2011 Stock Market Crash Weeks Away
There are significant signals in the current market that a crash or meltdown scenario could unfold sometime in the next 1-2 weeks. Crashes are rare events and nearly impossible to predict, but many elements that could produce a financial market calamity appear to be present at this time.
The best way for you to play a coming market crash is to consider buying put options on the S&P 500 (Ticker Symbol: SPY) index. These options contracts gain in value if the market declines and when this happens, you can cash out your options contract, then use the profits made on this trade to buy stocks at depressed prices, thus helping you in two ways.
Every major stock market in the world is either hovering just above or directly upon or has already broken a critical area of technical support. Ordinarily this might represent a major buying opportunity but the current market setup may be anything but ordinary.
In spite of a very modest 7.5% decline over 6 weeks of trading (1.25% per week), percent of stocks above the 20, 50 and 200 EMA have declined to precipitous lows usually associated with huge sell-offs. This is a prime example of the technicals leading the market lower.
With next Friday being quadruple options expiration, quarter-end not far behind, and many stocks below their 50-day moving averages and on point-and-figure sell signals, institutions could panic. This is the message of the “Gann Death Zone” which ties to crashes and panicky culmination’s in a window 49-55 calendar days from a peak. This was the case with two of the greatest crashes in history in 1929 and 1987 — and to lesser magnitudes in other instances.
The S&P has had six consecutive days down which has not played out since the fall of 2008 and the 200 day moving average on the S&P looms just below as it did in 1987. Again, what is striking is that the sense of urgent selling and angle of attack to the downside here is sharper than it was just prior to the crash in 1987.
Only 55% of NYSE stocks are trading above their 200 EMA after a minor 7.5% correction. Even though market price has yet to take out the March low, the indicator has plummeted below its March low and is not far from its August 2010 low. It’s moving averages have crossed into “Bear Market” mode and so on a long term basis nearly half of the stocks traded on the NYSE are trapped under long term resistance in a market that is showing historically weak buying pressure and significant and rising selling pressure.
Many observers believe that an investment in gold could be a smart way to hedge a coming market crash. Hedge fund master John Paulson owns a sizable stake of SPDR Gold Trust (Stock Symbol: GLD), while guys like John Hussman and George Soros have also been buying top gold miners, including Barrick Gold (Stock Symbol: ABX).
Tags: 1929 Crash, 1987 Crash, 50 Day Moving Average, ABX, Barrick Gold, Bear Market, Financial Market Calamity, Gann Death Zone, George Soros, S&P 500, SPDR Gold Trust, Stock Market, Stock Options, Technicals