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Global Financial Market Panic in Progress

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#1 Steven Vincent

Steven Vincent


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Posted 03 June 2012 - 08:57 PM

Global Financial Market Panic in Progress

"There is only one side to the stock market; not the bull side or the bear side, but the right side" --Jesse Livermore, Reminiscences of a Stock Operator

One year ago today I detailed to BullBear Traders members my reasons for turning long term bearish on global financial markets.

When I turned bullish in March of 2009 and again in September 2010, I put forward a set of criteria that could both explain the apparent bull market and potentially underly its perpetuation. Evaluating these criteria now I find that they are, at this time, unverified by market action. This, together with the technical action of the markets at their current state of development, forces a reevaluation of my market position.
My set of criteria for a continued bull market at this stage of the game:
Emergence of a leading economic growth sector, most likely Green/Clean Technology and other Tech
Leadership from BRIC and Emerging Market sectors
Re-initiation of currency carry trades, most likely Yen carry trade
Flight of capital from low yielding bonds to risk assets
Eventual, gradual broadening of participation in the bull market from professionals and institutions to the general investor population and eventually the general public.
Technical condition of the market remains healthy
At this time I am not seeing any of these criteria being met. Recently, most of the above were approaching or exceeding levels in keeping with a bullish view or were at least showing signs of moving in a bullish direction. But all have effectively reversed or aborted at this point. June 2011: Recognizing the Start of a Long Term Bear Market

I turned bullish for a countertrend rally at the bottom in October 2011. The following were posted as updates to 09/19/11 BullBear Market Report:
Reply by Steven Vincent on October 4, 2011 at 12:30pm
My current take is that the B of major B is over and we are starting C of B up:
From here we would get a five wave C wave to complete the major B wave pattern. Then the major C crash would begin.
Reply by Steven Vincent on October 4, 2011 at 2:14pm
If my analysis is correct and the major B is NOT complete yet and there will be a rally to complete it, then it should retrace between 50% and 78.6% of the major A wave. Believe it or not, it could even go on to make a higher high! I don't think that it will, but its within the technical bounds of the setup. The fact that the first two legs of this B wave took so long and were so volatile tends to suggest the C of B could go higher than most think possible.
Reply by Steven Vincent on October 5, 2011 at 2:30pm
I would classify the C of B rally as an intermediate term rally, not short term. Like I said last week, it will probably go "higher than you think". It will have to convince many market participants that the decline is over and it will squeeze almost all the shorts out. And it will reset long term technical indicators to at least a neutral position.

This is exactly what happened. Some markets did rally to a higher high while most did not, convincing market participants that a new bull market was in progress. I waited for the long term technicals to reset from overextended bearish conditions and when I recognized that conditions had turned, I became bearish and started to short. Updates posted to 02/27/11 BullBear Market Report:
Reply by Steven Vincent on March 29, 2012 at 11:57am
DAX is showing a lower high and lower low after tapping its broken trendline from below:

The downtrend from the 2011 highs and the upper rail of the purple wedge were also tested at the high. A test of the 200 EMA on this A wave decline looks very likely.
EuroStoxx 50 has broken support and is below all its EMAs, which have started to roll over and turn down together:

I reviewed all world markets and I could post chart after chart after chart which shows similar bearish technical setups. While US markets may possibly rally back for one final minor B wave high before the main body of the C wave decline begins, essentially the B wave rally off the 2011 lows is very likely OVER.
Reply by Steven Vincent on April 4, 2012 at 12:45pm
There is now little doubt that a major decline has begun in world risk asset prices. An overall review of global markets including equities, commodities and bonds tends to support the thesis that a MAJOR C WAVEdecline has just begun. Whether the decline will take the shape of A-B-C (1-2-3-4-5) or C (1-2-3-4-5) is not yet clear. in either case yesterday was an ideal entry point for a short position. Rallies are selling opportunities from here forward.
I'm not sure I've ever seen such a glaringly obvious technical setup for a major reversal go so totally unrecognized by virtually the entire market. The one-sided psychology prevalent at this top virtually assures that it will be a swift and dramatic fall. While one could possibly construe some bullish notions if one were to restrict analysis to a box bounded by the charts of SPX, NDX, INDU and APPL, if you look at the rest of the world, commodities and the technical indicators it is virtually impossible to stay bullish on global asset prices. In fact one must conclude that yet another massive deflationary bust is right around the corner.


Since then I have been pounding the table and expounding the evidence supporting a near term major market top and crash to little avail. My efforts have largely been greeted with silence and even scorn. I've taken this reaction as a kind of contrarian confirmation that I'm on the right track. It's important for new readers to know that I am not a permabear. While I turned appropriately bearish in April 2010 and May 2011, I had been bullish since February 2009. As of this writing my analysis is that the currently unfolding crash will end the bear market that started in 2000 (though I reserve the right to revise that as the markets develop) and that at that time a major long term buying opportunity may present itself.
I'm a BullBear. I maintain an awareness of both sides of the market at all times. If I could find any evidence that supports a bullish market positon on any time frame in any risk asset market, I would present it to you. Well, I have looked and I continue to look and my finding is the following: there isn't any.
First let me address the general psychology and methodology embedded in the current bull argument. A great many of the bull proponents were former bears who have been turned over the course of the rally from the October 2011 lows. Once having been turned they are finding it very difficult to entertain any bearish evidence and are instead actively cherry picking data points that support their view. There is a total loss of objectivity and a mental clinging to erroneous views that are proven erroneous every day by market price action. Bulls, many of whom once claimed to know better than to trust this corrupted market, have been suckered and they can't bring themselves to admit it. This is of course the function and purpose of the B wave rally and it has accomplished its ends admirably.
The bear case, which will be exhaustively detailed in this report, has the support of factual, extensive, clear and overwhelming technical, sentiment, psychological and--now increasingly--fundamental evidence. The bull case relies upon the following:
Market is in an uptrend
Stocks are cheap
Bond investors are stupid
There's too much bearishness
Market is oversold
The Fed will bail us out
I'll start this report by conclusively refuting each of these points:
There are no uptrends of any kind on any time frame; global risk asset markets topped in early 2011 and have been in a bear market since then
Readily available data shows stocks are at best only relatively cheap and the 1966-1982 bear market shows they can get even cheaper
Bond market is not an effective sentiment/psychology indicator and the "dumb money" paradigm does not work
There's very little actual bearishness in the current market
The market is UNDERSOLD
The Fed's last efforts failed miserably, it's next effort won't work at all and it's not in a position to even try at this time


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Steven Vincent

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