The stock market is warning us that a real bloodbath could be around the corner.
Let’s take a look at some charts.
The market action of the last week has been extremely problematic. On the surface things look relatively benign. The S&P 500 fell to test support and its 50-day moving average (DMA) and bounced hard.
All of this is just fine and no cause for major concern. But again, this is problematic because “under the hood” things have gotten downright nasty.
Tesla (TSLA) has been one of the most important market leaders for stocks since the March lows. It sliced through its 50-DMA with little to no trouble. Support held, but this was a very negative development and opens the door to a test of the 200-DMA.
It’s a similar story for TradeDesk (TTD) another market leader: support held, but we sliced through the 50-DMA like a hot knife through butter. Again, the door is now open to the 200-DMA.
These are market leaders. If they go to their 200-DMAs, the broader market will likely end up doing the same.
That’s a pretty significant drop.
Again, the market action of the last week is quite problematic. While the S&P 500 looks contained, market leaders have seen tremendous damage to their charts. With this in mind, the potential for a nasty drop is higher than at any point in the last six months.
This all ties back to what I’ve been arguing for weeks now: that the inflationary forces rippling through the financial system will eventually HURT rather than help stocks.
The reason for this is that the ONLY thing that allows stocks to remain in a bull market is if the debt markets are calm and stable.
They are not. The yield on the all-important 10-Year Treasury yield has more than doubled since August and is now on the verge of breaking its 40+ year downtrend.
This is a HUGE deal. The last time that downtrend broke was in 2018 and it resulted in the stock market losing 20% in a matter of weeks.
As I kept warning for weeks, the coming inflation is going to ANNIHILATE most investors’ portfolios.
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Chief Market Strategist
Phoenix Capital Research