Stocks fell hard on Friday. Over the last two weeks, the Dow Industrials lost 2000 points while the S&P 500 lost almost 300. Stocks had staged a large 20 percent rally since the June lows. This suggested to some that a new bull market had started. These types of “head fakes” are common during bear markets and fools a lot of people. However the strange thing about the June lows, if it was a bottom that some believed, was that there was essentially no panic selling. Early last week the S&P 500, along with many other indices, hit their 200 day moving averages, a highly watched technical signal. Stocks since then have fallen. Another technical signal, the MACD, has turned. Since the market top in early January, each crossover in the MACD has signaled the start of a decline.
The High Yield Corporate Bond ETF or HYG, which has correlated well with stocks, has already retraced 50 percent of it’s rally.
The performance of Bitcoin and the stock market have correlated fairly well since the beginning of the year. However, while stocks had rallied strongly from June to mid August, Bitcoin had not. It has meandered within a tight channel, a continuation pattern. The next move should be down. If prices falls below the lower blue support line, massive selling could take place.
This chart below was from a special report I made on Bitcoin in July. It didn’t go down immediately as I thought but I think we are looking for a down move quickly.
September and October are historically volatile months for stocks – especially if stocks are already in a bear market. So if stocks do melt down in the fall, expect a host of other things to fall with it, including cryptos, gold and silver (because it is an industrial metal), and energy. Interest rates could tumble as well and the economy could falter. It will be interesting to see what unfolds.
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