2019 MARKET MELTDOWN: What The New Year Brings

If history is our guide, we are on track for a severe market meltdown in 2019.  While the U.S. broader indexes remained in record territory for most of 2018, December turned out to be a complete disaster for stocks.  So, even though the markets have reversed higher from their Christmas Eve lows, this is nothing more than a bear market rally.

It’s really that simple.  Thus, all the hype about “Fed Market Rigging” to push the markets up a record 1,000 points following the Christmas Eve massacre, becomes white noise as markets always correct higher after a massive selloff, with or without the Plunge Protection Team (PPT).  Furthermore, the notion put forth by members of the Alt-Media suggesting that the Fed rate hikes will cause another market crash, and wealth transfer makes no sense in an EROI Collapse (Energy Returned On Investment).

As the EROI of the oil industry falls even lower with the addition of oil sands and shale oil, there will come a time when the economy and market will disintegrate due to a lack of profitable net energy.  In this future net-energy-starved economy, most ASSETS will become LIABILITIES.  So, the lousy conspiracy that the Fed is using their “rate hike policy” for the “grand elite wealth transfer,” needs to be thrown in the waste-bin for good.

Folks, it’s time to stop focusing on lousy conspiracies and figure out what you are going to do when energy becomes a real problem.

Unfortunately, hype and conspiracies sell a lot of books and subscriptions because they are more exciting than facts, data, and information. It seems to me that a large number of the Alt-Media followers are being misled just as much as their Mainstream media counterparts.  However, they don’t realize it… LOL.

Okay, let’s get back to the 2019 Market Meltdown.

2019 MARKET MELTDOWN:  Bigger & Better Than Ever

The main reason the broader markets are likely to crash in 2019 has to do with the simple fact that the BOOM CYCLE is OVER.  We can spot this quite clearly in the unemployment chart below:

Anytime the U.S. unemployment figure is at a low, the cycle rolls over, and the fun begins.  Yes, I realize the U.S. unemployment figures are manipulated.  I have read the data from John Williams Shadowstats.com.  However, if we go by the manipulated data, it still provides us with a reliable indicator… and that is, low unemployment is not a positive indicator for the economy.

As the stock markets start to roll over along with increasingly negative economic indicators (falling housing, auto sales, etc.), the BUST CYCLE has already begun.  And this bust cycle may be one that we will likely never really recover.  If we look at a longer-term U.S. unemployment chart and the bubble periods, there may not be another means to prop up the economy in the future:

After the World War 2 suburban boom and burgeoning manufacturing economy during the 1950s to 1960s, the United States economy began to get into trouble when its domestic oil production peaked in 1970.  Then after Nixon dropped the gold-dollar peg in 1971, it ushered in a decade of massive consumer price inflation.  Thus, higher costs forced U.S. manufacturing to go overseas.

To combat the loss of manufacturing, the invisible hand of the U.S. economy brought on a series of bubbles to continue the American Dream.  During the 1980s, we had the massive domestic military spending bubble.  The U.S. military budget surged in the 1980s, even though there were no wars or large military conflicts.  This helped boost the economy and bring the unemployment rate down from nearly 11% to 5%  by the late 1980s.

Then we had the next recession (shown in the gray areas in the chart), and unemployment shot back up in the early 1990s.  It wasn’t until the next bubble, the High-Tech Bubble, did the U.S. economy flourish once again.  With the addition of thousands of DOT.COM stocks and grandmas at bingo bragging about their favorite trading picks, the unemployment rate fell back to 4% in 1999.

As with all boom cycles, they come to an end.  However, the collapse of the Nasdaq and broader markets in the early 2000s was short-lived as the Fed and Wall Street initiated the next market bubble, and that was the Banking and Housing bubble.  While the Fed lowered interest rates to help more Americans to afford homes, Wall Street came up with an ingenious plan (Mortgage Backed Securities) to get any POOR SLOB in a house who would never qualify for a home.

Everything seemed to be just peaches in 2008 until the bottom of the market fell out.  With the collapse of Lehman Brothers, Bear Stearns, and the entire U.S. housing market, it created a global-wide recession.  As the money markets started to seize up and real panic began to spread throughout the entire financial system, the Fed and Central Banks came in and propped up the global markets.

In just the past ten years, the top Central banks have purchased over $11 trillion in assets and this doesn’t include the tens of trillions of additional public, corporate and private debt.  Now, the important question is… who is going to bail out the Central Banks??

So, with the “manipulated” U.S. unemployment figure at a five-decade low of 3.7%, we are in for one HELL OF A WILD RIDE down the rollercoaster.

How The 2019 Market Meltdown Might Look Like

Sometimes history repeats or at least, rhymes.  If we look at what took place in the Dow Jones Index from 2007-2009, we can get an idea of what lies ahead in 2019.  This chart was posted in a zerohedge article, A “Shocking” Chart From Nomura: “The S&P Now Looks Just Like The 2008 Crash”:

This chart shows the S&P 500 from 2007-2009 (RED) compared to the same index in 2018 (BLUE).  We can see that there are some similarities with the past and present S&P 500 Index correction.  However, I like to focus on the Dow Jones Index.  If we look at the Dow Jones Index, we can see what took place in 2007-2009:

In December 2007, the Dow Jones experienced a large sell-off but corrected higher before the end of the month.  The large wick at the bottom of that candle shows just how far the Dow fell.  It lost nearly 3,000 points before reversing higher.  Over the next four months, the Dow consolidated and moved back up to the 13,250 resistance level.  Once the Dow Jones Index touched that resistance level, it then fell precipitously over the next ten months.

In looking at the Dow Index today, we also see another large sell-off in December.  Interestingly, the Dow Index closed on the last day of the year right on the 25 Month Moving Average (BLUE).

I believe the Dow will try to consolidate higher over the next few months and will probably try to retest that 24,000 level.  Of course, there is no guarantee that this will happen, but I have been watching the markets more closely now, INTRA-DAY TRADING, and I can tell you, that is how the markets work.

Now, because the Dow Index is much higher and has a great deal more leverage and less liquidity today than it did in 2008, we could see a much steeper crash.  But, if we don’t get a panic crash, it will likely take until the end of 2019 or early 2020 before the market reaches a low, but not the ultimate low.

If you look at the 300 Month Moving Average line (PURPLE), you will see that the Dow Index fell right to it in the first quarter of 2009.  If it does the same thing this cycle, it will at least fall back to the 11,800 level (shown at the right).  Again, this will not be the ultimate low in the Dow when the Falling EROI destroys the business cycle for good.

Why The Indexes & Stocks Trade Like They Do

As I mentioned, I have been watching Intra-Day Trading and how stocks and indexes move up and down off their technical levels.  There is some logic how the stock market trades.  For example, the SPY Index is an S&P 500 ETF.  The majority of stocks trade along with the SPY Index.  If the SPY goes up, so do most stocks and if the SPY trades lower, so do most stocks.

As we can see, the SPY Index trades off of technical levels shown below:

You will notice that the SPY index bounces off the Linear Regression Lines (RED & BLUE Dash Lines).  This is a 30-minute chart, so each candlestick represents 30 minutes worth of trading.  We can see the same thing take place on a longer time frame, on the SPY weekly chart:

The SPY Index trades off its moving average and the Linear Regression Lines.  When the SPY fell to its 200 Week Moving Average on Christmas Eve, it reversed higher.  Nothing goes down in a straight line.  So, there will be corrections all the way down to its long-term bottom.

Let’s use one more example, Barrick Gold (ABX).  Here we can see that ABX is trading off its Linear Regression Lines as well as its moving averages:

The reason stocks bounce off these technical levels is that professional traders and computer algorithms use them as a guide.  I will be posting more charts like this in future articles because it will provide a guideline on how the market will trade in 2019.

While it is true that the Falling EROI will still destroy economic growth, it will take some time.  So, the technicals will provide some clues of how this plays out in the future.

Lastly, the broader markets will continue to sell off in 2019 as the cycle is rolling over.  I believe gold and silver will disconnect from the broader markets and move higher in 2019 as investors look to protect wealth during a major market meltdown.

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47 Comments on "2019 MARKET MELTDOWN: What The New Year Brings"

  1. Good analysis, keep up your great work, thank you. Happy new year.

  2. I believe there is no way to tame the US debt now, even if our ‘Leaders’ tried, it can only accelerate. Congress has already sold off the future generations, now it’s gotta funnel more and more wealth out of the pockets of the present working people and retirees, starting at the bottom rungs. So let’s all try to be Patriotic about it.

  3. Hi Steve,
    How about writing an article about your comment above….”figure out what you are going to do when energy becomes a real problem.” Buying gold and silver has been suggested for a long time along with paying down debt…but what other ways do you suggest we prepare for the EROI collapse? What should be done to become more energy efficient or energy independent? Preparing is certainly in our best interest but suggesting a guideline for that preparation would be a beneficial article.
    All the Best!

    Crayfish

    • Crayfish,

      You bring up a good point as to the “options” in a Falling EROI world. Actually, there aren’t any real solutions except “DE-GROWTH.” I will be writing more articles about this in 2019.

      steve

      • “Actually, there aren’t any real solutions except “DE-GROWTH.”

        That’s where Gail Tverberg is at as well. There are NO solutions to this mess. We could have done something maybe 50-60 yrs ago but that train has left the station.

        Even Chris Martenson is getting a little antsy with what he’s seeing regarding wildlife, insect population as well as Phytoplankton and zooplankton. It’s disappearing which is the bottom of the food chain.

        https://www.peakprosperity.com/blog/114677/2019-beginning-end-free-premium-report

  4. Happy New Year Steve…excellent analysis as usual. I would also like to know your views on protectling ourselves from an EROI collapse long term. I see the dow/gold ratio going below 1:1 next time round so I am definitely loading up on gold and silver now especially the gold backed crypto “KBC” coin.

  5. Thanks for your work Steve. Happy New Year

  6. Steve,

    Good read. Thanks for starting the New Year off right.

    SteveW

  7. D. Bruce Turton | January 1, 2019 at 9:40 am | Reply

    Yappy Hew Near!! Just curious Steve – do you visit the website of Tim Morgan at all. Seems you have much in common with his views.
    Thanks for your work.

  8. Michael Kohlhaas | January 1, 2019 at 10:13 am | Reply

    Steve,

    stop doing technical analysis. You are terrible at it.

    Happy New Year!

    • Michael,

      While you are free to your opinion, if you suggest that people should follow Bo Polny’s technical analysis, you lose a great deal of credibility.

      I will let my followers decide on their own.

      steve

      • Remember you’re view toward “Technical Analysis” a few years ago Steve? 😜 IMO you are obviously a quick learner. All Trading Oscillators tell a story; it gets backs to ones’ own understanding of the tools he is using to determine an outcome. I like your Number (Fundamental) Charts and the QUIRKY way in which you present because they complement “Technical Analysis”.

        I have often said in here, “Technical Analysis” tells you where the money is. The money can be wrong! The “Number (Fundamental) Charts” are as close to REALITY as we can get; they give you the FACTS.

        TPTB are running out of room to move, they are stuck between a ROCK and a HARD PLACE; the MONETARY SYSTEM put into effect back in 1913 and its subsequent amendments has its limitations. We are in for an interesting year.

      • Michael Kohlhaas | January 1, 2019 at 9:23 pm | Reply

        I don’t suggest people should follow Bo Polny in no matter what shape or form. I was making fun of that idiot. Don’t lose your humor, Steve!

        It’s good you let your followers judge on their own. I am one of your followers!

    • Do yourself a favor and read, “How to win friends and influence people”

      😉

  9. DisappearingCulture | January 1, 2019 at 10:39 am | Reply

    One of your best articles/posts in my opinion.
    I hope 2019 is a good year for you, your family, and friends.

  10. Became a patron on day 1 and never looked back. Among other blessings, the EROI material is enlightening.

  11. Indicators & Absolutes

    A prime indicator of approaching calamity in the markets is volatility.
    In 2017 the DOW was either up or down by 1% or more just 8 times.
    In 2018 this has occurred 64 times! A major shift upwards in volatility.

    An absolute in the present world of finance is:
    Money must continue to flow into the financial system faster than the demand for it expands.
    This continual expansion of the money supply is KEY for the maintenance of asset values.
    Along with free or little cost credit access, by way of low or no interest rate ceilings.

    The central banker’s conundrum:
    Attempting to shrink the money supply, while simultaneously raising interest rates.
    Depend on a banker to ALWAYS do the correct thing, at the wrong time! Good luck to all.

  12. Gold and oil; barter shells and fire. The nexus has always been there and to me seems the most important things after we have water, food and shelter. Unfortunately, whilst fire helped achieve food, for us oil is food, water and shelter. Having worked in these extractive industries I think your analysis is well focused; a view still not widely appreciated by those enmeshed within those industries.
    Wish I could contribute monthly rather than ad hoc but the perch is giving way.

  13. stephen Hyland | January 1, 2019 at 7:59 pm | Reply

    Happy New Year Steve!

    I wonder if you ever plan on doing any follow-up interviews with Louis Arnoux again? Would be interesting to hear you guys do a follow-up to the video you put out a few years ago. Keep up the great work!

  14. I think that the Alt-Media suggesting that the Fed rate hikes will cause another market crash, and wealth transfer makes sense.Fed has got only one model Boom and Bust and now is the Time to run. It happened before and after raising rates markets went down.In present time markets would collapse anyway but they making sure it will happen.
    I expect anything this year , we are dealing with criminals.

  15. Listen to all, follow none and decide for yourself. That said, last time palladium and platinum were at 400/500 I asked Steve here whether that would be a buy and he vehemently denied, favouring gold and silver. When oil rebounded to 40 from 25 Steve vehemently said 12$ oil is in the cards… The trading recommendations of our host are not better than mine, yet I fully buy into Steve’s EROEI thesis (but still don’t think this will be followed by 12$ oil, if anything a monetary reset to get rid of the current debt loads; oil in the “new” currency would be much higher than current prices in “old”/current currency though). Oil price will be kept higher, to keep production going as log as physically possible, if need be by MUCH higher prices (if only for the 20%-ers to consume). Either way, eventually oil production will plunge and then it’s back to the dark ages and bartering to survive. I wished I was wrong and we could discuss all these issues 10, 20 years down the road right here, but I’m afraid humanity has had a good run and time for the status quo is about up. What follows will not be very nice; owning PMs may sooth the coming pain somewhat, but painful it will be for all. So GLTA and thanks to Steve for a great blog.

    • DisappearingCulture | January 3, 2019 at 4:40 pm | Reply

      “That said, last time palladium and platinum were at 400/500…” ????

      Palladium was last at $400 in 2009, before he started his blog. It would have been a good investment since mid August of 2018.
      Platinum has been above $800 since farther back than the historical chart I’m looking at [2005], except for late 2018 when it dipped below $800.

      • My bad, you’re right, it was the 700/800 lows not the previous lows. The point, however, remains as platinum had hit 1200 at one point in the meantime, and pd is trading above 1200 now, apparently on severe fizz shortages… no wonder, less than 200 tons are mined per year of either.

      • My bad again, I double checked and when I asked (end 2015) Pd was trading below 500, and Pt around 800.

        • CHX13,

          At the end of 2015, Gold was trading at $1,050 while Platinum was at $1,200. Gold today is at $1,285 while Platinum is at $820. So, yes, you did better owning GOLD.

          Now, as for Palladium, I don’t really follow the industrial metal, but yes I did miss the big move up because of the increased demand for it in the manufacture of gasoline catalytic converters, especially in China. But I can assure you, when the FAN HITS THE SHYTE, you will not want to own Palladium.

          steve

          • Correct. Palladium is not a monetary metal like silver and gold. Measuring money against currencies is a fools game btw.

            I see greed, and that ain’t good ladies and gents. Think!

          • Steve, with all due respect, at end of ’15 Pt was 800 (moving to 1200 mid ’16) and Pd was just below 500 (moving to just short of 1300 as of right now). The combined holding of Pd and Pt would have beat gold since then. Needless to say, I’m mainly into gold and silver anyway, but do have a small portion in pd and pt, just in case.

          • CHX13,

            Sorry, I was looking at Platinum at the end of 2014. Either way, Platinum is still lower today by a few bucks than what it was at the end of 2015. Yeah, Palladium as I mentioned, was the Rhodium of the past decade. However, I would not be in Palladium today. It is becoming overbought on the monthly chart.

            steve

  16. Gold and Silver aficionados.
    Here is a chart of silver where it is breaking a bullish wedge like it did a couple of years ago. If it breaks it could go to 26 bucks.
    http://learnpowertrader.weebly.com/
    26 bucks is strong horizontal resistance. Looking good for silver.

  17. Happy New Year to all !

    Silver gained nearly 10 pc during the last two weeks. Short squeeze? Mirror image of the stock market? Technicals? Other explanations? The only one, who seems to have noticed is Barry.

    • Andreas,

      Yes, I have noticed both gold and silver’s rise over the past month. I will be posting an update this weekend.

      steve

  18. THANKS, Steve looking forward to it 🙂

  19. Great article. Now is definitely the time for a diversified investment portfolio. I’ve been buying up these as the stocks continue to plummet. https://bullionexchanges.com/buy-silver/coins/us-silver-coins/american-silver-eagles

  20. And meanwhile stocks markets bounce continue to rise to rise and rise some more !

    • DisappearingCulture | January 6, 2019 at 12:19 pm | Reply

      No that is incorrect. They rise, then there is a downwards drop, then a rise, then a drop. Volatility which signals a few things. One is the bull run up is over;
      “Despite official prevention efforts, two-way price discovery has been introduced to the stock market. The Establishment, lazy, entitled and fattened-up on the 10-year stock bubble, has gone into convulsions over the possibility that the stock market will do anything but move higher.”

  21. ” I believe the Dow will try to consolidate higher over the next few months and will probably try to retest that 24,000 level” : it will be reached easily next week !

    • DisappearingCulture | January 6, 2019 at 12:30 pm | Reply

      That is definitely possible.
      “A coordinated Central Bank-engineered bounce is to be expected and certainly there’s extreme political pressure in the U.S. for this. But more intervention preventing true price discovery merely defers the inevitable rather than fixing the underlying systemic problems.”
      Most trading [70% or more I have heard] is done by automated computers, based on algorithms. All TPTB need to do is put out information [some is emphasis, some is exaggeration, some lies] known to influence the computerized trading. It works for a while at least.

  22. I believe the bubble we are currently experiencing now is an overvaluation one, once the market goes down a bit to correct itself from this 10 year boom we will begin to see steady gains again. Like in any market it is crucial to diversify with stocks and precious metals!

  23. I’ve continued to buy silver, gold, and other investments despite what the market says it might do. I actually just picked up these https://bullionexchanges.com/buy-silver/coins/us-silver-coins/american-silver-eagles. I don’t like buying or selling based on the market, I’m in it for the long-term highs and lows.

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