Brace Yourself For a Crash!

A bird's eye view of a roaring market July 09, 2014     Brace Yourself For a Crash!   A bird's eye view of a roaring market Your best shot at "buy-the-dips" gains Plus: Dissecting an insane correlation   Greg Guenthner coming to you from Baltimore, MD... Greg Guenthner The wise, respectable market watchers at the Wall Street Journal want to know, "Are you ready for the next market crash?" And they're not alone. The media are becoming obsessed with the possibility of a big drop in the stock market. Bloomberg News cited "concern over a severe pullback" as the reason for yesterday's 0.7% drop in the S&P 500 and the Dow, and whopping 1.35% drop in the Nasdaq. (That, by the way, marks the biggest one-day drop in the tech-heavy Nasdaq Composite since April. Ouch.) But is the fear justified? Or is it just a good way to sell newspapers? The big picture outlook is important, after all, it informs all of your other trading decisions. Today, we're turning to our trading expert Jonas Elmerraji for a glimpse at where the market might be headed. He'll even reveal the best way for you to play it... "It makes sense to start with a chart of the S&P 500," Jonas begins. "And looking at the chart, it's clear that even though investor uncertainty is running amok this summer, absolutely nothing has changed in the stock market in close to two years" "In other words, the S&P 500 is still bouncing its way higher in a well-defined uptrending price channel. Despite all of the noise, we're still in a "buy-the-dips" market... "There are a couple of important takeaways from the S&P's chart right now. The first is that every single test of that bottom trendline over the last year and a half (seven of them over that stretch) has been an extremely low-risk opportunity to buy stocks," Jonas explains. "And they've paid off incredibly well so far." But even though we're in a "buy-the-dips" market right now, we're nowhere near a dip... "The S&P is sitting towards the top of its price range - not near that sweet spot near the bottom of the channel," Jonas concludes. "That means that a correction back down to support looks likely in the short-term. There's a lot more risk between here and the bottom of the channel than there is potential reward between here and the top of the channel." Sure, that's a red flag. But there's a big difference between saying that the S&P is likely to correct 4.5% down to 1875 or so, and saying that we're due for a crash. The market looks like it could very well trickle lower this month as it searches for support. Now's not the time to get aggressive on the long side...         New Law Passed Acknowledging Legitimacy of "Underground Banking" Just days ago, California passed a law making a controversial new banking system legal within the state. This new banking system is already exploding across the globe. It even has its own ATMs up in cities all over the U.S. The best part of this type of "bank account": You can actually make money with it. In fact, a simple deposit of $100 back when the system started in 2009 would have exploded into more than $3.5 million by November of last year. Click here now to find out how this new account could change banking forever.           Rude Numbers Targets, Predictions and Wild Guesses   68% of U.S. stocks ended yesterday's trading session in the red. The NASDAQ was the big loser of the day, dropping more than 1.3%... $1,327 is where you'll find gold futures this morning. The yellow metal looks strong, gaining nearly $11 in early trading. Meanwhile... $3.27 is the price of copper today. Dr. Copper looks like it's readying for another leg higher... 15,345 is where the Nikkei finished trading today. The Japanese index gained about 0.4% on the day... 1,962 marks the spot for S&P futures before the morning bell. Stocks appear stable heading into todays session after enduring two straight days of heavy selling...     Rude Trends When to Buy... When to Sell   One more thing... Jonas has been tracking a pretty crazy market correlation he wanted to share with you today. "In early 2012, I discovered an insane correlation between the S&P 500 today and its price action 450 days ago," he explains. "I've been using it as a rough model as a forecasting for the S&P 500 ever since. And it's been uncannily accurate." Here's what it says now: "It's not just that the overall trends were the same -- the major peaks and troughs in both charts trend to match up within a couple of days of one another," Jonas explains. "Obviously, these two charts aren't going to match up forever. At some point, they're going to begin to diverge enough that we'll need to throw the relationship out. But since the S&P remains in the same price channel today, it makes sense that the model is still a useful tool." Right now, the correlation points to a modest correction followed by a strong rally leg. That also lines up well with Jonas' market observations heading into a potential pullback month for the big index... [Ed. Note: Send your feedback here: rude@agorafinancial.com - and follow me on Twitter: @GregGuenthner]     Ignore At Your Own Peril Today's Must Read Links   Just one nine-digit code could speed up your retirement plans by 20 years! Bigger than Benghazi, the IRS and the NSA Scandals... Combined? Your $2 Million Map [must see]     BE SURE TO ADD dr@dailyreckoning.com to your address book.       Additional Articles & Commentary: Join the conversation! Follow us on social media:         The Rude Awakening is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Agora Financial delivering daily email issues and advertisements. 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