The 5 Previous Times This Stock Market Indicator Has Reached This Level Stock Prices Have Fallen By At Least 50 Percent

Thursday, August 23, 2018
By Paul Martin

By Michael Snyder
TheEconomicCollapseBlog.com
August 23, 2018

Have you ever heard of the “Sound Advice Risk Indicator”? Every single time in our history when it has gone above 2.0 the stock market has crashed, and now it has just surged above that threshold for the very first time since the late 1990s. That doesn’t mean that a stock market crash is imminent, but it is definitely yet another indication that this stock market bubble is living on borrowed time. But for the moment, there is still quite a bit of optimism on Wall Street. The Dow set another brand new all-time record high earlier this week, and on Wednesday we learned that this bull market is now officially the longest in our history…

For context, a bull market is defined as a 20% rally on a closing basis that’s at no point derailed by a subsequent 20% decline. March 9, 2009, has long been the agreed-upon starting point for such calculations because that was the absolute bottom for the prior bear market, which ended that day.

The S&P 500 has surged a whopping 323% over the period, with its roughly 19% annualized return slightly lagging behind the historical bull market average of 22%.

Of course the U.S. economy has not been performing nearly as well. Even if you accept the highly manipulated numbers that the federal government puts out, we haven’t had a year when GDP grew by at least 3 percent since the middle of the Bush administration.

It simply is not possible for stock prices to continue to soar about 20 percent a year when the U.S. economy is growing less than 3 percent a year. At some point a major adjustment is coming, and it is going to be exceedingly painful.

Author Gray Cardiff has been touting his “Sound Advice Risk Indicator” for many years. He believes that the relationship between the S&P 500 and the median price of a new house in the United States is very important, and this is the very first time since the late 1990s that this indicator has entered the danger zone…

The “Sound Advice Risk Indicator” is a different story. This indicator, the brainchild of Gray Cardiff, editor of the Sound Advice newsletter, is derived from the ratio of the S&P 500 to the median price of a new U.S. house. For the first time since the late 1990s, and for only the sixth time since 1895, this indicator has risen above the 2.0 level that represents a major sell signal for equities.

So should we be concerned?

In previous instances when this level has been breached, a crash hasn’t always happened right away, but in every instance the market eventually fell “by 50 % or more”…

To be sure, Cardiff is quick to emphasize, his risk indicator is not a short-term market timing tool. In the wake of past occasions when it rose above 2.0, for example, equities stayed high or even continued rising “for many months, sometimes even a couple of years.” However, he continues, “in all cases, a major decline or crash followed, pulling down stock prices by 50% or more.”

The Rest…HERE

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