Monday, July 5, 2010
Is a Massive Head and Shoulders Pattern Completing ... Just Like On the Eve of the Second Wave Down in the Great Depression?
In January 2009, I pointed out:
Today, CNBC is reporting:The Telegraph's lead economic writer, Ambrose Evans-Pritchard, has an interesting article arguing that we are in 1931-like conditions:
- A big crash has already happened
- Things are very gloomy
What's he talking about?
- But we haven't been hit by the biggest crash, the "second leg down" which didn't end for a couple of years
Well, look at this chart:
(click here to see full image).
As you can see, the 1929 crash was actually very small compared to the "second leg down" crash which didn't end until 1932 or 1933.
According to Elliot Wave and other chartists, a second - bigger - crash is on its way, just like Evans-Pritchard is warning.
The Dow Jones Industrial Average is repeating a pattern that appeared just before markets fell during the Great Depression, Daryl Guppy, CEO at Guppytraders.com, told CNBC Monday.(Robert McHugh is saying the same thing.)“Those who don’t remember history are doomed to repeat it…there was a head and shoulders pattern that developed before the Depression in 1929, then with the recovery in 1930 we had another head and shoulders pattern that preceded a fall in the market, and in the current Dow situation we see an exact repeat of that environment,” Guppy said.
And yesterday, Evans-Pritchard gave an update on macroeconomic trends in an article entitled "With the US trapped in depression, this really is starting to feel like 1932":
There is alot of talk of a massive new round of quantitative easing. But as long as the real problems with the economy are not fixed, the additional stimulus will just create a larger drag on the economy."The economy is still in the gravitational pull of the Great Recession," said Robert Reich, former US labour secretary. "All the booster rockets for getting us beyond it are failing."
"Home sales are down. Retail sales are down. Factory orders in May suffered their biggest tumble since March of last year. So what are we doing about it? Less than nothing," he said. [You can read the rest of Reich's essay here]
California is tightening faster than Greece.... Can Illinois be far behind?
***
Roughly a million Americans have dropped out of the jobs market altogether over the past two months. That is the only reason why the headline unemployment rate is not exploding to a post-war high.
Let us be honest. The US is still trapped in depression a full 18 months into zero interest rates, quantitative easing (QE), and fiscal stimulus that has pushed the budget deficit above 10pc of GDP.
The share of the US working-age population with jobs in June actually fell from 58.7pc to 58.5pc. This is the real stress indicator. The ratio was 63pc three years ago. Eight million jobs have been lost.
The average time needed to find a job has risen to a record 35.2 weeks. Nothing like this has been seen before in the post-war era. Jeff Weninger, of Harris Private Bank, said this compares with a peak of 21.2 weeks in the Volcker recession of the early 1980s.
"Legions of individuals have been left with stale skills, and little prospect of finding meaningful work, and benefits that are being exhausted. By our math the crop of people who are unemployed but not receiving a check amounts to 9.2m."
***
Dean Heller from Vermont called [the jobless facing an imminent cut-off of unemployment benefits] "hobos". This really is starting to feel like 1932.
Washington's fiscal stimulus is draining away. It peaked in the first quarter, yet even then the economy eked out a growth rate of just 2.7pc. This compares with 5.1pc, 9.3pc, 8.1pc and 8.5pc in the four quarters coming off recession in the early 1980s.
The housing market is already crumbling as government props are pulled away. The expiry of homebuyers' tax credit led to a 30pc fall in the number of buyers signing contracts in May. "It is cataclysmic," said David Bloom from HSBC.
Federal tax rises are automatically baked into the pie. The Congressional Budget Office said fiscal policy will swing from a net +2pc of GDP to -2pc by late 2011. The states and counties may have to cut as much as $180bn.
Investors are starting to chew over the awful possibility that America's recovery will stall just as Asia hits the buffers. China's manufacturing index has been falling since January, with a downward lurch in June to 50.4, just above the break-even line of 50. Momentum seems to be flagging everywhere, whether in Australian building permits, Turkish exports, or Japanese industrial output.
On Friday, Jacques Cailloux from RBS put out a "double-dip alert" for Europe. "The risk is rising fast. Absent an effective policy intervention to tackle the debt crisis on the periphery over coming months, the European economy will double dip in 2011," he said.
6 comments:
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The time frame of the '29 head & shoulders isn't the same as the current supposed head & shoulders.
ReplyDeleteOne thing I distinctly remember from when I was getting my economics degree 40 years ago, "Economics has no predictive value over and above the obvious." In economics and meteorology, if you predict tomorrow to be like yesterday, you'll be more than 50% correct. The problem as I see it is today most profits are taken by financial institutions, AKA Banksters. The government has bought trillions of Banksters toxic assets and will continue to protect the banksters interests above all others. There's nothing on the horizon like PCs or the Internet or massive increases in oil supply to pull the economy out of the ditch as they did in the 80s.
ReplyDeleteOne thing I distinctly remember from when I was getting my economics degree 40 years ago, "Economics has no predictive value over and above the obvious." In economics and meteorology, if you predict tomorrow to be like yesterday, you'll be more than 505 correct. The problem as I see it is today most profits are taken by financial institutions, AKA Banksters. The government has bought trillions of Banksters toxic assets and will continue to protect the banksters interests above all others. There's nothing on the horizon like PCs or the Internet or massive increases in oil supply to pull the economy out of the ditch as they did in the 80s.
ReplyDeleteI saw the H+S shoulders pattern forming in mid 09. I saw it by mistake too as the firm I worked at had a nice chart with a bunch of markets and data. The one that caught my eye was the DOW as it had only formed the left arm and head and was in process of forming the right shoulder.
ReplyDeleteIt is posted here:
http://aofinance.blogspot.com/2010/07/blog-post.html
Anyone who thinks in these terms is just a pawn, and a tool. A depression isn't about the stock markets, not at all. A lot of overly educated people, and most Princeton graduates, get up every day and look at the stock markets to see if the three-legged cow is still giving milk.
ReplyDeleteIn a depression, the reason the stock markets collapse is because everything collapses, not the other way around. So what they are going to see when they look to the stock markets -is a delayed confirmation of what the farmer already knows. The economy has collapsed.
Look, the stock markets had recovered nicely up until about a month ago. Had the economy improved at all? No.
Looking at the stock markets to cipher economic condition, is like looking at the pink cotton candy, to see how much the county fair's prize bull weighed. The two do not equate, the economy and the stock market.
That relationship is flimsy at best, and today, the relationship is ... Well, let's just say, the relationship between the stock markets and the economy right now is more indicative of the failure of the fed to understand economics.
There really is no money in the stock market, zero dollars. It is 100% marketing. The shares are worth whatever the Oppenheimer, Bloomberg and WSJ hucksters cause them to be bought and sold for. That is why brokers take a flat fee for brokering sales, instead of sharing in the lately fictional gross profit of the "investors".
And in a depression, whether fast -as in a panic-, or slow as in prolonged hard times, people pull whatever money they can out of the markets, -because they need that money-.
The economy doesn't tank because the stock markets go down. That's just a marketing hype interpretation. The economy would continue with -or- without the equities markets.
During a depression sellers of stock shares only get what a smaller and smaller group of so-called "investors" are willing to pay for those shares.
All boats rise in a rising tide. Even the price of a kiss at the county fair goes up when times were good, or the girl is exceptionally pretty.
Given that stock shares are not REALLY worth anything, the price the Wall Street hucksters can -play with- tends to diminish until it very nearly vanishes.
If people were rational at all, stocks would go to zero and the equity markets would blow away in the wind.
If you want to understand the economy, it is better to look for an understanding of the relational phenomenon one can gauge -concerning how OF the population of human beings on the planet FEWER AND FEWER have any idea how we got where we are today.
No. Milk does not come from the grocery store.
It comes from a cow. It's missed perceptions like that -that cause these collapses, not what the stock market does, which is well after the fact.
When, like today, everyone is laboring under these sorts of false assumptions, -look out-.
Look at a six-month 'line' chart. It's pretty clear.
ReplyDeleteAdditionally, I can see where the djia has tested it's bottom twice, and failed to pass the test. The 5-year shows this quite clearly.
Nice little 'down-gap' on the second, eh? Today ought to be interesting!
I remember the excitement when the Dow broke through the 2,000 ceiling... Since then, other than a few minor 'blips', it has done nothing but climb, and I believe that the lion's-share of this has been artificially fast.
My old comment on our local news site has been removed, otherwise I'd link it here. Back in '08, I predicted a return to the 3-4K range by November of 2010. The growth beyond the 1995ish highs has been WAY too fast... Just look at the 'max' chart: Look at the range scale- If we were able to make a chart that showed it's true upward movement, anybody with half a brain could see there is something VERY wrong... The lower three-quarters of it covers the 0 - 2000 range, and the upper quarter is supposed to cover the 2000 - 16,000 range?!?
40 to 2,000 took like 60 years. 2K to 4K took seven years. 4K to 10K took less than 5 years. Sorry to tell y'all... everything above that 4K mark is nothing but a Market-Maker driven bubble.
Just keep your feeds open so you can watch the big guys do their after-market trades. They will be pulling the last of the money out in the next few months.
If you are going to be crazy enough to keep your money in the game, you'd better keep it liquid and day-trade, and I'd advise a higher percentage of short-sales. Just don't set your stops too close, 'cause they'll shake you out... Remember, they aren't really risking anything... If you keep your nest egg 'invested', you won't have it much longer!