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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Stock Market Crash Warnings Abound

Stock-Markets / Financial Crash Jun 15, 2012 - 03:14 AM GMT

By: Anthony_Cherniawski

Stock-Markets

Best Financial Markets Analysis ArticleSince Monday, the VIX has climbed back up into the upper half of its hourly trading range. It is also now in the upper half of the daily and weekly trading ranges as well. The standard “rule of thumb” is that VIX signals danger for equities once it closes above 25.00. From a Cyclical Model view, this number can vary. In 2010, the danger zone was closer to 27, as awareness of the 2008 crash was still at top-of-mind. Today it is near 23.00, since people have become more sanguine about risk.


This puts traders at risk for a sudden sell-off or flash crash in equities, since the what is thought of as rule-of-thumb is really a moving target. The reason is, once the VIX finds support above its mid-Cycle level, it can quickly and without warning move on to new highs, even though it stopped short of the 25.00 level.

Note that SPY has stopped rallying yet again at the 133.50 area. This happens to be the 61.8% Fibonacci retracement area of the decline from Monday’s high, so be aware that there is technical resistance at that level. You can also see a small Head & Shoulders pattern forming with a neckline just below mid-Cycle support and Short-term trend support at 131.33 – 131.51. Once these levels are crossed to the downside, that would constitute a triple sell signal.

SPY has started its move to point 8 in the Orthodox Broadening Top formation, which is the crash phase. The Broadening Top is a highly successful (97%) pattern with about two-thirds of the formations meeting or exceeding their average targets.

GLD has morphed today’s top into a miniature Orthodox Broadening Top, which suggests that it may go into a crash phase shortly after dropping beneath its declining lower trendline and Intermediate-term support at 155.69.This could happen very quickly as the powers behind the gold market are trying to convince traders to go long just before a nasty decline.

FXE has been “buying time” after its gap down w week ago Wednesday. The corrective formation is a double zigzag, which has the effect of holding the market in a sideways consolidation. Unfortunately, sideways consolidations almost always revert to trend, which in this case is down. Note the FXE has been going sideways for two weeks after breaking through its massive Head & Shoulders neckline. This kind of action always tests the patience of traders, but in this case, patience will be rewarded.

Good luck and good trading!

Tony

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As a State Registered Investment Advisor, The Practical Investor (TPI) manages private client investment portfolios using a proprietary investment strategy created by Chief Investment Officer Tony Cherniawski. Throughout 2000-01, when many investors felt the pain of double digit market losses, TPI successfully navigated the choppy investment waters, creating a profit for our private investment clients. With a focus on preserving assets and capitalizing on opportunities, TPI clients benefited greatly from the TPI strategies, allowing them to stay on track with their life goals

Disclaimer: The content in this article is written for educational and informational purposes only.  There is no offer or recommendation to buy or sell any security and no information contained here should be interpreted or construed as investment advice. Do you own due diligence as the information in this article is the opinion of Anthony M. Cherniawski and subject to change without notice.

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