Sunday, February 28, 2016

2016 Versus 2008

In recent weeks, much has been written on the subject of a coming financial crisis similar to 2008 and whether or not it could as bad as or even worse than the 2008 crisis.  There is no crystal ball where one can look in and predict with 100% certainty what is about to happen, but there are two similarities between now and then that are alarming:

  • (1) The Underlying Cause - The 2008 financial crisis started when the five year (2002 - 2007) housing bubble popped in late 2007.  When the bubble in the US real estate popped, it triggered the explosion of an enormously bigger bubble in the high yield debt which had been created on top of the housing bubble.  In a way, the correction in the US housing market was the little explosion that detonated the mortgaged-backed high yield financial nuclear bomb.

    Similarly, from 2009 to early 2015, a new high yield debt device was created, then aggressively marketed and sold.  This new high yield debt was constructed this time on top of the bubble in the oil and fossil fuel industry.  Now that the bubble in oil and energy has popped, markets around the world are waiting to see if that little blow up is going to detonate another financial nuclear bomb.

  • (2)  SPY Chart Patterns - In 2007 a large Head and Shoulders Top (H&S Top) price pattern was formed in SPY weekly chart, as shown in black in the chart below.

    The Right Shoulder (RS) of that H&S Top pattern was made up by yet a smaller H&S Top price pattern (shown in red).  When SPY finally broke through both necklines of those H&S Tops (SPY 120), it continued its sell off until March 2009, when the Fed intervened with its QE and stopped the financial meltdown.

    In the current SPY price chart, shown below, a similarly large H&S Top price pattern (shown in black) has been formed.  The RS of that price pattern is being formed now. Similar to what is shown in 2007 SPY chart,  the bigger RS in the current SPY chart is interestingly made up by yet a smaller H&S Top pattern (shown in red).

    SPY has been trading below the Neck Line of the larger H&S Top since early January.  Once SPY closes below the Neck Line of the smaller H&S Top and starts trading below $180, then chances would be excellent that SPY sells off more until the Fed is forced to intervene again.

Long Term Outlook (Weeks to Months):

SGS_LT Market Timer Status:  SHORT 
Short as of close of Dec 11, 2015
SGS_LT is a Long Term (weeks to months) Timer

Current Long Term Portfolio (2016)
Past Long Term Portfolios (2008-2015)

Longer term (weeks to months) picture has not changed much since last week.   SPX is trading within a bear flag (brown lines shown on chart above).  Chances are good that SPX sell off this coming week and falls through the bear flag sometime later in week.  

Short Term Outlook (Days to  to Weeks):

sgs_st  Market Timer Status:  short 
Short as of  1:00 PM on Feb 18, 2016
sgs_st is a Short Term (hours to days) Timer

(short term trading record of SPY using sgs_st will be posted soon. I'm waiting for a change in sgs_st status)

Shorter term, chances are good that the short term bear market rally since SPX 1810  ended on Friday at SPX 1962.

MY Plan:

No change. Depending what price action is seen around 1830, I might cover all short positions or keep them open.  Should SPX sell off, take out 1810 and close below it, I would do my third and final short sell in SPY and QQQ.

On Friday 2/19 I opened my first of 10 positions (equal $) in UWTI.  My plan is to add to that position on days that WTI Crude is down 4% or more.


SPX: S&P 500 Index    D-SMA: Daily - Simple Moving Average
DJI: Dow Jones Industrial Index    D-EMA: Daily - Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ADL: Active Downtrend Line
OEX: S&P 100 Index    AUL: Active Uptrend Line
NDX: Nasdaq 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line  

Disclaimer: The views expressed are provided for informational  purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.