2:12pm

    Cliff High's assessment mirrors Turds sort of

    https://www.youtube.com/watch?v=n1bl5qaqXtI this is a 25 minute video that I watched 3 times and recommend it highly. Starting at about 5 min. I am not trying to put "words" in Turd's mouth but for me it rhymes.

    Mickey · Feb 1, 2016 - 2:27pm

    I have been in the finance and investment biz for 45 years

    (responding to person in broker office on currency relationships)

    When I told people in 2003 to get in gold and silver and be cautions not just of economy and market but the system, they laughed at me. When gold broke 1000 they started being pissed at me, and were laughing at me when gold settled to 670 mid 2008. They were pissed again when the market failed and metals rocketed up and laughing again now.

    The people are mostly too shallow and lazy to bother to even think about this.

    I will not be laughing at them if when the markets and economy crashes along with system. I will feel for their pain, but I will not lift a finger for them.

    The government and elite have bamboozled people like my friends in a far worse way than they have stuck it to us. We will recover and will be in better shape than others when this all falls apart. We just have to be low keyed.

    I wil share my pm food water and guns and ammo with my family, adult kids and grandchildren. I can only prepare for so much.

    gold trying for 1130

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