by John Galt
February 8, 2016 21:30 ET
The financial media and prime time stock pumpers will try to deceive everyone into thinking that again, one more time, that this is nothing more than a corrective phase in the midst of a long term bull market rally.
Woe unto the fool who buys that nonsense. Instead of chart after chart illustrating how bad the action has been in the past 40 days, here is a great summary via CNBC’s resident guest technician about trend violations on Friday February 5th’s Option Actions program:
Following that trend, the currency war appears to have paused for the moment with the week long celebration of the Chinese New Year but for the United States and the Federal Reserve, the domestic dollar problem is far worse than the international one. It would appear that foreign banks are hoarding dollars in anticipation of a negative economic event while in America its citizens never believed the recovery nonsense and never started to re-invest in the domestic economy.
The 4th Quarter report on M2 Monetary Velocity set another historic all time record since the measurements began in the late 1950’s:
Without “turn” the credit and cash dumped on to the system by the Federal Reserve is essentially parking and for each dollar created via credit or printing only 48¢ additional is being added to the monetary supply. Of that, it is doubtful that it is being created for use as credit for business or to expand the economy and in fact instead being held by foreign bankers for an upcoming disaster which is being widely predicted as on the verge of occurring at any moment without warning.
Meanwhile, hints of the issues like China, Japan, the PIIGS, and BRICS collapsing are beginning to get reflected in the St. Louis Federal Reserve Financial Stress Level Indicator:
So what makes this period with equities indicative of a major bear market beginning?
This chart should help:
The financial media has begun to notice the break in momentum during the last half of 2015. The chart above, a 5 year daily S&P 500 with an overlay of the 300 day moving average brings it home. The 300 DMA, or 1 year moving average, is a good measurement of long term sentiment and trading opinion not by the masses or sheeple, but in fact by professional traders and hedge funds. When the gap down happened last August, it was felt that if the counter trend rally failed to establish a high volume sustainable new high within 60 days of the 1000 point flash crash in the DJIA, then it was only a matter of time after the bounce before the downside gap was filled.
As you can see from the chart above it has been filled a the long term moving average has been violated and appears to be confirming a massive shift into the sell side which should mean the bear market correction I predicted of 20-30% will be fulfilled easily in the first half of 2016. If I am right and the Federal Reserve does intervene on a massive scale to preserve Obama’s “economic” miracle and to maintain the faith in the power of the central banking system, then a bounce should occur over the summer taking the S&P 500 from a low of around 1300-1400 back into the 1600-1700 area.
However, IF I am wrong and the Fed intervention is weak, look for a correction of 60-70% by October and a massive economic disruption to the global economy and geopolitical impacts which are so horrific, it would be difficult to imagine the consequences. By the August meeting in Jackson Hole, Wyoming, IF the Federal Reserve and other major central banks fail to agree to buy preferred equities, corporate bonds, and municipal bonds, the flooding cascade of defaults will overwhelm their ability to react in any rational manner. Let’s find out what the central banks are made of, starting in March and hoping they do not allow this to unwind as bear markets like to:
Unwieldy, radically, and disorderly, leaving few survivors behind.