Martin Armstrong Says Trouble Ahead

by JDH on August 28, 2010

If you give a man a fish, you feed him for a day. Teach a man to fish, and you feed him for a lifetime.Lao Tzu

Give a man a fire and he’s warm for the day. But set fire to him and he’s warm for the rest of his life.Terry Pratchett

I may not understand that second quote, but I’m assuming that once you set fire to someone, that’s the end of their life, so yes, that would imply that setting a fire to someone will keep them warm for the rest of their life. – JDH

Good news! I’m not going to teach you how to fish, because I don’t know how to, but I am going to keep you warm by lighting you on fire! I’m going to tell you what’s going to happen on the markets next week.

Month end is August 31, on Tuesday, so even though that’s not the end of the quarter, fund managers still like to have a nice clean month end, so the market will rally on Monday and Tuesday. Here’s the chart (click to enlarge) of what’s happened over the last four months:

As you can see, the market stalls at the 200 day moving average, then drops 800 or 1,000 points, then recovers to over the 200 day moving average for a few days, then it crashes again. Simple. So, all we need to do is extend the chart for a few weeks:

Easy, eh? We have a big rally on Monday and/or Tuesday, and then we are stable for a bit, and then the big crap-out happens, taking us back to the July lows, and perhaps lower.

See how easy it is to predict the market? Download a chart, feed it into your graphics editing program, and boom, one minute later you know what the market will do. It’s that easy.

(Yeah, right).

But don’t take my word for it. Our favorite incarcerated guru, Martin Armstrong, is saying the same thing. In an essay titled World Share Market Outlook and Grand Unified Theory published on August 10, he states, on page 7, that August is a turning point in time, with particular attention to be paid to the weeks of August 2 and August 30. As the previous charts showed, the week of August 2 marked the high point for the month; it will be interesting to see if the week of August 30 is the beginning of a significant correction. On page 8 he summarizes his outlook by saying:

Only a low the last week of August would warn we could flip to the upside. This is NOT going to be a walk in the park. The markets are going to be very volatile and we have to pay close attention to the outcome of the Sept/Oct time period. We are preparing to make a very important directional change.

My opinion, as stated in these electronic pages as recently as last week, where I discussed the Hindenburg Omen and the coming crash, remains the same: it ain’ t going to be pretty. Unemployment remains high, consumer spending has dropped off the table, retailers are offering massive discounts for the back to school crowd, new home sales have crashed, a significant number of U.S. mortgages are under water, and a large number of homes are in foreclosure.

Need I say more?

I don’t think so.

So I will say that we may have two decent up days, and then all bets are off.

Of course, I’m not usually correct, and no one can predict the future, so be careful not to follow this advice, since you may simply set yourself on fire.

Thanks, and see you next week.

{ 0 comments }

Once again we have a completely uneventful week on the markets. Two big up days, two big down days, and by the end of the week we end about where we started, although it is now two down weeks in a row for the Dow. So, to pass the time, let’s discuss the Hindenburg Omen, which is making a lot of news these days.

Tyler Durden over at zerohedge.com was the first person to make recent reference to the Hindenburg Omen in an article he posted on August 12. Thereafter it went viral, and every Main Stream News outlet in North America picked it up and ran stories about it this week.

Named after the famous Hindenburg disaster from 1937, the Hindenburg Omen was created by Jim Miekka, and here’s how it works: if the following four indicators are tripped, a stock market decline is imminent:

  1. The daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows are both greater than 2.5 percent of total NYSE issues traded that day (other sources put the number at 2.2%)
  2. The NYSE 10 Week moving average is rising.
  3. The McClellan Oscillator is negative on the same day.
  4. New 52 Week Highs cannot be more than twice the new 52 Week Lows (though new 52 Week Lows may be more than double new Highs).

It would appear that the “Omen” was triggered on August 19, and then again on August 20. Many Hindenburg Omen followers believe that the triggers must occur three times in a row from the triggering of the first event, so whether or not these is a true Omen or not will remain to be seen.

So, does the Hindenburg Omen have merit?

Yes.

And No.

Yes, because every “crash” on the New York Stock Exchange since at least 1985 has been preceded by a Hindenburg Omen.

No, because, as we know, economists have predicted 25 of the last 15 recessions. In other words, it’s not that difficult to back test data to come up with criterion that work in all past cases, but that doesn’t mean it will work in the future.

My thoughts?

I’m not losing any sleep over the Hindenburg Omen. I will not be counting on my fingers 36 days from August 19, expecting to see a crash before the end of September because a series of technical indicators predicted it.

Does that mean I don’t expect a crash before the end of September, 2010?

No, as a matter of fact I would not be at all surprised to see a crash within the next few weeks. I would not be surprised at all, for a number of reasons.

First, as documented here on numerous occasions, the economy sucks. Unemployment in the U.S. is at very high levels (levels that would be much higher if millions of workers had not simply left the workforce, making the statistics look better). The consumer is not spending. Retails sales are dropping, and since the consumer is about three quarters of the economy, there cannot be a recovery without the consumer spending.

And yes, I know, the stock market is doing well, and some corporate earnings are up. That’s true, but earnings are only up because of cost cutting. If you have declines in revenue, and if you can’t cut costs forever, there will be no long term profit growth. That’s bad for the economy long term, and a big negative for the stock market.

Second, the stock market, as shown in this chart of the S&P 500, continues to make a series of lower highs. Sure, we’ve had a big rally, but until the market makes new highs, it’s not a recovery.

Third, along the same theme, as discussed previously, most recently last month in my Fibonacci Says Sell posting, we have not breached the generally accepted Fibonacci Retracement Levels. Specifically:

The S&P 500 peaked at 1,562 on October 12, 2007, and then dropped all the way to 683 on March 6, 2009. A 50% recovery would be back up to 1,123, with a full 61.8% recovery taking us back to 1,226. As we all know, the S&P 500 clawed all the way back to 1,217 on April 23, 2010, but that was it. We got within an amazing nine points of a full retracement, a breach of which would have signaled a possible resumption of the bull market.

But it didn’t get there, and it’s been downhill ever since.

So, regardless of what the Omen’s say, the market is looking lower to me, not higher. And that’s why I’m keeping a large holding in cash, with some gold and silver holdings for downside protection (although I realize that in a crash, everything will drop). I also have a few dollars in puts, just as cheap insurance.

Yes, I have been wrong all the way in the this bear market rally, but even a stopped clock is correct twice a day, and I will be proven correct eventually, perhaps sooner rather than later.

So I sit, and I wait. Don’t believe the Hindenburg Omen, because it has predicted crashes that haven’t happened, but expect a crash regardless.

Thanks for reading; see you next week.

{ 0 comments }

Inflation, Deflation and the Implications for Gold and the Stock Market

August 14, 2010

As the markets muddle through the summer, stuck in a trading range, let’s pause and discuss the question that’s confusing everyone: “Are we headed for a period of inflation, or deflation?” The answer is: yes. The “hyper inflation is coming” people will tell you that the massive stimulus spending by the government is very inflationary, [...]

Read the full article →

Casey Takes a Shot at Dines Over Rare Earth Elements

August 7, 2010

Since nothing much happened this week on the markets, I thought instead I would comment on the war of words occurring between two of the investment gurus that many of the readers of this blog follow: James Dines and Doug Casey. (For those of you who have never heard of Dines or Casey, you can [...]

Read the full article →

The Broken Record

July 31, 2010

I will keep my comments brief today, for two reasons. First, Monday is a Civic Holiday in Ontario, and most provinces in Canada, so the markets will be closed, so not much will be happening for the next few days. The weather is great, and I plan to spend my time outside, not in front [...]

Read the full article →

Drive Through the Water Slowly

July 24, 2010

On Friday I got up early and headed for the office. It was raining, and when I reached my office the parking lot was covered in water. As I entered the parking lot I pulled over to the side, and weighed my options. I could park my car at the far end of the parking [...]

Read the full article →

Fibonacci Says Sell

July 17, 2010

Let me explain, again. Yes, I know I sound like a broken record, but the facts don’t lie. Last week, in my commentary that I am not willing to admit that I’m wrong, I explained the fundamental reasons why the market is due for a crash. My reasons included: No jobs; The Baltic Dry Index [...]

Read the full article →

I am not yet willing to admit that I’m wrong

July 10, 2010

Well, I guess I called that one wrong, eh? Or did I? Last week I wrote about the Start of our Summer of Discontent, and I made the point that a stock market correction or crash was looking to be an apparently inevitable event at some point this summer. My reasoning: No jobs; The Baltic [...]

Read the full article →

The Start of our Summer of Discontent

July 3, 2010

I suspect that since this is a long weekend in both Canada and the United States, virtually no-one will be reading these words. That’s fine, I write these weekly ramblings entirely for my own benefit; it’s my way to force myself to keep an eye on the markets, and my portfolio. That being said, I [...]

Read the full article →

Gold and the Markets: Exactly as Expected

June 26, 2010

The weather is great here in my corner of Southern Ontario, and I want to enjoy it, so today you will be treated to a brief commentary. Also, I have nothing to say, because nothing has changed. Everything is happening exactly as expected. I’ve covered all of this before, and today I will give you [...]

Read the full article →