Global Markets on Edge of Abyss
09/23/15 Weekly Re-Lay Alert: The Edge of the Abyss: “In 2007, I described a scenario with respect to the US Dollar Index and US Stock Indices. In a nutshell, the expected scenario was for the Dollar Index to ultimately drop to new 40-year lows (below ~78.50/DX) and that to act as the starting pistol for a collapse in Stock Indices.
Unrelated (or at least uncorrelated) analysis already projected a multi-year top in Stock Indices for late-2007… and an ensuing ‘1–3 year drop of 35–50%’. Within that context, I described how I believed the Dollar Index would act as an initial trigger.
The reasoning was linked 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.”
While the Dollar had been declining since 2001, and was beginning to draw some attention in 2007, it would not be in an ‘extreme phase’ until it broke below its 40-year low. At that point, I believed it would become the ‘current focus of traders’ and begin the sell-off that was already in the making.
On Sept. 30, 2007, the Dollar Index gave a monthly close at 77.69/DX – the first such close below 40-year lows.
11 days later, on Oct. 11, 2007 (a precise, 17-Year Cycle from the Oct. 11, 1990 bottom), Stock Indices entered what would ultimately be a 1–2 year drop of ~50%.
The irony (although this is often how it unfolds) is that the Dollar Index was just a few points from what would become a multi-year bottom in March 2008. In other words, it was completing its decline… even as Stock Indices were beginning their’s.
Fast-forward to 2014, when I explained that a new currency crisis would impact Stock Indices similarly (though on a slightly-lesser scale). The outlook was forthe Euro to enter an accelerated decline following its May 2014 cycle high.
That was expected to spur a sharp sell-off that would begin to weigh on equities if/when it broke to new 10-year lows. That took place in Jan.–Mar. 2015 and (similarly) acted as a starting pistol for a new decline in Stock Indices.
However, my bigger focus for 2015–2017 has been the twin terrors of China & Russia. (My use of the term ‘terrors’ simply applies to economic stresses… for now.) I have detailed a myriad of cycles – most notably, a unique convergence of 17-Year & 40-Year Cycles – that converge for BOTH of these nations in 2014–2017.
With regard to Russia, my contention was that the Ruble would plummet during that period (cycles bottom in late-2015/early-2016) and contribute to the emergence of twin ‘bears’ (the Russian aggressor ‘bear’ and the oft-related equity ‘bear’) in 2015–2016.
The Ruble (which had a similar, though slightly-lagged, ~3-year cycle as the Euro) rebounded into mid-2014 and then went into a tailspin.
As it accelerated lower – into Dec. 2014 – the bull market in equities came to standstill… waiting to see if a bear was soon to emerge from hibernation.
Similar to 1997/1998, it often takes multiple crises to finally ‘break the back’ of an equity bull market. The Asian Financial Crisis of 1997 was followed by the Russian Ruble Crisis of 1998… and then Stock Indices swooned during the late-April–late-Sept. time period (in 1998).
In textbook alternation, this time a Russian Ruble Crisis came first (though it is ongoing) and an Asian Financial Crisis is following. And, similarly, Indices around the globe have suffered drops of 20–40% during the same late-April–late-Sept. time period (in 2015)… an uncanny 17-Year Cycle on display.
So, what’s my point?
Very simply, the Ruble is flirting with its (multi-decade) lows… an ‘extreme phase’.
At the same time, the Shanghai Composite continues to flirt with its year-opening lows – a kind of precipice off of which it does not want to plummet. China’s Index has already lost over 40% of its peak value… just since June 2015!
The last ~2,700 points – of its ~3,100 point advance – occurred between late-Nov. 2014 & June 2015… and was one of the supporting factors, preventing other global indices from entering their destined bear markets. Since it has already given back ~2,200 of those ~3,100 points, that Index is nearing make-or-break support.
At the same time, many global Indices are nearing multi-year support levels. If broken, they are likely to spur acceleration lower.
So, we have multiple financial markets on the ‘edge of the abyss’, desperately clinging to any remaining semblance of bullishness and trying to avoid the inevitable slide into real bear market territory.
Similar to 4Q 2007, it would not take much of an additional sell-off – in any/all of these markets – to trigger panic in equities. And, since markets like the Ruble are expected to bottom in the next 3–6 months, that would lead me to believe that a spike to new lows is not that far in the future.
There are reasons to believe the real trouble will still wait until after Dec. 2015. However, more ‘precursor’ problems are still likely in the coming months… or weeks.”
Multiple Markets on Edge of Abyss; Watch January 2016 for Next Phase of Trouble!