Thursday , 25 July 2024

I'm Worried About the Likelihood of a Sharp Market Decline This Fall – For These Reasons

Back in April and May, it looked like the economy was falling apart, the euro was going to come unglued, and stocks were going to plunge. Sentiment was extremely bearish and volatility was jumping. Now in August, you can’t find a bear anywhere on Wall Street! Me? I continue to be worried about the likelihood of a sharp market decline this fall for several reasons which I share with you below. Words: 495  

So says Mike Larson ( in edited excerpts from his original article*.

Lorimer Wilson, editor of (Your Key to Making Money!) and (A site for sore eyes and inquisitive minds) has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.

Larson goes on to say, in part:

According to the new party line, the economy is back on track, the European debt crisis has been deftly handled by a couple of ECB and EU policymakers, and stocks are set to soar to infinity and beyond! A key measure of investor fear and market volatility — the VIX — just sank to the lowest level in five years!

The Dow Jones Transportation Average Index

[That being said,] have you checked out the activity in the Dow Jones Transportation Average? The average tracks the performance of “real economy” stocks like truckers, shippers, railroads, and more. You can see in the chart below that it topped out in March and has made a series of lower highs ever since then.

Dow Jones Transportation

If you’re a bull, that’s not what you want to see. You want to see the Transports “confirm” any high in the Dow Industrials. So far it’s not happening.

The Russell 2000 Index

How about the Russell 2000 Index? It’s a benchmark for smaller capitalization, more domestically focused stocks. I keep hearing about how the U.S. economy is supposedly doing better…but if that’s the case, why is the Russell lagging the advance in the Dow Industrials or the S&P 500? Why isn’t it rocking and rolling? That’s another divergence that calls into question the recent rally.

Russell 2000 Index

Industrial Metals

Then there are other indicators of global economic activity…like charts of key industrial metals such as copper, zinc, and aluminum. These metals were barely able to pick themselves off the mat in June and July – and now their charts are rolling over again.

The Baltic Dry Index

The Baltic Dry Index, a benchmark for global freight shipping rates. It tends to rise and fall with economic expansions and contractions. As you can see below, after a brief rise in the spring, the index is rolling over again. It’s closing in on February’s low, which itself was the worst reading since the 2008 depths of the Great Recession!

Baltic Dry Index

My Conclusion

I’m a flexible guy. You have to be in this kind of market environment. If the latest actions by the Europeans and the U.S. Fed do somehow manage to re-inflate equities, commodities, and the like, I’ll play along for a while with investments to ride that rally….

The market signals I follow…,however, suggest this move isn’t all it’s cracked up to be. If anything, it’s at increasing risk of falling apart in the coming weeks.

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Editor’s Note: The above post may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

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