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Dow Jones Industrial Average: 7 Warning Signs Of A Stock Market Crash

December 5th, 2013

down plunging pricesDavid Zeiler: The warning signs of a stock market crash in 2014 are getting harder and harder to ignore…

Several prominent market watchers, including Ben Inker, head of the asset allocation group at GMO, and John Hussman of the Hussman Funds, say the markets are about 40% overvalued.

Last week, Yale Professor Robert Shiller, a Nobel-prize winning economist, expressed concern that stocks may have gotten ahead of themselves.


“I am most worried about the boom in the U.S. stock market. Also because our economy is still weak and vulnerable,” Shiller told the German magazine Der Spiegel.

These analysts referenced a number of crash indicators nearing “warning” levels, which we’ve detailed in the charts below.

Of course, none of this means investors should run out and sell every stock they own in a blind panic. But it does mean investors absolutely need to proceed with caution, choosing stocks in stronger sectors and using trailing stops.

Now let’s take a look at those seven charts pointing to a stock market crash in 2014…

The Seven Charts That Warn of a Stock Market Crash 2014

These charts provide worrisome clues that the stock markets are seriously overvalued and due for a big correction:

Stock Market Crash Chart #1: Shiller’s CAPE Ratio

The cyclically adjusted price/earnings (CAPE) ratio, created by Robert Shiller, smoothes out the price/earnings (P/E) ratio by averaging it over 10 years. Now at 24.42, the CAPE is substantially above its long-term average of 16. And more ominously, the CAPE has only been higher twice – at the end of the 1920s, just before the Stock Market Crash of 1929, and at the end of the 1990s, just before the dot-com stock market crash.

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