Market Crash Warning?!!

The Chartist at Perfect Stock Alerts has been incessantly warning investors that the current market technicals are warning of a market crash. They have reiterated this warning in tonight's video:

Market Crash Warning?

It will be interesting to see if their predictions come true.

We did start off very strongly this morning, as predicted in my last post. But the market couldn't seem to hold the gains. Despite the fact that the SPX was up 12+ points over Friday's close, it gave all that back, plus an additional 4 points. That's not encouraging and smells strongly of "distribution" (selling into market strength)..

You can also see from the following chart that the market is overbought and ready to turn down.

SPX daily chart

Again.. what has to be watched in that Exponential 100 Week MA currently sitting at about 1103 on the SPX.

SPX with 100 Week MA (note: Bigcharts is not particularly accurate with it's MA plotting. I've confirmed the MA support level on my real-time trading platform).

Now mind you, there are differences in Moving Averages. I use the Exponential MA because it more heavily weights RECENT price data, as opposed to the simple MA which smooths the MA out over all available data. Exponential is supposed to react quicker to current market sentiment:

Exponential MA explained

There are a lot of different ways to use MA's. As previous readers may recall, someone turned me on to the fact that the SPX only infrequently violates it's 100 Week MA and when it does, it's usually a strong buy or sell signal (depending on if it's penetrating up or down through the MA). Over the past 6 months, the S&P has been struggling to make an upside penetration of that 100 Week MA, after the 2009 violation of it. It's been above and below it all throughout the spring, and right now the SPX is precariously close to penetrating back down (again) beneath that 100 Week MA. If it does that, one would think that it would send a powerful signal that it will be going down for a retest of Mar, 2009 lows (or at least back to July, 2009 levels @ SPX 900).

And then the question is how long it will take to regain the 100 Week MA.. It could take months, or even years. Such is the suggestion latent in the video posted above.

Very frightening to think we're looking at a chart formation that was seen once before in 1929, isn't it? If investors aren't intimidated by such a comparison, they have no business being in the markets. Some folks fail to recall that the market highs seen in 1929 were not seen again until 1954. That's correct.. it required 25 years before the market was back at the level it was in 1929. Now.. maybe some of you can wait 25 years, or even 15 years, for the market to return to it's previous highs, but most Baby Boomers can't.

And all along the way down, there are people who are shorting this market, standing to profit at the expense of current investors as the markets decline and stay down. Think about it.. if you shorted the market now @ 10,000 and it follows the '29-32 course, within a few years the DOW will be at 1,000 (10% of current value).

That amounts to a loan you don't have to pay back until 20 years from now.

Again.. I hope that I'm incorrect. I truly do.. But I'm just a small fish trying to get a few scraps from a feeding frenzy of financial sharks. They pumped up all of this bad debt with sub-prime loans and derivatives, making a fortune in the process. And now they are setting themselves up profit again (using Credit Default Swaps) as that bad debt collapses and defaults, destroying the money supply at a rate not seen since the Great Depression.

A relative asked me tonight how money is destroyed and walked her through it. You deposit (loan) money to a bank and they pay you interest. Using the fractional reserve lending standards, the bank can then CREATE MONEY by extending $9 of loans for every $1 in deposits they hold. Therefore, if you deposit $1 million dollars in the bank, that bank can extend $9 Million in loans, thereby increasing the money supply by $9 million. Get it?

And if they are paying you 1-2% on your million dollars, and they are collecting interest on $9 million in loans. So they can still make a lot of money even if a few loans eventually default. And when a loan is repaid, or defaults, it destroys a percentage of that money supply.. Get it?

And if you take your money out of the bank, you've suddenly pulled the rug out from under those $9 million in loans they have outstanding forcing the bank to then borrow from the Fed, or another bank, to make up for the money you withdrew, or their $9 million in loans will be undercapitalized. That's what many banks are doing now. They are borrowing from the Federal Reserve discount window at near 0% interest and then loaning it to the US Government (via US debt from the stimulus) at 3-4%. And for those who still have money in the banks, they are taking your deposits and loaning it to the US Government, which is then taxing you to pay the interest on that government debt.

Simply put, there's just not a lot of private lending taking place. Businesses are deleveraging, paying down debt, or just defaulting on their debt obligations. All of this is CRASHING the money supply and there's not enough government stimulus that can replace the rate at which debt is being extinguished.

Shadowstats Money Supply indicators

And since the financial system, and especially the markets, are like balloons that need a constant flow of monetary "air" to keep them inflated, when there is a reduction in the "air" money flow, the balloon deflates. Simply put, visualize a windsock.. Without a flow of air, it droops. Same with the economy.

So we remain a critical inflection point in the markets and the economy. This is going to resolve within the next few weeks (days?!!) and we'll going to find out which way this market is going to go.

Scrutinizer