Markets: Why Some Indicators Point To A 75 Percent Decline From Here (VXX, XLF, TZA, SDS, FAZ, TNA, FAS)
Thomas Carreno: I recently stumbled upon a blog posting by Peter Brandt, a technical trader who did a very long term blog posting on the major indices. I have to say that after reviewing it, it became clear to me about how potentially large the bearish possibilities are for the market.
I have known about the possibility of there being a VERY large head and shoulders topping pattern in force since the year 2000 on the S&P 500. I have not put too much thought into it since it was so large and takes so much time to build. But after looking at it again, and combined with the recent price action, I have to admit that I feel as though this very large pattern could be valid and have extremely bearish long term consequences for the USA markets.
It is also quite apparent that our government has absolutely no clue what is going on and will not be around to help us. They will do everything to save themselves while the ship keeps on sinking. This whole fiasco of the last week or two just seemed like the only thing they cared about was getting deals done before ‘asian markets opened’. And then they set the Senate vote at 12pm today during market hours to try to manipulate the market higher instead of having the vote last night. It did not work!
Head and shoulder top patterns are known for being one of the most reliable technical patterns to work from, and so they should not be taken lightly as Peter Brandt Points out (must see).
We appear to be close to completing a smaller head and shoulders top pattern that began in February 2011 of this year. But what is interesting is that this head and shoulders top pattern has formed potentially within the right massive shoulder of the much large H&S top pattern. It is compelling evidence that these patterns are all valid.
The scary part is when a measured move is calculated to the downside. I believe the S&P 500 measured move would be somewhere near 300 as a long term target or maybe even lower.
The A B C projection on the Financial Sector ETF (NYSE:XLF) projects to a negative number based on the 38.2% retracement it did from the 2007 highs. So that would probably mean that most banks get delisted from the exchange.
The Peter Brandt post sums up the long term bearish potential outlook and suggests that we are now forming the RIGHT side of a MASSIVE shoulder formation which should mean quite persistent price action that eventually gets back down to the 666 low in the S&P 500.
If the very large head and shoulder pattern is true then it really could be quite a depressing economic situation in the USA with massive unemployment and liquidation in most assets.
So from a strategy standpoint, it would appear best to focus on the mindset of trying to short rallies and then just ride the bear down and then when it is all over, buy the final low in the S&P 500 near 300 or 100. That is more easily said than done.
Usually declines are more persistent and Much FASTER then other types of price action, so we may actually reach the low targets within just a few years ?
Related ETFs: Financial Sector ETF (NYSE:XLF), Direxion Daily Small Cap Bear 3X Shares (NYSE:TZA), ProShares UltraShort S&P500 (NYSE:SDS), Direxion Daily Financial Bear 3X Shares (NYSE:FAZ), iPath S&P 500 VIX Short-Term Futures ETN (NYSE:VXX), Direxion Daily Small Cap Bull 3X Shares (NYSE:TNA), Direxion Daily Financial Bull 3X Shares (NYSE:FAS).