Crash Warnings Escalate – Except Gold…
The warnings of a crash on Wall Street have been coming thick and fast of late.
Recently Bank of America Merrill Lynch (BofAML) warned of an “imminent recession” and said:
“We are seven years into a full-fledged, all out, central bankers doing everything they can to stimulate demand….. We looked at all of these indicators that have been pretty good at forecasting recessions and we extrapolated that if they follow the current trends they’re on, we’re going to hit a recession sometime in the second half of next year….What scares me is the market been so fragile. So, remember what happened in January? We got a whiff of bad news and all of the sudden the market is at 1800….I think that speaks to the reaction function of the market. There are a lot of itchy trigger fingers. There’s lot of violent trades that can really roil a fairly complacent environment.”
Then last week HSBC’s technical analysis team issued a “Red Alert” signalling an imminent sell off in equities. This has escalated quickly from the “Orange Alert” issued at the end of September signally the market topping and noted that the market looked eerily similar to that just before the 1987 crash. They warned that the key lines in the sand are 17,992 for the Dow Jones or 2,116 for the S&P 500 and said:
"With the US stock market selling off aggressively on 11 October, we now issue a RED ALERT……The fall was broad-based and the Traders Index (TRIN) showed intense selling pressure as the market moved to the lows of the day. The VIX index, a barometer of nervousness, has been making a series of higher lows since August…..As long as those levels [17,992/2,116] remain intact, the bulls still have a slight hope….But should those levels break and the markets close below (which now seems more likely), it would be a clear sign that the bears have taken over and are starting to feast. The possibility of a severe fall in the stock market is now very high."
No surprise then that Goldman Sachs issued a buy signal on gold:
“We would view a gold sell-off substantially below $1,250 as a strategic buying opportunity, given substantial downside risks to global growth remain, and given that the market is likely to remain concerned about the ability of monetary policy to respond to any potential shocks to growth…. The move lower [referring to those big drops a fortnight ago] does not appear to be driven by physical gold ETF liquidation….The drivers of strong physical ETF and bar demand for gold during 2016 are likely to remain intact, including continued strong physical demand for gold as a strategic hedge.” It looks pretty clear on the graph below…