The Stock Market’s Worst Yearly First Week Ever!

The warning signs were there, back in December, several of our critical and proprietary stock market forecast indicators warned a significant and perhaps unprecedented decline was fast approaching.

The Worst stock market decline at the start of a new year in the history of the U.S. stock market completed with another big down day Friday, January 8th, with a big sell off into the close. Since our Demand Power / Supply Pressure Indicator forecast the start of the next significant decline, on December 31st, the Industrials have lost 1,110 points. Since our amazing trend-finder Purchasing Power Indicator triggered a Sell on Monday, January 4th, the Industrials have plunged 834 points.

Okay, this decline is starting to get serious. Next major support is the August 2015 lows. If stock prices break down below those levels, we can conclude a worldwide economic avalanche has started, Grand Supercycle Degree {IV} down, the next Great Recession / Depression. The NYSE is 5 points from breaking below its August lows, while the Trannies and small cap Russell 2000 have already broken those August lows. The major indices are likely to follow. The rally from August was three large waves, not five, and was corrective inside a developing mega-Bear market.

Our Purchasing Power Indicator

(The Short-term Market Trend, typically from 1 to 4 weeks)

Our Purchasing Power Indicator generated a new Sell Signal Monday, January 4th. It remains on a Sell Wednesday, January 6th. Since the PPI triggered a Sell signal on January 4th, the Industrials have plunged 864 points! The PPI remains on a Sell signal this weekend.

Our Demand Power / Supply Pressure Indicator

(The Short/Medium-term Time Horizon Trend,

Typically from 1 to 3 Months)

Since the DP/SP Indicator triggered a Sell on December 31st, the S&P 500 has dropped 105 points. Since this Sell Signal, the Industrials have plunged 1,110 points.

As of this weekend there is no early sign from this indicator of a bottom. To see such an early warning, we would want to see convergence between the Demand Power and Supply Pressure Indicators, which so far has not occurred. Or, we would want to see a Bullish divergence between prices and Demand Power where Prices are falling and Demand Power is rising. Not there yet.

Thus we conclude from this indicator that conditions remain ripe for more downside to this trend from January 1st, 2016.

Our Secondary Trend Indicator

(The Intermediate-term Time Horizon Market Trend,

Typically from 3 to 12 Months)

Our Secondary Trend Indicator remains on a Sell Signal from July 22nd, 2015. Since that Sell Signal, the Industrials are down 1,505 points as of January 8th, 2016!

Take note that a huge Bearish Divergence was occurring between our Secondary Trend Indicator (was declining) and stock prices (were rising) during the last three months of 2015, which was warning in flashing neon lights that a significant stock market decline was approaching. Further, notice that because this divergence was huge, it was telling us the approaching decline would be significant. Well, it has been, as U.S. stocks have seen their worst first week of a year ever!

Our S&P 500 versus

10 Day Average Advance / Decline Line Indicator

(Identifying Bullish and Bearish Divergences

for early detection of future trend turns)

Stocks plunged in tumultuous fashion the first week of January, as predicted by a massive Bearish divergence between stock prices and the 10 day average Advance/Decline Line Indicator.

What is missing is any evidence of a Bullish divergence this weekend, so it is quite likely stocks have further to drop. 

Our NASDAQ 100 Demand Power / Supply Pressure Indicator

(Identifying Medium term Buy and Sell Signals and also

Bullish and Bearish Divergences

for early detection of future trend turns)

Our NASDAQ 100 Demand Power / Supply Pressure Indicator generated a Sell signal on December 31st, sniffing out the stock market plunge we saw this past week. Since this Sell signal, the NDX has dropped 328 points! This Sell signal occurred when our Supply Pressure measure rose 10 points above our Demand Power measure.

Further, above we see that this indicator was warning that a significant decline was approaching, in that there was a huge Bearish Divergence between Demand Power and NASDAQ 100 prices over the last three months of 2015. This has proved to be accurate.

However this weekend, there is no indication of a bottom to this declining trend. We would want to see convergence between Demand Power and Supply Pressure measures, which is not the case this weekend. Also, there is no evidence of a Bullish divergence between Demand Power and prices. This suggests the odds remain high that more downside is coming before a bottom arrives.

Our NASDAQ 100 versus

10 Day Average Advance / Decline Line Indicator

(Identifying Bullish and Bearish Divergences

for early detection of future trend turns)

Our NASDAQ 100 10 day Average Advance / Decline Line Indicator identified a growing Bearish Divergence from October through December 2015 which was warning that a significant decline was coming to tech stocks. That is exactly what has occurred here in the first week of 2016.

Our Russell 2000 versus

10 Day Average Advance / Decline Line Indicator

(Identifying Bullish and Bearish Divergences

for early detection of future trend turns)

Small caps plunged the first week of January 2016 after a Bearish Divergence occurred between the Russell 2000 and its 10 day average Advance/Decline Line Indicator.                                       

So as the above charts show, the stock market gave us plenty of warning about what is occurring now in 2016. The above indicators gave us precision as to the timing of when the next major decline would begin, especially our short-term Purchasing Power Indicator and Demand Power / Supply Pressure Indicator. However, what has really been warning us about the future for the stock market is the multi-decade Jaws of Death pattern, the largest such pattern in over a century, an ominous warning:

This pattern didn’t go anywhere, it is still staring us in the face. The rally this autumn did nothing to change the above ominous Bear Pattern. This multi-decade Jaws of Death pattern has not been erased, compromised, or changed.

A massive economic decline and stock market plunge is in its infancy.

******** 

We are now on HIGH ALERT!!!!! Grand Supercycle degree wave {IV}’s decline is close at hand. The Industrials are about to plunge from the upper boundary of the Jaws of Death pattern, the top for Grand Supercycle degree wave {III} up. Grand Supercycle degree wave {IV} down, which could last 5 to 7 years, is now underway.

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Robert McHugh Ph.D. is President and CEO of Main Line Investors, Inc., a registered investment advisor in the Commonwealth of Pennsylvania, and can be reached at www.technicalindicatorindex.com.  The statements, opinions, buy and sell signals, and analyses presented in this newsletter are provided as a general information and education service only.  Opinions, estimates, buy and sell signals, and probabilities expressed herein constitute the judgment of the author as of the date indicated and are subject to change without notice.  Nothing contained in this newsletter is intended to be, nor shall it be construed as, investment advice, nor is it to be relied upon in making any investment or other decision.  Prior to making any investment decision, you are advised to consult with your broker, investment advisor or other appropriate tax or financial professional to determine the suitability of any investment.  Neither Main Line Investors, Inc. nor Robert D. McHugh, Jr., Ph.D. Editor shall be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided. Copyright 2016, Main Line Investors, Inc. All Rights Reserved.