Stock Market Crash Alert!

I have been surprised so far at how orderly the market has been, despite the heavy l losses. Just as it seemed that the market would roll over into “the big one,” it would rally back from the brink. Tonight I was reminded of an interview I had with Andrew Smithers in 2005 and the article I had written about it. I did a follow-up article again in 2006. I had identified the problem correctly, but was too early. The original link to an article that was published in Barron’s has been turned off, but here is another link that quotes the original article verbatim. Read the articles. This is very important.

On September 18th , I was very fearful of a meltdown during options expiration week. Again, we were pulled from the brink. This week, options expiration week, has no such outcome available. The rally was too small and too early. The SPX must be at 1200 by Thursday afternoon to mitigate the exposure to the options chain . I believe that the options sellers got a whiff of fear last week and, with the help of the PPT, staged a rally in which they could recapitalize their book by buying calls for pennies and selling them into the rally. Now that they are recapitalized, they can buy back the put contracts or Gamma Hedge by selling the SPX short to reduce their exposure to the massive overhang of put liabilities. Wall Street will win this one again. Investors will lose, big time.

I believe that this decline will be an unmitigated disaster. Remember, there are no supports for the SPX until 763. That is a decline of 27% from Tuesday’s top. Considering that, as of the end of September, the total margin outstanding on the NYSE was still $290 billion (more than the $270 billion of margin outstanding in early 2000), there are more accelerants for this conflagration than at any other time in history. It is doubtful that even the 2002 low can hold.

In addition, the BKX has a Head & Shoulders pattern that calls for a 63% decline from Tuesday’s close. What the chart is telling me is that the 3 rd wave, which will fulfill the H&S pattern, is yet to happen in the BKX. I had done a television program in July in which I suggested that the BKX would decline to single digits. Back then I wondered if I was crazy and whether my model was faulty. That outcome is now certain by the end of the year.

My prayers are that every one of you receiving this will do the right thing with this information.

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