England fans in Lille, France, in June.Wolfgang Rattay/Reuters
HSBC’s technical-analysis team has thrown up the ultimate warning signal.
In a note to clients released Wednesday, Murray Gunn, the head of technical analysis for HSBC, said he had become on “RED ALERT” for an imminent sell-off in stocks given the price action over the past few weeks.
Gunn uses a type of technical analysis called the Elliott Wave Principle, which tracks alternating patterns in the stock market to discern investors’ behavior and possible next moves.
In late September, Gunn said the stock market’s moves looked eerily similar to those just before the 1987 stock market crash. Citi’s Tom Fitzpatrick also highlighted the market’s similarities to the 1987 crash just a few days ago. On September 30, Gunn said stocks were under an “orange alert,” as they looked to him as if they had topped out.
“With the US stock market selling off aggressively on 11 October, we now issue a RED ALERT,” Gunn said in the note. “The fall was broad-based and the Traders Index (TRIN) showed intense selling pressure as the market moved to the lows of the day. The VIX index, a barometer of nervousness, has been making a series of higher lows since August.”
Gunn said the selling would truly set in if the Dow Jones Industrial Average were to fall below 17,992 or if the S&P 500 were to dip under 2,116. The Dow closed at 18,128 on Tuesday, while the S&P settled at 2,136.
“As long as those levels remain intact, the bulls still have a slight hope,” Gunn said.
“But should those levels break and the markets close below (which now seems more likely), it would be a clear sign that the bears have taken over and are starting to feast. The possibility of a severe fall in the stock market is now very high.”
Now that a major global recession has begun, you would expect major retailers like Wal-Mart to run into trouble as consumer spending dries up, and that is precisely what is happening. On Wednesday, shares of Wal-Mart experienced their largest single day decline in 27 years after an extremely disappointing earnings projection was released. The stock was down about 10 percent, which represented the biggest plunge since January 1988. Over 21 billion dollars in shareholder wealth was wiped out on Wednesday, and this was just the continuation of a very bad year for Wal-Mart stockholders. Overall, shares had already declined by 22 percent so far in 2015 before we even got to Wednesday. Here is more on this stunning turn of events from Bloomberg…
Wal-Mart Stores Inc. suffered its worst stock decline in more than 27 years after predicting a drop in annual profit, underscoring the giant retailer’s struggles to reignite growth.
Earnings will decrease 6 percent to 12 percent in fiscal 2017, which ends in January of that year, the Bentonville, Arkansas-based company said at its investor day on Wednesday. Analysts had estimated a gain of 4 percent on average, according to data compiled by Bloomberg.
If it was just Wal-Mart that was having trouble, that would be bad enough. But the truth is that signs that the U.S. economy has entered another major downturn are popping up all around us. Just consider the following list of economic indicators that Graham Summers recently put out…
The Fed has now kept interest rates at zero for 81 months.
This is the longest period in the history of the Fed’s existence, lasting longer than even the 1938-1942 period of ZIRP.
And the US economy is moving back into recession. Consider that…
1) Industrial production fell five months straight in the first half of 2015. This has never happened outside of a recession.
2) Merchant Wholesalers’ Sales are in recession territory.
3) The Empire Manufacturing Survey is in recession territory.
4) All four of the Fed’s September Purchasing Manager Index (PMI) readings (Philadelphia, New York, Richmond, and Kansas City) came in at readings of sub-zero. This usually happens when you are already 4-5 months into a recession. (H/T Bill Hester)
Another huge red flag is the fact that month after month fewer products are being shipped around the country compared to last year.
If less stuff is being shipped around by truck, rail and air, is it a sign that the economy is getting better or is it a sign that the economy is getting worse?
The answer, of course, is self-evident. With that in mind, please read the following excerpt which comes from a recent article by Wolf Richter…
It has been crummy all year: With the exception of January and February, the shipping volume has been lower year-over-year every month!
The index is broad. It tracks data from shippers, no matter what carrier they choose, whether truck, rail, or air, and includes carriers like FedEx and UPS.
Evidence keeps piling up in the most unpleasant manner that something isn’t quite right in the real economy. The world is now in an inexplicable slowdown – “inexplicable” for central bankers who’ve cut interest rates to zero or below zero years ago, and who’re still dousing some economies with QE even as governments are running up big deficits. And yet, despite seven years of this huge monetary and fiscal stimulus, the global economy is deteriorating.
Okay, so is there anyone out there that still believes that the U.S. economy is in good shape?
The Obama administration will probably not admit it for a very long time, but the truth is that the numbers very clearly tell us that we are in a recession.
Anybody out there, whether an “expert” or just someone you happen to know, that tells you that everything is just fine is either completely ignorant or they are purposely lying to you.
And just like in 2008, state and local governments are starting to get into tremendous financial trouble as the real economy sputters. For example, the governor of Illinois has told reporters that “we are out of money now” and that pension fund payments will be delayed as a result…
Illinois will delay payments to its pension fund as a prolonged budget impasse causes a cash shortage, Comptroller Leslie Geissler Munger said.
The spending standoff between Republican Governor Bruce Rauner and Democratic legislative leaders has extended into its fourth month with no signs of ending. Munger said her office will postpone a $560 million retirement-fund payment next month, and may make the December contribution late.
“This decision is choosing the least of a number of bad options,” Munger told reporters in Chicago on Wednesday. “For all intents and purposes, we are out of money now.”
When these sorts of things started happening in 2008, Fed Chairman Ben Bernanke and the Bush administration went into full-blown denial mode. They kept telling all of us not to worry and that everything would be okay, and that just made things worse in the end.
The same thing is happening now. The Obama administration and the mainstream media keep talking about an “economic recovery” even in the face of numbers such as I have discussed in this article.
Perhaps things are going well for you personally at the moment, and that is great. But now is not the time to buy lots of new toys. Nor is it the time to accumulate more debt.
Instead, now is a time to position yourself for a period of difficulty that could stretch on for years.
The next recession is here, and it is going to grow progressively worse.
The wise will take heed and make preparations, but the foolish will just keep on doing what they have been doing until it is far too late.
A coaching client told me about a friend of hers who was freaking out because “the economy is never going to recover.” I suggested to her that her friend was suffering not from economic distress, but simple nearsightedness. Of course the economy is going to recover. Thinking that the economy will never return would be like standing on an ocean shore watching a wave break on the beach and anxiously exclaiming, “There will never be another wave!” There is always another wave, and the tide always comes back in.
Everything in the manifest universe functions in cycles. It’s all about frequency and vibration, crests and troughs. Economics is no exception. The economy goes up and it goes down. The stock market goes up and it goes down. Real estate goes up and it goes down. For every up there is a down and for every down there is an up. To believe that when it is up it will stay up and when it is down it will stay down is quite the short view.
People who recognize the wave nature of life are not disturbed when things change. Smart people do not resist or complain about change; they capitalize on it. In the 1970’s during the “gas shortage,” people were selling their big gas-guzzling cars and buying little economical ones. At that time I read a newspaper article about a fellow who was buying Cadillacs for ridiculously low prices because he expected that the time would come again when gas would be plentiful and there would be a demand for Cadillacs. Sure enough, the oil companies “found” more gas, the price of fuel plummeted, and the price of Cadillacs soared. The man was an entrepreneurial visionary.
(Translated to today’s market, we might say that a visionary would recognize there are other sources of energy besides oil, and place his or her chips on the tide of commerce flowing in that direction.)
In the wake of the September 11, 2001 terrorist attacks, lots of people were afraid to fly and travel, and the tourist industry suffered badly. Many tour agents threw up their hands and found other careers. In the spring of 2002 I read an article in a Hawaii newspaper about several tour agencies that were thriving. In the midst of the doldrums following September 11, they were planning trips for the following spring. They realized that at some point people would feel more confident and want to travel again, and these tour agents would be waiting for them and have trips for them. That’s exactly what happened. While the tide of tourism was out, they were preparing for its return. They were the only agencies thriving at that time.
One of my favorite models of vision in action is portrayed in the film, Tucker, the Man and His Dream, based on the true story of Preston Tucker. In 1947 Tucker developed an automobile many years ahead of its time, with a range of features that have since become standard equipment. Because his invention posed a threat to the auto manufacturers in power, Tucker was squashed and falsely accused of crimes. In the midst of his trial, Tucker doodled. When he was acquitted, Tucker showed his wife the sketches — schematic plans for a new kind of refrigerator with the potential to revolutionize the industry. Tucker wasted none of his precious time. Why bother with a trial when you can be creating things that will change the world?
I am also inspired by creative entertainers who see beyond appearances. Mel Torme, for example, wrote The Christmas Song (“Chestnuts roasting on an open fire…”) in the month of June, when there was no Christmas, snow, fire, or chestnuts. Oscar Hammerstein, partner in the legendary musical team of Rogers and Hammerstein, composed his magnum opus, The Sound of Music, while he was dying. While his body was withering, his spirit was soaring. He was not distracted by the appearance of limitation. While one tide was going out, another was coming in.
An economic downturn, or recession, is an intrinsic piece of a greater progression. Abraham-Hicks notes that, “This economy is planting seeds of desire, intention, and invention that will make the economy stronger than it ever was.” Likewise, Native Americans would purposely burn down certain forests because the area needed cleansing, and the forest that grew back would be healthier. There is a wisdom in apparent destruction, which paves the way for ultimate construction. I once saw a sign posted at a road construction zone, “The inconvenience is temporary. The improvement is permanent.”
We are going through a period of temporary convenience. We can moan, complain, criticize, and blame, or we can take a breath and flow through it. Just keep watching the ocean, and you will find that the next wave is not far behind the last one.
Alan Cohen is the author of many popular inspirational books, including I Had it All the Time.