Mild Monday market means meltdown coming

Monday 6 October was no Black Monday. After rising early, prices slipped back later to show a slight drop overall.

As astute investors pocketed profits after a long summer ascent, the Bulls did not believe the uptrend was ended, but saw opportunity in the reduced prices.

You and I have, however, sold our stocks and will see investment opportunity when prices fall forty percent, or level out at thirty.

Review and renewal of Black Monday pledge

I expect the markets to fall this coming week.

This image shows the shape of the FTSE 100 since 1990. It has kept within the range described by the shaded polygon. Having reached another apex in line with the previous 2, it has commenced to drop along line D. Early in the week, I made good gains, but lost them when I was too eager to get back in on Friday before its little bounce-back had come to an end. In the  coming week, I must be ready to re-enter as soon as it resumes its downward movement, which could, as I speculated in a previous post, become a crash.

The S&P 500 faces an even bigger drop, having twice broken out of its polygon, first on the down-side and, this year, on the upside. It is not quite so clear that it has started the down-trend: as I indicated in a previous post, it may have a double or treble peak at its present level before dropping.

The rise of both indexes to their present highs was driven by quantitive easing and low interest rates. The Quantitive Easing programmes are being wound down, and interest rates mus rise from their present abnormal lows. Sterling has signalled that the interest rates will rise in 2015, but the American Fed has indicated that the low rates will be continued for the present.

The markets know that, whatever words issue on the matter, interest rates will rise. They won't wait, but anticipate. Therefore, I expect both indexes to tumble sooner rather than later.

As to forex - EUR/USD and GBP/USD:

 

My polygon suggests that GBP has more ground to lose against the US Dollar, before a rebound is due.

My polygon on the EUR/USD suggests that the present downtrend might be coming to an end. However, the raw facts that the Eurozone is only commencing a programme of Quantitive Easing and that there is no prospect of an interest rise in this zone for the foreseeable future, indicates that there will be another substantial movement to the downside, whereupon the polygon will need to be redrawn to show the previous extreme dip (from 2000 to 20003) as the normal bottom.

FTSE downtrend has started

The FTSE downtrend has started. The American markets will follow suit, no doubt, when they open later today.

Click to enlarge image.

For 3 years the FTSE100 has kept above Support Line C. It has now crashed through that support, indicating that a downtrend is under way. The last FTSE Bear-market lasted from October 2007 to February 2009. The present one may be swifter than that, being, perhaps, a response to expectations of increased interest rates rather than economic recession.

Today's plunge in the markets presages a great sell-off

I have joined the bottoms for the last year on the graph, giving me a Support Line. Today the graph plunged downwards to kiss this line.

First day of October and already the Markets are plunging. However, it is not yet conclusive that this is any more than a down-swing within the range of the present uptrend.

The graph will either bounce off the Support Line, indicating that the uptrend will continue for the present, or break through the line, signalling the beginning of the great sell-off. If not now, undoubtedly the sell-off will take place later this month.

Only one Wager now: Black Monday to Win

October is a month when investors review their portfolio. After a sulggish summer, this often signals a new period of growth. However, this year the summer months have seen an exceptional rise in share prices. Many traders will now be inclined to take profits, a fortiori because Interest Rates are due to start rising soon. Should the sell-off drive the chart through Support Line S, there will be a massive exodus, reminiscent of previous Black Mondays. This may not happen on a Monday, but is coming soon. To have anticipated a Black Monday would be the punt of a lifetime!

The Few against the Many

My Sunday newspaper (Sunday Independent, attrib. Reuters) tells me "Stock markets set to keep rising well into 2015." After a sluggish end of week, "Nearly all the almost 250 analysts and investors polled in the past week predicted markets would rally, with several indexes reaching new highs."

I dare to take the opposite view.

They say: "Share prices are rising so they will keep rising." We have heard that before.
I say: "Share prices are inflated. Interest rates are deflated. Interest rates must rise. Share prices must fall."

Click to enlarge image.

This morning's downturn (with subsequent rebound) confirms the emergence of a new Resistance Line (R), as the Parobola-top, signalling the end of the present uptrend, takes shape. Junk bonds have already fallen significantly in price, indicating that the market is gearing up for higher interest rates and lower equity prices. The Sterling interest rate is to go up in 2015, which is not too far away now, and the USA will follow soon after.

Markets don't wait. They anticipate. We could even have another Black Monday next week, sez I.

Market Collapse imminent

I am convinced that the FTSE 100 index (index of 100 leading Great Britain shares) is about to suffer a severe correction. I also think an even more severe correction will hit American indexes, but possibly not so quickly. Click on an image for a larger view.

These charts predict a 15% falll for the FTSE (already perhaps begun) and a 40% fall for the S&P500 (wait for it to start).