Chris’ note: Regular readers know we keep you posted on the big market moves that we see coming down the road.
That’s why I have to share with you the latest prediction by my colleague, Delta Report editor Jeff Clark.
Jeff stunned our entire office by saying that he sees a market crash coming by the end of the month.
Jeff’s a master at predicting and profiting from a crisis while other investors are asleep at the wheel. He generated millions of dollars for his clients just days before the dot-com bubble burst. And he made gains of as much as 250% when the market crashed in 2008.
Below, he takes a look at the broad market to explain what’s going on under the hood… and why it’s time to start preparing…
By Jeff Clark, editor, Delta Report
“It’s all hype…” “It’s clickbait…” “It’s fearmongering…”
That’s just some of what folks are saying about my prediction that the stock market will crash this month.
I can’t blame them for being skeptical. After all, the financial industry is full of folks who make scary predictions just to capture headlines and get their “15 minutes of fame.”
But, what if I’m not one of those people?
What if I’m just a guy who has been following the financial markets for nearly four decades?
What if I’ve made plenty of bold calls – many of which have been dead-on accurate?
And what if I’m noticing that many conditions in the stock market today are eerily similar to conditions that have preceded bear markets before?
Folks… that’s not fearmongering. That’s just suggesting, as the storm clouds build in the distance, that you might want to carry an umbrella.
Let me show you just one of the things that has me concerned. Take a look at this monthly chart of the S&P 500 plotted along with its 20-month exponential moving average (EMA)…
I use this chart to define bull and bear markets. If the S&P 500 is trading above its 20-month EMA, stocks are in a bull market. If the index is trading below the line, the bear is in charge.
The MACD indicator at the bottom of the chart provides one of the early warning signs of a bear market. The MACD is a good way to measure the momentum of a stock.
Without getting too complicated, if the black MACD line is trading above the red line, stocks are in a bull market. When the black line crosses below the red line, traders need to be on the lookout for the bear.
Notice how in 2000 and 2007, the MACD indicator gave us that “bearish cross” from extremely overbought conditions. In both cases, the S&P 500 dropped into a bear market a few months later.
Of course, you’ll notice the S&P 500 also dropped below its 20-month EMA in 2010 and 2011 (the red arrows on the chart). But, in both of those situations, the MACD was more neutral than overbought. There wasn’t a bearish cross in 2010. And in 2011, the bearish cross reversed before the end of the year.
So, we didn’t have the conditions necessary for a bear market.
Today, though, the storm clouds look a little more ominous.
The MACD indicator completed a bearish cross last November. And, it hasn’t yet made a strong reversal as it did in 2011. Instead, the black and red lines are moving together. The bullish momentum hasn’t returned. And that’s a significant warning sign.
Of course, the stock market did recover from December’s breakdown. And, the S&P 500 did manage to make an all-time high in July. But, that action has created negative divergence on both the MACD and Relative Strength Index (RSI) indicators – marked by the blue lines on the bottom part of the chart.
Negative divergence – when a chart makes a higher high but an indicator makes a lower high – tells us that the momentum behind the rally is waning. It’s a sign of a potential change in trend from a bull market to a bear market.
This is just one of the reasons that suggests to me that the stock market may be heading for a crash – and soon.
The S&P 500 is still trading above its 20-month EMA, for now. So, the bull market is still intact. But, there are plenty of caution signs.
So, like I said earlier, maybe you should carry an umbrella. You know… just in case.
Best regards and good trading,
Editor, Delta Report
P.S. Investors could lose it all as the market crashes. But traders don’t fear market crashes. In fact, we get excited for them. As scary as they seem, they are a gold mine for trading profits… especially if you use my strategy.
That’s why I’ve put together a brief presentation for you. And it’s not something you’ll read about in the mainstream media…