Stock Market Internals Are Pre Crash Unhealthy, Sitting on a Precipice
By: Robert McHugh PhD
Jun 13, 2010
Stocks sit this weekend at the precipice. Conditions are ripe for a waterfall decline. This does not mean there will be a crash starting over the next few weeks, so please do not go out and short the farm. What we can tell you is the risk of one occurring is higher than normal, that conditions that preceded prior stock market crashes exist right here and now.
I believe that short-term we are now in a high probability zone for a stock market crash. Further, I believe this catastrophic Supercycle wave (C) down leg of the Grand Supercycle Degree Bear Market that started in 2007 will see a series of stock market crashes over the next 3 to 5 years. Further, I believe that when all is said and done, the Industrials, the S&P 500, and most major domestic and international stock indices will be near the value zero. This belief is based upon the technical analysis patterns and indicators that we follow, and is not some wild speculative opinion. This is dangerous ground we stand on this weekend.
We have been waiting and watching for a Hindenburg Omen to surface, that would warn of a possible stock market crash. We have not had a stock market crash over the past 25 years without an H.O. However, we noted several months back in these pages that it is going to be very hard to get a Hindenburg Omen until deep into 2010 because prices had risen so far, so fast above a year earlier’s lows that it would be nearly impossible to see the requisite number of New 52 Week Lows on the NYSE to appear at the same time we get the requisite number of New Highs. We posited that did not mean a stock market collapse could not occur without an H.O. this time, that this time could be the exception to what we have seen over the past 25 years.
But a fascinating development has arisen that identifies a similar condition in the market that the Hindenburg Omen does, which increases our belief that in fact we could see a stock market crash start and continue over the next several months.