This Chart Shows the First Big Crash Is Likely Just Ahead

The first in a series.

By Harry Dent, author of the new book, How to Survive (and Thrive) During the Great Gold Bust Ahead:

The story on Wall Street and CNBC continues to be that we’re in a correction and this is a buying opportunity. Even Warren Buffett joins the chorus of stock market cheerleaders for the skeptical public. Well, I agree with the skeptical public, not the experts here!

The bull market from early 2009 into May 2015 looks just like every bubble in history, and I’m getting one sign after the next that we did indeed peak last May. The dominant pattern in the stock market is the “rounded top” pattern:

S&P 500 rounded top

After trading in a steep, bubble-like channel from late 2011 into late 2014, with only 10% maximum volatility top to bottom, the market finally lost its momentum… just as the Fed finished tapering its QE. That’s because the Fed was the primary driver in this stock bubble in the first place!

But the first sign that the bubble had indeed peaked was the break of that upward channel last August. Surprise, surprise! Without the Fed’s stimulus, stocks started to sputter out!

With that sign we can point to what now looks like a series of major tops, in one major index after the next, since late 2014:

  • Dow Transports, November 2014.
  • Dow Utilities, January 2015.
  • The DAX in Germany and the FTSE in the UK: April, 2015.
  • The Dow and S&P 500: May 2015.
  • The Shanghai Composite: June 2015.
  • The Nasdaq, Biotech and the Russell 2000: July 2015.
  • And finally, the Nikkei in Japan: August 2015.

The Shanghai Index crashed 45% in 2.5 months, similar to the Dow in late 1929 on its first 2.5-month wave down. That one was so obvious that when I said it was about to burst, it peaked that day and rolled over the next!

Then there’s the Biotech bubble that crashed 40% into its February 11 bottom, another one that’s clearly done for. And major global banks are crashing, with even Deutsche Bank in Germany down 59% from its 2015 highs… and 89% from its 2008 highs. You don’t even want to look at the larger banks in Italy!

But one analyst after the next still doesn’t think it’s a bubble! So I pull out the next chart, comparing this bubble with the obvious bubble in stocks from late 1994 into early 2000 – the infamous tech bubble.

Internet Bubble versus stock bubble today

Again, this looks like every major bubble in history!

As I told Grant Williams in an interview for Real Vision, this bubble along with every other follows the same pattern – there’s a rise, a climax, and a sharp fall! From the moment we’re born until we kick the bucket, humans are cyclical along with everything they do.

That’s the other thing Grant and I talked about: what’s consistent across humans is that we absolutely refuse to recognize a bubble when we see it. That’s why they call it “living in a bubble!” I told Grant that someone once handed one of my books to Bill Clinton, and I told the guy, “you’re wasting your time!”

Economists are bad at seeing bubbles, but politicians are even worse! If the economy does well, they want to take credit for it. If it doesn’t, it’s probably the last party’s fault! They attribute everything to government and give consumers a back seat. It’s laughable!

The markets on crack are still in denial about the bubble and its ultimate collapse. The typical stock bubble crashes between 70% to 90%. In other words, they don’t correct… they don’t have a soft landing… they BURST. No exceptions in history.

In the rounded top scenario above, we’re getting close to the point where the markets are very likely to fail for the second time to make a new high since the peak in mid-May.

When that happens and the S&P 500 falls to new lows below the 1,810 threshold, reality might finally kick in. The markets will then see a more serious wave down, likely into around early July or so. And eventually, it’ll carry the Dow to around 5,500 to 6,000 likely by late 2017. The greatest crash of your life is just ahead…

By Harry Dent, author of the new book, How to Survive (and Thrive) During the Great Gold Bust Ahead, where he warns investors that moving their assets into gold isn’t the safe haven they think it is – and why it won’t protect them from the biggest market collapse since The Great Depression. Get a free copy of his eBook here.

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  35 comments for “This Chart Shows the First Big Crash Is Likely Just Ahead

  1. Chris says:

    If gold goes bust it will be because we hit a deflationary cycle and, indeed, there seems to be some of that on the global stage as other countries continue to devalue their currency relative to the dollar. If the dollar remains the world’s reserve currency and currency wars continue we could indeed see a deflationary spiral and watch gold drop in value as the strength of the dollar climbs. This would be a worse case scenario. Alternatively, if the dollar’s strength begins to wane as a result of alternative reserve currencies replacing it, we will see a catastrophic crash in the dollar and gold will skyrocket. Mr. Dent may well be correct as it appears that the US will never let the dollar pass out of favor without a fight – and by fight I do mean war. Witness Iraq and Libya.

    • Nicko says:

      Other countries are in far worse shape than the US, including China and most of the EU. All other currencies will fall before the mighty dollar.

      For example, I’m currently living in Egypt, yesterday the Egypt central bank devalued the Egypt pound by about 13%, to a new record low against the Dollar. I’m happy, as I’m paid in USD, so I just got a bit richer. But it just demonstrates the universal truth, there is no alternative to the Dollar. The US is well positioned to consolodate when the crash happens, I’m guessing it will start in Asia.

      • Paulo says:

        Egypt is a failed state, held together by oppression and charity. Tourists are now afraid to go there. You can’t really use their currency health as an example.

        Keep safe.

      • CENTURION says:

        The least ugly girl in the Whore House always the attention….and can charge the most.

        • John M says:

          Yet all things being equal a girl in a whore house isn’t something to be fully respected.

          With the given hundreds of trillions of USD that make up US entitlement programs the US Gov is insolvent. That the rest of the world hasn’t yet figured that out isn’t my fault. Gold has no counterparty risk. Gold has been money for a long long time. In Venetian times gold was deposited with goldsmiths and notes were issued against those holdings which thus started paper currency. Yet we lost that link to a physical asset in 1971 with the Nixon Shock.

          The Roman Empire started to crater when their currency started to be debased. I know of no family who can ratchet up ever larger budget deficits and survive indefinitely. The US Government is no different to a larger family. That there are fools who loan money to places like Argentina and then have issues getting their money back, is beyond me. Bankers have to write of those debts. Yet the size of US debts are gargantuan.

          To assume that the least ugly girl in the whore house can prosper indefinitely is frankly insane. That the day of reckoning hasn’t yet arrived is moot. It took about 100 years for it to happen in Roman times. Yet now we’ve computers and information that explain what is going on in real time. We are now 45 years and counting into the Nixon Shock. Don’t be shocked when the USD unravels..

      • NotSoSure says:

        I will agree that the USD will probably rally in the short to medium term, but this is only half the picture.

        Eventually the USD will get so strong that it WILL KILL US Companies or you guys are just not seeing this? Foreign sales will collapse and because everyone is now connected, the fire will eventually spread to other parts of the US economy as well.

        Also US companies mostly issue debt in US Dollars. If it gets too strong, how are they going to pay them back? And with companies crashing how will consumers get the money to pay their debt as well?

        • John Doyle says:

          I wonder if the rise in value of the US dollar is some sort of trojan horse which will be very damaging to the US itself, from within. My mantra is to avoid borrowing dollars [outside the US] because it has worked out very badly for countries like Argentina and numerous others across the world.
          Many nations are in a race to the bottom regarding their currency vs the dollar. Australia is down to a low of 70 cents from $1.05 just a few years ago and is better off for it.
          Considering how NAFTA trashed Mexico’s agricultural economy, such that it now imports most of its food from the US, getting the peso to undercut the dollar might save agriculture there. The US dumps its subsidised goods on such countries and undercuts local production. An expensive dollar should stop that option, and allow other countries to thrive at home.
          It goes without saying that borrowing in dollars is a road to ruin.

    • Hendrik1730 says:

      Gold go bust? Against what? Funny paper with nice pictures on it? It takes 5.000.000 units of gold ore to extract 1 unit of gold. Today, the mines are getting depleted. The 5 million-to-one ratio increases. Miners go bust. You cannot “eat” gold? Correct, but neither can one “eat” paper money ( when it is not yet abolished ) nor trailing zeros on your bank account, both backed up by nothing. In the end, farmland, guns and ammo are the only thing that has permanent value.

      • d says:

        “In the end, farmland, guns and ammo are the only thing that has permanent value.”



        There may be something in that comment as the Russian and chiness Communist/Socalists always seek to take those things first.

      • brian says:

        But even farmland, guns and ammo are not worth shit if you live in a land filled with lawless assholes. The rule of law, and a society that results in a general populace governed primarily by a reliable inward moral compass is what really counts; otherwise you just end up shooting at everyone within sight until only the worst of the worst is left to eat each other.

  2. Mick says:

    At my brokerage, most of the “professionals” are still calling this a correction, particularly the analysts.
    Two groups aren’t buying it tho; the young and old brokers. It’s the middle bracket(35-50)which is predominantly calling it a correction.
    This fits with human psychology, as it’s that bracket which has the most under management, so for them to admit it’s a crash would mean losing a healthy income.
    The young ones don’t have a large clientele yet and the older ones’ clientele is diminishing due to retirements, deaths, etc.
    So there you have it. A persons’ ability to recognize a bubble largely depends on how much of a financial stake they have in that bubble.

    Big surprise….not!

  3. Keith says:

    If you want to see a bubble look at the Shanghai Composite over 5 years.

    The mount Everest rising up over the plateau that peaks in June 2015, now that’s a bubble.

    Only a Central Banker could miss it.

  4. Álvaro says:

    Nicely put, Mr. Dent.

    We just need a minsky moment for the shit to unravel. I think everything will happen very fast after the first european bank crash.

    I’m Spanish and I can tell you all the economic “recovery” (I’m already laughing) has been based on lowering wages and labour conditions. Everyone I know is poorer than before 2007 and young people in particular are eating all the shit they can eat, there is just no future for them. Statistics (particularly GDP) are completely meaningless, just look at China and their 7% bullshit.

    I’ll be commenting in this website when the shit hits the fan.

    • Full of dinner says:

      S*it has been hitting fan in Europe already, especially Spain and the outcome is reduced wages, deteriorating labour slavery and no certain future for young; as you said. What is on the plate for dinner I don’t need to comment but it won’t kill you, we’ve been eating same for decades.
      Happy ones.

  5. Jungle Jim says:

    “All other currencies will fall before the mighty dollar.”

    Ah…yup ! The reason for the strength of the dollar is the weakness in other currencies. The US is seen as a safe haven. If you live in a country with a rapidly sinking currency, you’ll try to move some of your wealth in to dollars. So, you sell your own currency driving it down further and buy dollars driving them up.

    “Nothing to see here”, the policeman said, “move on”.

    • Chicken says:

      At least we can say political correctness reins supreme, who knows what really goes on behind the curtain. “Pretty darn good!”

    • LG says:

      Unless of course oil producers like the Saudis abandon their currency peg to the dollar!
      Then say goodbye to the dollar.

  6. Ralph says:

    Looking at the Dow, at what point will it be considered that “blood is running in the streets” and I can start digging up some of my cash?

  7. John Doyle says:

    No comment from you, Wolf.
    What do you think?
    Is Harry on the money here?

    • Álvaro says:

      Since he allows it to be posted, I assume he agrees.

    • Wolf Richter says:

      It’s an interesting line of thought. When it comes to predictions, everyone has their own. But I like to see how other people think about it.

      Personally, I’m not big into using stock market charts as predictors. I dig fundamentals. But I accept stock market charts and their importance. And I NEVER ignore them. They can tell us a lot. So this is another view of what the future might look like. It always pays to be aware of the possibilities.

      I’m particularly intrigued by the “rounded-top” configuration.

      Personally, I don’t expect a huge crash over a short period of time. I think we’re more likely to see many years of crummy returns, down-years followed by an up-year, with an overall down-trend that will drive everyone nuts and where making money in the markets will be very hard. In that sense, I’m more pessimistic than Harry. I don’t think this will be over by 2017. But I do think it will be more gradual.

      If there is new data to change my mind, I will change my mind – no problem.

      • Álvaro says:

        IF there is a bubble, a quick burst is mandatory. Now, the question is: are we seeing a bubble or not?

        I think there is not only one, but multiple bubbles. Some of them have already bursted (shale oil, China, startups, european stocks…) and others are ready to burst (subprime auto loans, housing bubble 2.0, SP500, Saudi Arabia, Qatar, you name it).

      • d says:

        Mr dent is worrisome writer. His Negative bias is way to strong.

        In his current iteration he makes a huge fundamental error, he compares a Qe and a non Qe environment. IMHO.

        To me that is an apple and a grape comparison.

        You can not compare the behaviors of the pre and t Qe Stock indexes or simular, currency indexes, without seriously consider the effects of QE.

        In the top chart from Apr 14 there is a massive S/r/neck line, just over 1800 and three (two inverted) H/shoulders patterns from Aug 15.

        I have seen that pattern named somewhere but cant remember. It is a stressed, confused, in this case declining market pattern.

        If you join Aug 15 Feb 16 bottoms, you also have as declining trend line with two double bottoms on it. after the dates mentioned.

        Take another through the Dec 15 and what may be Mar/Apr 16 tops, you have a long declining wedge/triangle.

        Which suggest (As always baring a radical input) a declining range over some years.

        I have been repeatedly shorting this index since June last year (with considerable success, its really a no brainier) What I dont see it doing, is falling out of the sky, as dent suggests, barring a radical input event.

        S&P is slowly coming back into line with global fundamentals. As the effect of US QE Start to fade. ECB QE, may put a spanner in this return to Fundi’s.

        Global trade has effectively stopped in its tracks, so WTF is the S&P doing up there, and gaining.

        I trade Indexes, Metals and currency’s. Not stocks. I dont have a license to give financial advise, further I dont give it.

  8. Bigfoot says:

    Yes the ongoing “Slow Grind” will continue as it has been for a good number of years, stock market crash or naught. For those thinking there is no alternative to the USD as a reserve currency, here’s a link that might warrant some consideration on the historical aspects of reserve currencies.

  9. James Madison says:

    Wolf is probably closer to right than Harry, for one simple reason: Politics. Neither party can afford to let the markets collapse this year. Also, Wall Street has a lot of inventory left to unload before prices crash hard. So, we’ll probably plunk along for awhile, with the market trapped in the range it’s been in for the past two years. I hope Harry is right. I would like to see this entire house of cards collapse and for D.C., Wall Street and the Fed to eat a huge pile of shit. But it probably won’t happen this year.

  10. david says:

    I think the area Dent is off on Gold collapsing is the fact that the whole world is in a currency war. With everyones currency going to crap, including the dollar soon, that will be a big driver for people looking to save their purchasing power. Already starting. With the new gold exchange opening next month and the prospect of the Comex criminals losing their paper pricing …added to the currency wars…. I don’t see any way gold can fall to 700.

  11. Bigfoot says:

    In the late 90’s I was trading heavily & read most everything I could get my hands on regarding the art of speculation. One book I read was Elliot Wave Theory by Robert Prechter, a Mensa member, who has written numerous books & had a investing/trading newsletter & subscription service. Prechter was obviously a very intelligent man but was publicly predicting gold collapsing to $150. This was at the end of a 20 year bear in gold. He was wrong & I neither agreed or traded with his view.

    It’s easy to formulate an opinion on any market based on logical observations. I could see gold going to $700 in a deflationary downward spiral. I could also see it going to $5,000 also as we hyper-inflate afterwards. What would your dollar buy at that point ? Logical observations often get derailed by the hidden hands. Were you able to predict ZIRP or NIRP ten years ago? I certainly wasn’t. I was thinking we’d have the complete opposite. Time will tell.

    At this point, with the extreme manipulation of nearly everything monetary & financial warfare being heavily fought all over the planet, most anything could happen. (:0]]=<

  12. J P Frogbottom says:

    Chartists.. You gotta love em. One sees Gloom & Doom, the other sees a ‘buying’ opportunity. Depends on what you are selling, right? Dent sells bad news ahead. Wall Street says it is sunny out.

    Frankly, I see the Unicorns and opportunity lying there for use.

    Hey, I have already made what I need to survive for the year, and banked it to my checkbook. More wins, good for me, more loss, well talk to me next year.

    The market is merely a tool, use it for your own benefit.

  13. Kreditanstalt says:

    I take it Dent would not agree with Exter’s inverted asset pyramid. Not to the notion of Bad Money driving Good Money out of circulation. Nor probably to the notion that the government/central bank response to any asset price crash is likely to be a massive inflation of the money supply.

    There are many such inconsistencies in his ideas.

  14. d says:

    SPX is interesting right now.

    18/05/15 @ 2137 APP.
    22/06/15 @ 2238 APP.

    Run a tredline off those points which becomes resistance and SPX has just hit it and is running along it.

    22/03/2016 @ 2053 2055.

    It has broken dents curve. does it brake the trend/rsistance line or go back to test support below 1800.

    confirming a down rage channel set by the double bottom

    19-20/01/2016 @1811
    10/02/2016 @1807

    trend/support line from that, is now below 1790, could be a multi day, or even multi week, short there particularly if it brakes 2038.

Comments are closed.