Stocks Fulfill Forecast for Sharp Drop

01/30/16 INSIIDE Track:   Outlook 2016–2017

40-Year Cycle Collision Courses

          01-29-16 – 2016 has begun very similar to how it was anticipated.  If the outlook for 2016 (and beyond) was to be validated, two important things were projected for mid-Dec. ’15–late-Jan. ’16… and potentially extending into Feb. ’16:

1 – A sharp stock market sell-off.

2 – A multi-month advance in Gold.

Both projections have initially been validated with Stock Indices plummeting during the first three weeks of January – putting in their worst ever start to a new year.  As part of that decline, the DJ Transports dropped as much in late-Nov. ‘15–mid-Jan. ‘16 – the early stage of Crash Cycles – as they did in late-Nov. ‘14–late-Aug. ‘15…

 

Collision Course #1

Cycles & technicals do not automatically reveal the fundamental driver for corresponding market action.  That usually becomes apparent after the first portion (sometimes as much as 1/3) of a new trend has already unfolded.

With that in mind, another critical expectation for early-2016 needs to be reviewed.  It could be the most significant in 2016.  And, it could be the driving force behind much of this other analysis.

That expectation – described in the Oct. 21, 2015 Weekly Re-Lay Alert (and corroborated with the Dec. 16, 2015 Alert: Connecting the Dots) – was that China’s Shanghai Composite had fulfilled initial expectations, leading into late-Sept. – and would see another sharp drop into February 2016 with 2,000 as the ultimate downside target.  That was also reiterated in INSIIDE Track.

After consolidating into mid-Dec., the Shanghai turned down and has plummeted another 25% since then.  There are many future ramifications and also unintended consequences yet to emerge from the bursting of the China Miracle… and these could drag out over a multi-year period.

One of those – as with the bursting of the Japan Miracle in the 1990’s – could be a sharp drop in key US real estate values, in regions where a sharp influx of Chinese buying has artificially supported those prices.  California (particularly SoCal) and Texas are two of those examples.

While Chinese selling or repatriation – if it occurs – might not be a major negative factor, it could be enough to weaken a still-fragile real estate recovery.  Combined with bottoming – or even rising – interest rates and stalling economic numbers, the synergistic impact of all these factors would be worrisome.

2016 might the year when China is pushed to decide between continuing on the path of reform & greater Western acceptance or focusing inward & placating the populace.  And, I cannot stress strongly enough (as elaborated on the following pages) what is usually the ’go-to’ remedy in times like these.  It is usually some form of military confrontation.  Watch the South China Sea!..

 

“Global Indices

            “China’s Shanghai Composite remains on track for an overall drop into February – and potentially down to its primary downside objective at ~2,000 – after perpetuating a ~5-month high-high-(high) Cycle Progression

in Nov. & turning sharply lower immediately after mid-Dec.

It fulfilled expectations for a sharp decline in January and continues to lose ground – having dropped almost 50% from its June ‘15 peak.  As also discussed on pages 4–5, this is likely to be an exacerbating factor for increased instability in China.

Hong Kong’s Hang Seng Index also dropped sharply in January, confirming its late-Oct. sell signal.  It fulfilled the initial target for that weekly trend signal but – on a 3–6 month basis (from late-Oct.) – is still expected to reach its 1–2 year HHL downside objective at 18,258.  That is a little above its yearly Raw SPS (~17,800) and more closely aligned with the 2015 HLS at 18,163.

A drop to 18,343/HSI – which is almost complete – would create a 2nd decline that is .618 xs the 1st decline’s magnitude…”

 

Hong Kong & China’s Stock markets fulfilling analysis for sharp drop into a 1–2 year bottom in Feb. 2016.  The Hang Seng is giving the clearest signals and has nearly fulfilled MAJOR downside objectives.  If it can test 18,258–18,343/HSI in Feb. 2016, it would complete multiple downside objectives & expectations – losing over 35% of its 2015 peak value in a 10-month period (with the sharpest drop coming in the first 5 months, creating a corroborating 5-month high-low-(low) Cycle Progression ALSO projecting a bottom in Feb. 2016.  A bottom in 1Q 2016 would reinforce expectations for continued volatility and two-sided action – in US Indices – throughout 2016.