Global Markets at Extreme Support

09/25/15 Weekly Re-Lay Alert: The Edge of the Abyss II: “China’s Index remains precariously close to its late-August low (~2927) – that already represents a drop of 43% from its high.  It is also the last plateau – on the way down – prior to the 5+-year lows around 2000.  So, if it convincingly breaks & closes below 2927, the Shanghai Composite could (again) accelerate down to Major support around 2000… and erase its entire, multi-year advance.

And then there’s the Ruble, also hovering dangerously close to multi-decade lows after losing 70% of its value between 2008–2014.  As explained before, it is often the final exhaustive sell-off that triggers the most extreme reaction in other markets.

So, any of these markets – if they were to convincingly break below 2015 lows – could trigger another significant round of selling in US (and global) Stock Indices.

That is also why they call it ‘the straw that broke the camel’s back’.  The ‘camel’ was able to uphold an increasing weight of burden being placed upon its back…over & over again… until that one final pound or ounce of weight overwhelms the strength & stability of the legs supporting that weight.

When that does happen, it is not a case of the ‘camel’ slowly and steadily dropping to its knees – making sure not to disturb the enormous load on its back.  No, at that point (even though it seems like such a small ‘straw’ or economic event being piled on), the entire structure comes tumbling down… in a hurry.

And that is what I described in 2007, and which ultimately transpired, with regard to the US Dollar Index expected to ‘cross the Rubicon’ – triggering those last few points of downside… a very small percentage of its overall decline.

Less than two weeks later, and while the Dollar was reinforcing that breakdown, Stock Indices entered what would ultimately be a 50% collapse.

Why did Stock Indices ignore a 6+-year plummet in the Dollar and only react negatively when the Dollar dropped to new 40-year lows.  Let’s refer to Hadik’s Axiom of Market Correlation:

“Markets only follow other markets when the lead market is going parabolic or is in an extreme phase.  Also, correlations are only effective when you can be CERTAIN of the current focus of traders.”   [Emphasis added]

The Dollar entered an ‘extreme phase’ of bearishness when it broke below its 40-year low.  At that point, I believed it became the ‘current focus of traders’ andthe rest is history.

In 2015, a triple-whammy of trigger events was anticipated:

1 – Euro plummet.

2 – Russia turmoil & Ruble ‘demise’.

3 – China ‘chaos’.

The seeds for all three have been tilled, planted, watered, sprouted, fertilized, grown, nurtured, fertilized again… and are very near the point of blooming into full-blown maturity.  It would only take an additional 5% – of the moves that have already been seen – to likely trigger a disproportionate and panicked response by all those calm & cool, level-headed investors & speculators around the world.

Just because they are on the ‘edge of the abyss’, does not mean they are going to instantly fall into it.  It doesn’t even guarantee they will fall at all.  But, there is now virtually no room for error left.  And that is the time in which a seemingly innocuous event or surprise could be just enough to prompt those markets to breech support… and trigger an avalanche of selling.”

Markets Hovering Near Extreme Downside Targets.  Next Bearish Phase Begins After Mid-Dec. 2015.