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Trouble ahead for stocks

Published March 2013 in the magazine: Macau Business

 

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Stock markets may soon drop sharply, if trends uncovered by technical analysis hold true

 

Trouble ahead for Stocks

by André Ribeiro

Big Bang Theory

There have already been two peaks and two troughs in this broadening top pattern.
In the case of the S&P 500, the first climb started at 300 points in late 1990 and peaked at 1,527 points in early 2000. The index then fell, bottoming out at 801 points in late 2002, before climbing again to a peak of 1,562 points in late 2007.

It then fell again, bottoming out at 683 in early 2009. It has been on the rebound since then.
In the case of the Dow Jones Industrial Average, the first climb started just below 2,400 points in late 1990 and peaked at 11,723 points in 2000. The index then fell, bottoming out at 7,582 points in late 2002, before climbing to a peak of 14,093 points in late 2007. That was followed by a fall, bottoming out at 6,627 points in early 2009. Since then, the index has climbed.
The broadening top pattern is moving towards its end as stock prices climb to reach their third and final peak. The trend suggests the Dow Jones Industrial Average will rise to 15,000 points – perhaps higher – and the S&P 500 to about 1,600 points in the months to come.
The final climb typically inflates a stock price bubble. When the bubble bursts, it wipes out up to half of a stock market’s value.
What is impressive and worrying about the present broadening top pattern is its size. Its disruptive power will probably do huge damage to financial markets. The ramifications are likely to shake up whole economies and even politics.
Meanwhile, the bull markets for gold and silver persist, and the biggest rises in the prices of these metals are still ahead, as I have written here before. Precious metals will be one of the best investments in the coming years, especially in such a volatile financial environment.

 

The views expressed here are those of the author and are not investment calls by Macau Business

 

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