Last month we wrote the following:
“The chart of the % of stocks above the 200 Price Moving Average (PMA) finally shows the 100 Daily Moving Average (white line) crossing the 200 DMA (green line). This is a technical “death-cross.” The only indicator not in bearish agreement is the NYSE Advance/Decline line. When this indicator shows a similar 100/200 DMA crossover, I believe it will only be a matter of time, based on historic precedent, before an ‘official’ bear market will be declared”.
Well, we did not have to wait long for the NYSE A/D line to play ball. On the 9th of September the death cross occurred.
In the last two recessions the A/D line worked brilliantly, forewarning increased market risk. The charts below show that for the recession of 2000 the death cross occurred in July 1998. The contraction of 2008 was heralded by a similar cross-over in October 2007.
At this juncture it is hard to say when the next economic contraction will officially commence but I reckon it is becoming highly probable that 2016 will be a brutal year for all. This scenario, should it unfold, will have major implications for the eventual outcome of the American presidential elections. An economic contraction will favor a Republican victory I feel. Thus I would say the Clinton camp is beginning to become gravely concerned with the FED’s confused statements. The actions of Janet Yellen last week indicated that the Federal Reserve is unsure of the way forward and it is becoming increasingly clear that in the event of a slowing economy it will have no tools available to it to apply as they have all been squandered by former regimes.
Charts courtesy of Worden Bros.
© Christopher M. Quigley 21st September 2015