Over the last few weeks, I’ve been outlining the clear evidence that stocks are in a bubble, arguably the largest stock market bubble of all time.
In truth, however, it’s not just a bubble in stocks, it’s a bubble in Treasuries, which the Fed has manipulated to absurd levels via over $2 trillion in Quantitative Easing (QE) during the last 18 months.
These bonds are the senior most asset in the current financial system. Their yields represent the “risk free” rate of return against which all risk assets (including stocks) are valued. So, when the Fed created this bubble in Treasuries, it was creating a bubble in Everything, which is why I call this the Everything Bubble.
Of course, this begs the question… when will it burst?
Put another way, when does THIS happen?
Predicting the actual week, let alone the day, of a market crash is all but impossible. However, there are certain key developments that MUST happen for the market to crash.
Think of them as BIG warnings, or the FOUR Horsemen that precede a stock market apocalypse.
What are they?
The most heavily weighted companies began to break down badly.
Technically, the S&P 500 is made up of 500 companies. However, each of those 500 companies don’t receive the same weight from the index. Rather, certain companies receive a disproportionate weight giving them a much larger impact on the market’s price action.
Because of this, in order to get a crash, you need the heaviest weighted stocks to break down badly. Even if most of the 500 companies in the overall market are in a downtrend, if the heaviest weighted stocks DON’T break down, it’s pretty much impossible for the overall market to crash.
I’ll outline precisely how this played out before the 1987 Crash (arguably the worst single-day collapse in stock market history) in tomorrow’s article.
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