The U.S. Government Shutdown Is But A Mere Glimpse Into The Coming Economic Ice Age
While emotions rise as the government shutdown continues, with about a million furloughed government employees unemployed, and many services curtailed, the cries of doom continue as the October 17th deadline looms where the U.S. government could default on its debts unless the debt ceiling is legislatively raised.
This is a very small glimpse into the chaos that is coming during the Coming Economic Ice Age. However, the trouble will be much greater than what we see now. One of the most alarming aspects of the coming Economic Ice Age will be the behavior, the reaction, the rage from the citizenry to the trouble as it arrives. Think about the 1960’s. Think about the 1930’s.
There is an economic collapse fast approaching, a calamity that will be known as the first Great Depression of the 21st Century. This economic crisis will be global, affecting all nations, including the United States. The economic ruination will make the recessions of 2007 through 2009 and 2000 through 2002 look minor, and could be worse than the Great Depression of the 1930s.
The stock market right now is warning of impending danger to itself and therefore to world economies that will be more ominous than we have seen in a century, perhaps centuries. The language of the market is an excellent forecast source, one I take very seriously, and you should as well. There are historical instances when the stock market gave similar warnings, and what followed. I am convinced that we need to prepare for the trouble dead ahead. Those that take the stock market’s warning seriously, and prepare, will not only survive, but be positioned to prosper.
There is a stock market pattern that has been in formation for 23 years, which is finishing now. This pattern is a Broadening Top pattern, which I have dubbed the Jaws of Death pattern. It has appeared eight previous times over the past century, and each time has led to an economic decline upon completion. It is showing up in the Dow Industrials, the Dow Transportation average, the Wilshire 5000 (which is essentially the entire U.S. stock market), and in the Dow Jones Euro STOXX 50 average.
However, while it is possible the Economic Ice Age is starting, the market patterns this weekend are telling us probably not yet. The markets are suggesting that in spite of what is going on in Washington right now, there is likely to be a calm before the storm, and another strong rally leg in the stock market.
Short-term, there are a number of patterns and indicators that suggest stocks could bottom this coming week, and a significant rally could begin that lasts into year end. First of all, the VIX generated a new stock market buy signal Friday, October 4th. During 2013, there have been several VIX Buy signals and in each instance we saw stocks bottom and a large rally begin.
It is possible that large degree wave c-up (which will complete the Jaws of Death pattern that is warning of the Coming Economic Ice Age) is forming a Rising Bearish Wedge. The pattern in process sure looks textbook. In this case, the decline since mid-September is subwave d-down inside a five-wave Rising Wedge pattern. Further, that wave-d decline is close to reaching the bottom boundary of that pattern. If so, after a bit more sell-off this week, a bottom should arrive, leading to the final, home-stretch rally into year end to complete the Jaws of Death pattern.
More evidence that a bottom is near is that there is an interesting confluence due on this Tuesday, October 8th, 2013 +/-, where we have both a phi mate turn date scheduled as well as there is a major Bradley model turn date. That would suggest a significant turn will come soon. Since stocks are declining into this cycle turn date, that would suggest a bottom at this turn, and the start of a rising trend. Given the October 17th U.S. Debt Ceiling deadline, I would not be surprised if the turn holds off until closer to that date, delaying the turn by about a week.
So, what this means is we could see some positive news arrive this week or next which acts as a catalyst for the stock market. Bernanke is continuing to feed markets with cash. No tapering for a long while, so that is bullish for stocks short-term. We need to be alert for the start of a new rally leg. Confirmation that the trend turn has occurred will come from new buy signals in our key trend-finder indicators, which sit on a sell signal this weekend. But again, this rally leg that is coming will be strong, and deceive the masses. It will lead folks into overconfidence at the very time the Bull Market of the past three centuries is ending, a Bull Market that started with the Renaissance and continued through the Industrial Revolution and the Technology Revolution. Once this next rally trend ends, the Coming Economic Ice Age will begin.
Fitting into this scenario for stocks is that Gold may need further selling to finish its Declining Expanding Bullish Wedge. Further, this weekend we see a small Head & Shoulders Top that has completed, which supports the expectation of the Declining Expanding Bullish Wedge’s call for one more strong decline, the H&S pattern targeting 1,175 in Gold over the next three months. Then a major bottom should be in and a huge long-term rally should begin.
So, in conclusion, we see stocks bottoming soon, and rallying into year end, and we see Gold declining, possibly also into year end. Then a major reversal in those two markets will arrive, a massive rally will begin in Gold and a massive decline in stocks will begin.
Robert McHugh, Ph.D.
Author of the Amazon.com Investing Category Best Seller
The Coming Economic Ice Age, Five Critical Steps to Survive and Prosper
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“Jesus said to them, “I am the bread of life; he who comes to Me
shall not hunger, and he who believes in Me shall never thirst.
For I have come down from heaven,
For this is the will of My Father, that everyone who beholds
the Son and believes in Him, may have eternal life;
and I Myself will raise him up on the last day.”
John 6: 35, 38, 40
Robert McHugh Ph.D. is President and CEO of Main Line Investors, Inc., a registered investment advisor in the Commonwealth of Pennsylvania, and can be reached at www.technicalindicatorindex.com . The statements, opinions, buy and sell signals, and analyses presented in this newsletter are provided as a general information and education service only. Opinions, estimates, buy and sell signals, and probabilities expressed herein constitute the judgment of the author as of the date indicated and are subject to change without notice. Nothing contained in this newsletter is intended to be, nor shall it be construed as, investment advice, nor is it to be relied upon in making any investment or other decision. Prior to making any investment decision, you are advised to consult with your broker, investment advisor or other appropriate tax or financial professional to determine the suitability of any investment. Neither Main Line Investors, Inc. nor Robert D. McHugh, Jr., Ph.D. Editor shall be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided. Copyright 2013, Main Line Investors, Inc. All Rights Reserved.