Experts share 7 signs that a 60% crash
- John Wolfenberger says he is “very convinced” that a recession is imminent in the near future.
- He also says that several indicators suggest that stocks will fall significantly.
- Share with Insider the indicators that will tell investors when to get out.
John Wolfenberger doesn’t beat the bush.
Stock market Collide He told Insider on Friday morning.
“I think the next
“It’s going to be worse than 2008, which will make it the worst since the Great Depression,” said the former Allianz Global Investors stock analyst. I’m not necessarily saying this started yesterday or tomorrow or now, but I think it could start now.”
He added: “The Standard & Poor’s 500 It decreased by 58% in 2008-2009. I think it could be worse. Somewhere over 60%.”
But such massive claims require convincing evidence. Wolfenbarger, who now runs Bullandbearprofits.comThere are seven indicators, he said, that make him sure of that.
Perhaps the most obvious rate is the current average Evaluation In the market – historically high by almost every measure.
Schiller’s P/E ratio is near an all-time high. Or there is the Warren Buffett index, which is the ratio of total market capitalization to GDP. It is currently 30% higher than it was during the tech bubble of 1999 and 2000.
Next is Investor sentiment, which has been mostly bullish since the end of March 2020. Wolfenberger noted that excessive bullishness is a conflicting indicator, which means that it indicates a future contraction.
He referred to the fact that mode / call ratio It is near unobserved lows in nearly 15 years, which means that investors have recently bought bullish options compared to bearish positions at historically high levels.
Then there are the marginal debt levels, which saw 70% year-over-year growth. He said the last two events happened before the crash in 2000 and 2008.
The third is what he thinks weak Economic Outlook. “It is remarkable that industrial production and employment have practically slowed down over the past 20 years, really since the tech bubble,” he said.
Fourth, the United States The debt-to-GDP ratio is at a record level. Wolfenberger said high debt has been the “characteristic” of every financial crisis in the past.
Then there is the fact that he believes that Federal Reserve He has little work left with In terms of their policy instruments, with interest rates close to zero and their balance sheet at all-time highs. In addition, inflation may continue to rise, which could force the central bank to tighten policy more than expected.
The last two indicators that Wolfenbarger has listed are the ones that tell him that a bear market may already be underway.
for the first time Percentage of stocks on the NYSE above the 200-day moving average It fell from about 80% to about 58%. Secondly , The percentage of stocks on Nasdaq fell above the 200-day moving average from 80-90% to 35%, He said.
“The market lost about five to six percent from its all-time highs, which obviously isn’t a big deal. But if you look at the internals, a lot of damage has been done,” he said.
Wolfenbarger said the market peak is likely before the end of the year. He also said that the Fed cutting its asset purchases and reversing bullish investor sentiment would lead to a crash. He also warned that it may take 10-15 years after the crash before the market regains its previous highs.
4 Signs that a Bear Market May Be Underway
Wolfenberger shared three indicators that he believes will tell him that a bear market has begun.
1.) The price of the S&P 500 fell below the 250-day moving average.
2.) The price stays below it for an extended period of time and the 250 day moving average starts sloping downwards.
3.) The S&P 500’s 20-day moving average is moving below the 250-day moving average.
4.) The S&P 500’s 60-day moving average is moving below the 250-day moving average.
“If you have the price, 20 days, and 60 days all below the 250 day moving average, that’s pretty much the definition of a bear market,” he said.
Wolfenbarger’s opinions in context
It’s hard to find a major Wall Street institution with an official view that stocks could suffer a 60% crash in the coming months.
With that said, investors and strategists have already turned bearish in recent weeks. Many big name strategists It issued warnings that a correction awaited the stocks, and their view began to emerge in early September.
Stocks have shown strength again this week, with the S&P 500 index up 2% since Monday. Strong corporate earnings and a strong GDP outlook for 2022 could continue to lift stocks after the first 5% decline since October 2020.
But nothing is certain. There is an element of uncertainty about how stocks will react to the Fed’s tapering, and it remains to be seen how high inflation will persist and for how long it will remain at elevated levels, and how the Fed will react if inflation is not “temporary” as you expect.
All of the above conditions set by Wolfenbarger also show how weak stocks are – by historical standards – suffering a larger downturn if a strong enough negative catalyst emerges. So he will be watching those moving averages in the coming months.