Major Stock Market Correction
Is the U.S. on the verge of a Stock Market Crash of 2010, akin to the 1987 crash?
It isn't always easy to answer such a question, but while we have not exactly been calling for a crash, we have been calling for a pretty decent stock market correction, for the past couple of weeks. Each night, we've showcased significant warning signs of a potential bearish reversal (stock market correction), over this period.
Please take a look at our FREE stock market newsletter, dated May 4, 2010, to view the sell signals we speak of. It clearly shows the expectation for - indeed necessity - of a stock market correction, albeit not necessarily a stock market crash.
Tell us, do you think we'll see a stock market crash in 2010, similar to the one from 1987
To further acclimatize you to some of our work, we'd like to leave you with the stock market commentary that we provided our readers last night:
-----------------
May 6, 2010:
Four words: "Not. Oversold. As. Yet."
Good evening,
Wow, what a trading session!! At one point, during the day, the Dow Industrials were showing their biggest one-day point loss, ever. The good news is that there was a bit of a recovery and the final losses were only a little over 3%.
It is impossible to say what exactly this move means. We certainly did not predict a crash, but we did, again and again, harp about the fact that a big drop could be in-the-offing. Our guess was that it would be a steady and orderly decline though; not a complete flurging.
In any case, it doesn't matter how - or even "why" - you make profits; it only matters whether you do or not. Take a look at our Stock Picks and Options Picks lists and you'll see that they're doing pretty well. In fact, a large majority of the many, many picks that are on the lists have met and surpassed their bearish targets, as of today, and while we wish we were greedy and set even more optimistic bearish targets, we can't complain with the results.
So, where do the markets go from here and how do we trade them? As usual, patience is the key.
Yeah, how many times over the past several weeks have we said that line. Successful trading is a long-term endeavor, not an overnight thing. For those of you who listened and kept things low-key along with us, until we literally submerged the lists in bearish picks over the past two weeks, you're sitting pretty now.
And now that profits have been booked on most trades, we sit and wait again.
There will certainly be another opportunity like this in the coming 2-4 week period. Whether it ends up being a rebound at some stage (it is unlikely that it will happen right away) or another sharp decline (perhaps after a period of consolidation), remains to be seen.
The charts have been hammered, and they aren't as clear as they were a couple of days ago, when they were saying one thing and one thing only, "SELL"...
But, I have something for you that comes close. Four words. You'll see them in the RSI pane of each of the charts below "NOT OVERSOLD AS YET"
S&P-500 Large Cap Index - Daily Chart... Where do we begin... How about this? SPX lost 38 points (3.2%), at the close, today... But that was after a rebound from a 100-pt (8.5%) drubbing, in the middle of the day. Volumes came in at a record 8.5B; most of it, needless to say, was downside volume. You'll remember that we mentioned that once prices had fallen below the lower bollinger band, yesterday, the bears were going to be firmly in control as long as prices stayed outside the bands. Well, not only did the index continue to stay outside the band today but it traded as though the band didn't exist. Forget about how far away the band was at the day's lows, it is 26 points away (above), at the close of the session. What we said yesterday stands... As long as prices are outside the lower band, the downtrend will continue unabated. So what can the bulls hang their hats on? As we'd said in last night's commentary, there isn't really much support until the 1090 and 1050 levels. So how about the Fibonacci levels? You'll remember that we mentioned them yesterday; we'd said that it was quite likely that the current downward move would continue to the 50% Fib (at 1138) and, quite likely, the 62% Fib (at 1120). Well, let's just say that the Fibs have been decimated and have very little relevance now. At the lows of the day, the index had taken out nearly all the Fibs, stopping just short of the 100% Fib - i.e. a complete retracement of the three-month rally. So what does that mean? Well, a lot will depend on what happens with other aspects on the chart - the Bollinger Bands, the centerline on RSI, and so on - but we wouldn't rule out the possibility that we need to start looking at longer-term Fibonacci levels, such as those on the intermediate and major trends; in other words, on the entire rally since the March 2009 bottom. So far we've spoken about price action. Let's now take a look at the momentum indicators... Let's start with MACD. You'll notice that MACD is testing its 0-line, at the moment. Will it provide support or will a negative 0-line crossover take place? The bulls will hope that support is found at the 0-line; this is really their best bet. But if a negative 0-line crossover takes place, it's curtains for any hope of a rebound any time soon. Our next target would be for a move to the Feb lows (at 1055), in that case. What about RSI? You see, RSI often comes to "help" of a falling index. Either the centerline provides support and instigates a bounce or the indicator gets pushed far enough below the 30-line, gets oversold, and gives way to a dead cat bounce. None of those options is in the picture just yet, because the centerline is long gone and, as we mentioned earlier, four words, "not oversold as yet!" Dow Industrials - Daily Chart... INDU was trading with a loss of 998 - oh, let's just call it 1000 - points, around mid-day. The entire Feb-Apr trudge had been wiped out in one fell swoop, at that stage. For better or worse, however, a dead cat bounce off that level, pushed the index back above the 10000-mark and eventually the 10500-mark, and a relatively modest 348-point decline was registered, in the end.
The rebound was no where close to good enough to pull the index back within its bollinger bands and it sits 225 points below the lower band. We'll need to see the index moving back within the bands, before we can even think about the prospect of a recovery. As with SPX, the big test is going to be at the 0-line on MACD. It absolutely has to provide support, or we should see another 500-600 points worth of downside in the coming weeks, before a rebound (possibly off the intermediate support level at 9900) can be hoped for. As far as RSI is concerned... It's getting close to the 30-line, but no way can you call it oversold, as yet. So that's another possible buy signal that will need to wait... Nasdaq-100 Index - Daily Chart... It's pretty interesting, but as of the close NDX is sitting exactly at our most likely minimum target for this move. So, good call on our part, yeah!? Well, only sort of, because you'll notice that the index actually fell to as low as 1752, before rebounding and closing at the 1900-level (which is the level of the Jan highs and the 50% Fib of the Feb-Apr rally).
(continued)
---------------------------------
Will there be a Stock Market Crash in 2010? Visit our stock market blog to follow the day by day stock market action.
---------------------------------
(continued)
---------------------------------
Will there be a Stock Market Crash in 2010? Visit our stock market blog to follow the day by day stock market action.
---------------------------------
Could this be it? Could the most likely target level for the correction end up being the level at which the bottom (on a closing basis) is formed? Well, we won't say it's not possible, but we certainly would not bet on it...
The index is trading a good distance below its lower Bollinger band, which is falling rather precipitously in its own right now. MACD is threatening a negative 0-line crossover. And RSI hasn't even gotten oversold as yet, much less is it showing any buy signals such as positive divergences and so on.
So, in a nutshell, don't get carried away on the bullish side. Wait until the pieces of evidence favoring the bulls, add up, or else you could end up in a "world of pain," as the saying goes...
(continued)
---------------------------------
Will there be a Stock Market Crash in 2010? Visit our stock market blog to follow the day by day stock market action.
---------------------------------
Conclusion:
Like we said in the blog posting "CNBC thinks the selling is over, but..." yesterday (boy, did they have another think coming today!!!), we don't consider ourselves to be market oracles. We do, however, hold the charts as sacrosanct.
If you'd followed the fundamental-heads, you'd have been selling your house to buy stocks a couple of weeks ago. That wouldn't have been a pretty sight would it (at least not in the short-term). Even if they end up being right, you at the very least can buy a few more shares now, than you would have had you just listened to them and ignored the charts...
So, give the charts their due!
That's all we'll say for tonight.
...Oh that and four other words: "not oversold as yet."
Goodnight!
-----------------------
Visit us for the latest updates on whether or not the Stock Market Crash of 2010 is going to become a reality...
