Last Time This Happened > GFC

Last night saw the S&P500 rally and finally break even for the year (whilst spot gold is up nearly 19%).  Last night’s rally was again entirely due to central bank stimulus.  More stimulus = lower USD = higher commodities was last night’s story with oil back up over $40. In our article yesterday and in today’s podcast we discussed another counterintuitive move on the US sharemarket.  But one or two days do not make a trend…

Recently Casey Research (one of the better around) spoke to the chart below.  All those little jagged moves of the green line (S&P500) are the ‘micro’ moves we spoke of yesterday.  Sometimes stepping back filters out the noise and looks at bigger trends afoot.  The blue line is the 9 month moving average and the purple line is the 27 month moving average – much longer terms than the usual 50 and 200 day moving averages you often see on charts.  You will note they are very close to crossing again.  They explain the significance as follows:

“You’ll see that this only generated two signals in the last 10 years. If you sold stocks at the bearish signal in 2008 [when the lines crossed], you avoided a 43% drop. If you bought stocks at the bullish signal in 2010, you made 68% in a huge multiyear rally.

Today we’re closing in on a bearish signal. You can see the two lines coming together quickly. Unless stocks have a dramatic surge, they’ll cross. This would generate the first bearish signal since 2008.

There’s nothing magical about this tool. It simply filters out noise to objectively measure whether we’re in a bull or bear market. But I wouldn’t bet against it. And unfortunately, it suggests we’re rapidly approaching a bear market.”

So this is the 3rd article this week on the US sharemarket you say?  The old saying of when the US sneezes Australia catches the cold has always held.  When (not if) this crash comes, down we go too.  

In Australia we still haven’t even managed to shake the last cold and get back to pre GFC sharemarket highs – and that was over 8 years ago!   Indeed since the All Ords hit its peak in November 2007, it is still nearly 24% below that today.  Gold on the other hand (in AUD) from that same day is up nearly 76%.  In other words you were 100% better off being in gold since November 2007.  Now have another look at the chart above with those dates in mind…