October Horror On Wall Street: Investors Nervously Watch To See If The S&P 500 Will Bounce Back Above Its 200-Day Moving Average

Is this going to be another October to remember for Wall Street?  As I have explained previously, the month of October has historically been the worst month by far for the U.S. stock market, and it has also been the month when our most famous stock market crashes have taken place. The stock market crash that started the Great Depression in 1929 happened in October.  The largest single day percentage decline in stock market history happened in October 1987.  And most of us still remember what happened in October 2008.  So will we be adding October 2018 to that list?  Well, so far things are certainly moving in that direction.  Between Wednesday and Thursday, the Dow Jones Industrial Average plunged a total of 1,378 points.  And the S&P 500 has now broken below the all-important 200-day moving average.  If the S&P 500 bounces back above the 200-day moving average on Friday, that will be a sign that things have stabilized at least for the moment.  If that doesn’t happen, all hell might break loose next week.

Personally, I believe that the S&P 500 will bounce back on Friday, but that doesn’t mean that the crisis is over.  Remember, some of the best days in stock market history happened right in the middle of the financial crisis of 2008.  During market panics, we should expect to see dramatic ups and downs.  When markets are calm, that is good news for stocks, but when markets start swinging wildly that is usually a sign to start heading for the exits.

And without a doubt, we have witnessed quite a bit of volatility over the past two days…

-The Dow Jones Industrial Average is now down almost 2000 points from the all-time high that was established just last week.

-The S&P 500 has now fallen for six trading sessions in a row.  That is the longest streak since the 2016 presidential election.

-The Nasdaq is having its worst month since November 2008.

-The Russell 2000 is now down 11.2 percent from the 52-week high, which means that it is officially in correction territory.

-Netflix has fallen 11 percent in just the past week.

-Facebook has lost of whopping 30 percent of its value since July.

-Only 1.5 percent of S&P 500 tech stocks are currently above their 50 day moving averages.

-Wednesday’s decline was the third largest single day stock market point crash in all of U.S. history.

-On Thursday, gold futures shot up by the most that we have seen since Brexit.

-European stocks just hit 20-month lows.

-Italian stocks have officially entered bear market territory.

When markets begin to fall precipitously, often forced selling can accelerate that process.

The following is how Andrew Zatlin described this in his most recent article

You get a call: your $1M stock is now worth only $950K.  The lender can only allow you to have a loan of $475K, and your loan is for $500K.  Problem part 2: that $500K loan also dropped 5% and you are down to $475K.

The lender feels very sorry for you, sends you a ghost hug emoji (it’s a hug that you can’t feel but you know is there).  Unfortunately, you have 1 day to pay back the $25K.  It’s the law and if you don’t get them money by close of business, they will liquidate your stock until they get the $25K

You’ve had paper gains and paper losses, depending on the ebb and flow of the market.  But now your paper loss is going to be a real loss.

You aren’t allowed to ride out the loss: the loan is due in part TODAY.

You have what retail investors know as a margin call.

The term for this situation – extending your market position by borrowing against your existing liquid value  – is called leverage.  And the recent drop in the market means that investors are now over-leveraged.

Forced selling is the meme for the day.  Fire sales will be underway.

Right now, Wall Street is more leveraged that it has ever been before.

As long as stocks have been going up, that hasn’t been a problem and everyone has been making money.

But when stocks start to go down, suddenly that becomes a massive problem.

And it looks like we may have had some dramatic “forced selling” in the market on Wednesday.  At one point in the afternoon, the market was suddenly flooded with sell orders

Today was different, because shortly after 2:40pm when a massive selling program emerged as if out of nowhere and sent the Dow Jones plummeting by over 600 points in a manner of minutes, the selling volume was indeed one for the ages.

According to the NYSE TICK, or uptick minus downtick, index, at precisely 2:43pm, the selling order flood was so big it not only surpassed the acute liquidation that was observed around 3PM on Wednesday, but the -1,793 print was one that had not been seen for 8 years: as Bay Crest Partners technical analyst Jonathan Krinsky wrote, the sudden and violent surge in selling as measured by the TICK index, when downtick volume overpowered upticks, was the lowest reading since the May 6, 2010 “flash crash” when liquidity dried up in markets, sending the market plummeting for a few minutes, as HFT briefly went haywire (or when a spoofer outsmarted the algos, depending on what version of events one believes).

In any case, “someone” was in a massive hurry to get out of the market and was willing to hit literally any and every bid in doing so.

But now that the panic selling seems to have subsided, many “experts” are urging investors to use this as a “buying opportunity”

“We look at this as a buying opportunity,” said Dryden Pence, chief investment officer at Pence Wealth Management. “I would have my shopping cart out here.”

And even CNBC’s Jim Cramer is encouraging everyone to buy stocks on Friday

Friday is the time to start buying stocks again, Jim Cramer said during a CNBC special show on Thursday evening.

Is this really a good idea?

We shall see.

As I noted above, a lot of people are watching the S&P 500 to see if it will bounce back above the 200-day moving average.  The following comes from CNBC

Wall Street’s anxieties took a new turn Thursday after the stock market broke below a key technical level that has supported the market for the past three years.

The S&P 500 index finished the day below its 200-day moving average, one of the most popular technical indicators used by investors to help analyze price trends. Sell-offs earlier this year — occurring in February, March and April — all had bottomed at that level.

Ultimately, if there is a going to be a full-blown collapse of the stock market right now, we would need some sort of “kick off event” in order to make that happen.  It would have to be something on the scale of another 9/11, the collapse of Lehman Brothers, an unprecedented natural disaster, the start of a major war or something else along those lines.

Yes, conditions are definitely ripe for a “perfect storm” to develop, but it is going to take a little bit of a push to get us there.

So keep your eyes open, because our world is becoming more unstable with each passing day, and it won’t take much to push us into complete and utter economic chaos.

About the author: Michael Snyder is a nationally syndicated writer, media personality and political activist. He is publisher of The Most Important News and the author of four books including The Beginning Of The End and Living A Life That Really Matters.

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Do They Know Something We Don’t? Corporate Insiders Are Selling Stocks At The Fastest Pace In 10 Years

A lot of things are starting to happen that we haven’t seen since the last recession.  A few days ago, I wrote about the fact that home sellers in the United States are cutting their prices at the fastest pace in at least eight years, and now we have learned that corporate insiders are selling stocks at the most rapid pace in ten years.  So why are they dumping their shares so quickly?  Do they know something that the rest of us do not?  Certainly nobody can blame them for taking advantage of the ridiculously high stock prices that we are seeing in the marketplace right now.  But stock prices have been very high for a while.  Why is there such a mad rush for the exits all of a sudden?  According to CNN, corporate insiders have sold 5.7 billion dollars worth of stock so far in September…

CEOs are using the market boom to quietly cash in their own chips.

Insiders at US companies have dumped $5.7 billion of stock this month, the highest in any September over the past decade, according to an analysis of regulatory filings by TrimTabs Investment Research.

It’s not a new trend. Insiders, which include corporate officers and directors, sold shares in August at the fastest pace in 10 years as well, TrimTabs said.

It would be one thing if September was an anomaly, but the fact that insider shares were being sold so rapidly in August as well indicates that this is a clear trend.

Could it be possible that these corporate insiders believe that the market is about to take a tumble?

Of course it doesn’t exactly take inside information to see the writing on the wall.  On Wednesday, the Federal Reserve raised interest rates for the third time in 2018.  Overall, this is the Fed’s eighth interest rate increase since 2015, and it looks like the Fed is anticipating three more rate hikes in 2019

Looking ahead to 2019, Fed officials expect at least three rate hikes will be necessary, and one more in 2020.

“The Fed shows no signs of taking (a) breath in rate hikes,” Robert Frick, corporate economist with Navy Federal Credit Union, wrote in a research note.

This is terrible news for stock market investors, because every rate hiking program in the history of the Federal Reserve has ended in a stock market crash and/or a recession.

In fact, since 1957 there have been 18 rate hiking cycles, and every single one of them has ended in disaster.

So do you think that we are going to beat the odds this time?

After raising rates again, the Fed released a statement in which it said that it expects the U.S. economy to grow “for at least three more years”

The Fed sees the economy growing at a faster-than-expected 3.1 percent this year and continuing to expand moderately for at least three more years, amid sustained low unemployment and stable inflation near its 2 percent target.

“The labor market has continued to strengthen … economic activity has been rising at a strong rate,” it said in its statement.

You can believe that if you want, but it is also important to remember that Federal Reserve Chairman Ben Bernanke assured all of us that a recession was not coming in 2008.

And later we learned that the moment when he made that statement a recession had actually already begun.

Needless to say, investors were not thrilled by Wednesday’s rate hike, and the Dow Jones Industrial Average dropped another 100 points.  Stocks have really struggled this week, and we continue to get more disappointing news from the real economy.  On the heels of a “disappointing” existing home sales report, we just received news that new home sales missed expectations

Following existing home sales disappointment, hope was once again high for a bounce in new home sales in August but once again disappointed with a 629k print (up from a revised 608k), but missed expectations of 630k.

While the sales gain was the first in three months, the downward revisions to prior figures indicate that the market in recent months was slower than previously reported, adding to broader indications of cooler demand in residential real estate.

And the trade war continues to take a toll as well.  According to Ford’s chief executive, the metals tariffs are going to result in a billion dollars in lost profits for his company…

Ford CEO Jim Hackett told Bloomberg Television on Wednesday that his company faces $1 billion in lost profits from President Donald Trump’s tariffs.

“The metals tariffs took about $1 billion in profit from us – and the irony is we source most of that in the U.S. today anyways,” Hackett said. “If it goes on longer, there will be more damage.”

Perhaps this is one of the main reasons why it looks like Ford could soon be laying off thousands of workers.

The “smart money” is always one step ahead of the “dumb money”, and corporate insiders have a much better view of what is really going on inside their companies than any of the rest of us do.

So if they are collectively convinced that now is a perfect time to sell, that is a major red flag.

On Wall Street, actions speak much louder than words, and corporate insiders are sending a very loud message by selling so many of their own shares.

About the author: Michael Snyder is a nationally syndicated writer, media personality and political activist. He is publisher of The Most Important News and the author of four books including The Beginning Of The End and Living A Life That Really Matters.

Why Are So Many People Talking About The Potential For A Stock Market Crash In October?

It is that time of the year again.  Every year, people start talking about a possible stock market crash in October, because everyone remembers the historic crashes that took place in October 1987 and October 2008.  Could we witness a similar stock market crash in October 2018?  Without a doubt, the market is primed for another crash.  Stock valuations have been in crazytown territory for a very long time, and financial chaos has already begun to erupt in emerging markets all over the globe.  When the stock market does collapse, it won’t exactly be a surprise.  And a lot of people out there are pointing to October for historical reasons.  I did not know this, but it turns out that the month with the most market volatility since the Dow was first established has been the month of October

The difference is quite significant, as judged by a measure of volatility known as the standard deviation: For all Octobers since 1896, when the Dow Jones Industrial Average was created, the standard deviation of the Dow’s daily changes has been 1.44%. That compares to 1.05% for all months other than October.

Like me, you are probably tempted to think that the reason why October’s number is so high is because of what happened in 1987 and 2008.

But even if you pull out those two months, October is still the most volatile

You might think that this difference is caused by a few outliers, such as the 1987 crash (which, of course, occurred in October) or 2008 (the Dow suffered several thousand-point plunges that month as it reacted to the snowballing financial crisis). But you would be wrong: The standard deviation of daily Dow changes is much higher in October than other months even if we eliminate 1987 and 2008 from the sample.

Once we get to Thanksgiving, the market tends to get sleepy, and it usually doesn’t wake up again until the new year begins.

So if something big is going to happen in the market in 2018, it is probably going to happen in the coming weeks.

And it is inevitable that something big will happen at some point.  As Jesse Colombo has pointed out, stocks are more overvalued right now than they were just before the great stock market crash of 1929…

In a bubble, the stock market becomes overpriced relative to its underlying fundamentals such as earnings, revenues, assets, book value, etc. The current bubble cycle is no different: the U.S. stock market is as overvalued as it was at major generational peaks. According to the cyclically-adjusted price-to-earnings ratio (a smoothed price-to-earnings ratio), the U.S. stock market is more overvalued than it was in 1929, right before the stock market crash and Great Depression

It is becoming increasingly obvious what we are heading for, and a growing chorus of market experts are issuing ominous declarations about this market.

For example, David Tice is warning that “we’re getting closer to a meltdown scenario”

According to investor David Tice, who made a name for himself in running the Prudent Bear Fund before selling it to Federated Investors in 2008, the current market is dangerous. Tice was quoted as saying he’s “nervous” because “we’re getting closer to a meltdown scenario.”

And John Hussman ultimately expects “two-thirds of market capitalization” to vanish…

I am aware of no plausible conditions under which current extremes are likely to work out well for investors. There are a few possibilities that could involve a smaller loss than the two-thirds of market capitalization that I expect to vanish, as the run-of-the-mill, baseline expectation for the S&P 500 over the completion of this cycle. Yet it’s worth recognizing that the completion of every market cycle in history has taken the most reliable valuation measures we identify (those best correlated with actual subsequent S&P 500 market returns) to less than half of current levels.

Could you imagine the chaos that would be unleashed if the stock market went down by two-thirds?

That would make what happened in 2008 look like a Sunday picnic.

And there are a lot of parallels between what happened in 2008 and what is happening today.  For example, the housing market is slowing down dramatically just like it did a decade ago.  The following comes from a Bloomberg article that I came across earlier today entitled “Builders Slump as U.S. Housing Market Shifts to the Slow Lane”

The housing market is stalling, and homebuilder stocks are feeling the pain.

The S&P Supercomposite Homebuilding Index is down 21 percent year-to-date, on track for the biggest annual drop since 2008, when it fell 32 percent. That’s even with tax cuts, unemployment near the lowest since 1969 and a real-estate developer in the White House. What gives?

Just a few days ago, I wrote an entire article about the fact that home sellers are cutting prices at the fastest rate that we have seen in eight years.  The housing market is clearly telling us that a big time economic slowdown is coming, but most people are not listening.

Switching gears, we have also recently learned that it looks like Ford Motor Company will soon be laying off lots of workers

Ford Motor employees are warily awaiting details of CEO Jim Hackett’s promised “fitness” plan and the serious possibility of significant job losses as the company faces pressure to improve its operations.

The company has warned of $11 billion in restructuring costs over three to five years, which could mean thousands of worker buyouts, according to analysts.

Why would they be doing that if the economy really was in “good shape”?

And let us not forget about the ongoing woes of the retail industry.  Recently, I was astounded to learn that a whopping 20 percent of all retail space in Manhattan is currently vacant

“When you walk the streets, you see vacancies on every block in all five boroughs, rich or poor areas — even on Madison Avenue, where you used to have to fight to get space,” said Faith Hope Consolo, head of retail leasing for Douglas Elliman Real Estate, who said the increase in storefront vacancies in New York City had created “the most challenging retail landscape in my 25 years in real estate.”

A survey conducted by Douglas Elliman found that about 20 percent of all retail space in Manhattan is currently vacant, she said, compared with roughly 7 percent in 2016.

New York City is one of the few areas around the country that has actually been prospering.

If things are that bad there already, what does that say about the outlook for the rest of the nation?

The truth is that the economy is not nearly as good as you are being told, and things could literally start breaking loose at any moment.

Unfortunately, as a society we have not learned very much from history, and most Americans seem to think that this bubble of artificial prosperity is going to last indefinitely.

About the author: Michael Snyder is a nationally syndicated writer, media personality and political activist. He is publisher of The Most Important News and the author of four books including The Beginning Of The End and Living A Life That Really Matters.

We Are Witnessing Unusual Stock Market Behavior That Is Unlike Anything That We Have Seen Since 2008

We have not seen Wall Street this jumpy since just before the great financial crisis of 2008.  As I have explained so many times before, when the waters are calm and there is low volatility, markets tend to go up.  And when the waters are choppy and volatility starts to spike, markets tend to go down.  That is why the behavior that we have been witnessing from investors during the first two quarters of 2018 is so alarming.  A high level of market turnover is often a sign of big trouble ahead, and according to Bloomberg our financial markets “are churning at the fastest rate since 2008″…

From junk bonds to emerging-market stocks, market turnover is through the roof, reaching multi-year highs. Within the S&P 500 Index, investors traded more than $2.9 trillion worth of shares in each of the past two quarters, a feat last achieved in early 2008.

Bloomberg is not prone to hyperbole, and so when they say that “market turnover is through the roof”, I hope that you will take that statement seriously.

We truly are facing a scenario that Wall Street has never seen before.  The Wilshire 5000 stock index to nominal GDP ratio has been hovering near all-time highs, and what that tells us is that stock prices are more overvalued today than they have been at any other point in modern American history.  Meanwhile, all sorts of red flags continue to indicate that big trouble is on the horizon, but most investors are ignoring those red flags.

But if you look closely, it is becoming clear that the most savvy investors are getting out while the getting is good.  In a previous article, I explained that the “smart money” is getting out of stocks at a pace that we have not seen since just before the last financial crisis.  Fortunately for them, the “dumb money” has been willing to buy what they are selling at these massively inflated prices.

We see a similar spike in the “churn rate” when we look at emerging markets.  In fact, Bloomberg says that we have not seen this much volatility in emerging market stocks since the international financial crisis of 1998…

It’s a similar story for developing-nation assets at the mercy of a strengthening U.S. dollar and trade tensions. Volume on the MSCI Emerging Market index reached $1.9 trillion in the three months through June, the most since 1998 when a wave of currency devaluations and defaults ripped through emerging economies from Thailand to Russia.

As I mentioned a couple of days ago, global stocks lost approximately 10 trillion dollars in value during the first six months of 2018.

Just think about that.

10 trillion dollars is almost half of the U.S. national debt.

If global stocks continue to fall at a similar pace during the second half, it is only a matter of time before U.S. stocks get absolutely slammed.

One of the emerging markets that is showing significant signs of trouble is India.  According to Bloomberg, India’s banks are now dealing with 210 billion dollars of bad debts…

India’s nearly $1.7 trillion formal banking sector is coping with $210 billion of soured or problem loans, and some regional banks have been ensnared in fraud scandals.

If U.S. banks had 210 billion dollars of bad debts that would be a big problem.

In India, a number like that is a complete and utter financial catastrophe that is not going to be easy to clean up.

According to CNBC, most of the bad loans are owned by India’s state-controlled banks…

India’s public-sector financial institutions control about 70 percent of all banking assets in the country, but they have the highest exposure to soured loans amounting to as much as $150 billion. In fact, the 21 state-owned banks had stressed loans of about 8.26 trillion rupees ($120 billion) as of Dec. 31, Reuters reported. Private sector lenders, meanwhile, reportedly had a bad loan pile of just about 1.1 trillion rupees.

Things have already gotten so bad in India that some people are starting to panic.

In fact, it is being reported that ATMs in some areas of the nation have been “running dry”…

On top of that, ATMs in some parts of the country have been reported to be running dry in recent days. There’s an unusually high demand for cash, according to the Finance Ministry. The rupee shortage is being blamed on everything from farm spending to looming elections and hoarding by some families.

This is yet another example that shows that it always pays to not put all of your eggs in one basket.  In the event of a major emergency, you will want access to cash, and you cannot necessarily count on your bank to always be there for you.

As we move forward into the second half of 2018, red flags continue to appear on an almost daily basis.  The Federal Reserve is steadily raising interest rates, civil unrest is erupting in the streets of America, and the Trump administration is starting trade wars with virtually everyone else on the planet.

In the end, these trade wars are going to prove to be very painful for U.S. businesses.  Earlier today, CNBC posted a piece about the impact that tariffs are likely to have on our pork producers…

U.S. pork producers are about to be bitten by a second batch of hefty retaliatory tariffs from China and Mexico — and that has some large producers predicting they could lose big money and be forced to invest overseas.

Executives say the pork industry has been expanding in recent years, in part on the expectation of export opportunities that would continue to support growth. However, the threat of a trade war is adding uncertainty and driving fear. One in 4 hogs raised in the U.S. is sold overseas, and the Chinese are the world’s top consumers of pork.

As I write this article, I can hear fireworks going off in the background.  The 4th of July is always a time for celebration, and without a doubt many Americans are extremely optimistic right now.

But as I have just explained, major storm clouds are gathering, and it isn’t going to take much to push the U.S. economy into another major crisis.

Michael Snyder is a nationally syndicated writer, media personality and political activist. He is the author of four books including The Beginning Of The End and Living A Life That Really Matters.

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