First of all I want to reiterate the BAM Model’s prediction calling for a stock market crash. I also want to reiterate it’s prediction calling for a crash in Crude Oil–taking that market back to/through 36 dollars per barrel into year-end.
According to our model, we should see sharp downside moves in both of those mkts into Friday (October 9th) and, yes, we’re sticking with our SPX target of 944.
The BAM Model–as far as this bearish forecast is concerned is locked in place and there’s nothing that will change the forecast. Could it be temporarily wrong? Sure. But based on everything I’m seeing, I’m confident we’ll be crashing very soon.
So what’s with Monday and Tuesday’s big rally? (yes we’ve heard that a lot)
Well…the bounce of the last two session was a necessary element if we’re going to see a crash, in fact, all crashes experience a period of “stretching the tape” before the crash accelerates to the downside.
This stretching of the tape is a result of bulls and bears fighting it out and it’s what creates the “resiliency” to pain which is what allows people to hang on to losing positions way too long which in turn forces the inevitable “capitulation” that comes at the bottom.
By the way, this dynamic happens fairly frequently if you study fractal-level intraday charts.
So could the market make another higher high? Sure it could. But I seriously doubt it will and if it were to occur, we’d be even more aggressive in buying November PUTS on the Nasdaq and Russell 2000 Indexes. Is that reckless. No, not according to our model. According to our model, this is the time we must step up and follow its instructions.
This market ‘set-up’ has taken months and years to fall in place–as do all market crashes or melt-ups according to our work–and although the exact turning point can be tough to identify, I’ve never seen a single set up like this fail during the 90 years of stock market data I’ve studied.
But what about all of this talk about “resiliency?”
The stubbornness–many have been calling it “resiliency”–is exactly what is necessary to create a crash. Think about it. In order for a market to crash, you must have the majority on the wrong side of the trade.
By its very nature, a crash requires a boatful of investors on the “wrong side”–not simply a handful.
One thing is certain. We’ll all know the answer to the October crash question soon enough.