Web Statistics Is The Stock market 2016 A Train Wreck Waiting To Happen?

Monday, 5 October 2015

Is The Stock market 2016 A Train Wreck Waiting To Happen?



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Is The Stock Market 2016 A Train Wreck Waiting To Happen?

Some of our predictions have been stellar this year, and our members are quite happy. People are sick of losing money on the market especially with all this volatility that is about at the moment. One day the stock market is up, and ten the next week, its right back down. It's sending trading gurus nutty. LOL, and everyone else is tearing their hair out. But are these huge swings on the market, a sign of impending doom, and hinting towards some sort of catastrophic doom that is about to visit our markets. Like a grim reaper silently stalking in the long grass ready to pounce when no one is looking?

There are some pundits out there, basically shrieking and screaming about this market and telling everyone to panic. Basically to us, it feels like a fox has been let among the pigeon pen. :-)

But before we tell you to push the panic button, we must remind you to some of our comments, back in March we talked about Billionaire investor Carl Icahn who is no shrinking violet tell his audiences around the world about the dangers of the high yield market.

The HIGH YIELD chart below. You can see that since JUNE of 2015, it has been putting in a series of FRESH and new lower highs, and in a down-trending channel. The top falling resistance line is drawn below.  

After looking at this chart, basically we can say that high yield credit right now is a "very problematic", with no quick fix solution" and we can lay out the reasons why a turn in the credit cycle is could be underway.

The dramatic rout of commodity prices is having a spillover effect on corporate bonds, especially those linked to energy. Last week, ratings agency Standard & Poor's said the speculative-grade corporate default rate jumped to 2.5 percent in September, its highest level since 2013. That figure is expected to rise to nearly 3 percent by the middle of next year.

If this sort of action continues especially in the credit and energy sectors, you're going to see defaults pick up. We do not think this is just about the various metals, or commodities story, this isn't just metals and mining and energy. It's alot broader than that when you delve in deeper. And the fundamentals are as poor as they have ever been.

The High Yield Corporate Bond ETF has dropped nearly 5 percent in the past month!!! That is quite a dramatic move, and caused us to raise our eyebrows. So far this year its down almost 10 pecent. On Friday, the ETF hit a 52-week low on an intraday basis. Its a horrible thing to watch, and a bit of a warning sign.


The lower oil prices go, the more stress is being placed on the high-yield bond sector. So we are watching crude like a hawk the last few weeks. Evidence is mounting that the outlook is unlikely to improve anytime soon. But we will keep watching these energy sectors in the next few months, and update our members. Last week, ratings firm Moody's said its high-yield Liquidity Stress Index fell in September amid a rash of energy company downgrades.

The fact that everyone is overlooking is that 50 percent of sectors in Bank of America's high-yield index have had negative price returns for the past five months in a row. OUCH, if you are unaware, that has not been recorded since late 2008, and we all remember that TRAIN WRECK. YES! Basically that was the HEIGHT of the GFC and horrific stock market crash the ruined lives, and sent other people loopy, in a panicked state of fear. You could literally hear some of the nutters in the street at midnight cry out..... THE END IS HERE!!!.....YES......THIS IS THE END!!!

{although it really wasn't}

A large part of the weakness we have have witnessed is due to the FED not propping things up anymore....yes you can remember how well the market was being supported by the fed's stimulus program, over the last few years, and now or lets say in recent times, that has come to an end, and its creating massive volatility in these markets!

The excess liquidity from the Fed's massive bond buying and super-low interest rates have created an environment where high yield corporate's have been able to gather funding at incredibly cheap levels, you can see evidence of these week to week. At some point, unless you have meaningful earnings, you can't sustain incredibly high leverage indefinitely.

Since the Fed started tapering all of its bond purchases, we have noted $30 billion has quickly flowed out of the high yield bond market. Those who have been flushed out of the market, are basically retail traders or weak hands.

But we must tell you, that the problem is much bigger than retail cash leaving the junk bond market. As you know we are full on technical analysts, however this is a story about pure fundamentals, and that actually, is much worse, because it takes it from a technical story to a fundamental story. The cracks are starting to appear, however from a technical perspective and a fundamental one, we do not think its time to panic yet. But it is a warning shot across the bow, that is for sure.

As for when the train wreck could turn into a full-on catastrophe, said it's likely to be a slow-moving process. And by no means to we think the bull market since 2009 has finished. We just think this situation is probably death by a thousand cuts until eventually in the end it could end up in heart ache and tears. The timing will be another thing, we do not know if the worse will happen today, tomorrow, next week or even next month. But what we think is happening, means that its going to be a very lucrative time as an investor!

 Yes, now has never been a better time to pick up bargains, and make huge gains with the volatility you are seeing on the market. Someone who knows what they are doing could make off like a bandit, and some of the charts, and asset classes we are looking at have huge potential going into XMAS. Most people forget, when other people see PANIC, and VOLATILITY, smart people see BARGAINS and OPPORTUNITIES for the plucking. 

 I cover more and more technical analysis ==> HERE in our VIP members section.


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