Washington, DC -- (ReleaseWire) -- 10/29/2014 --An ominous stock market crash anniversary gives clues to today’s financial markets, says Dawn Bennett, CEO of Bennett Group Financial Services, in her latest warning to investors.
The week of Oct 13, 2014 got a little crazy in the financial markets and may have driven some people looney because it's hard to watch a portfolio get destroyed so quickly says Ms. Bennett.
On Monday October 19, 1987, the Dow suffered its worst one-day stock market crash in history, down 23 percent in one day. It was surrounded by signs of the U.S. economy slowing down, and worried investors beginning to wonder if the stock markets were rigged for the insiders. That may seem familiar to many investors now. The sequence of events that pushed the U.S. financial markets into the abyss back then are now back with a vengeance.
If investors think this time is actually going to be different just because the Federal Reserve has stepped in and “saved us with their liquidity injections,” they should think again. The technicals really did breakdown, and it was scary. It felt eerily similar to October 1987’s Black Monday. Investors who were around then surely did not want to celebrate the 27 year anniversary of the crash in this fashion. I'm wondering if we’re going to revisit the same scene?
The volatility index (VIX) actually jumped the week of Oct. 13 to 26.25 that Wednesday. It’s the highest level since 2012. On October 15, 2014, the S&P 500 lost approximately one percent, and the Dow Jones Industrial average fell to close 173 points down. However, the intraday drop reached 460 points total.
Technically speaking, the U.S. financial markets closed below their 200-day moving average for the first time on October 17, 2014. It was the longest losing streak for the S&P 500 since August 2, 2011. Investors want to know whether that week marked a bottom for the U.S. stock market for 2014. Unfortunately from a technical and even fundamental point of view, I don't think so.
Last year the Russell 2000 net shorts were probably the largest they had been since 2008. After the fifth consecutive week of selling the Russell 2000, people were actually buying in, so it actually netted up higher, but it’s because they had margin calls and needed to cover their shorts. So these over-leveraged shorts that own the Russell 2000 were squeezed and had to buy in, thereby pushing the Russell 2000 up. This inherently shows the continued weakness.
Investors need to focus on the credit markets too, especially leveraged bond loans, or bank loans and high-yield bonds. They've seen a lot of substantial selling in these sectors. The connection to the Russell 2000 is that small cap companies tend to be more credit-sensitive than mega cap companies. Mega caps can actually tap the bond markets rather cheaply, but average investors can't do that with small cap companies.
Another indicator of weakness was the Goldman Sachs Global Leading Indicator, which collapsed the week of October 13, 2014. The company said the October advance reading actually places the global cycle deeper with momentum declining. Back in June, the Goldman indicator was all about expansion and positivity. This shows we've gone from expansion to slow down to basically falling off a cliff in less than a span of 3-4 months.
Five of the six global leading indicators have worsened so far in October; S&P, GSCI industrial metals index, the Australian Dollar and the Canadian Dollar. Even the Philly Fed new orders number, which is a proxy for the global PMI, has reported down. Plus, the Baltic Dry Index declined this past month.
If all of these technical breakdowns continue, my bet is that the Fed is going to continue all its dovish language and step back into the stock market. We are in extraordinary times. If history is any indicator, and it is, investors should be looking at this 27 year anniversary of the U.S. Stock market crash and ask themselves how they should be invested?
All market data references are sourced to Bloomberg terminal database.
Bennett Group Financial Services LLC, based in Washington, D.C., is a comprehensive financial services firm committed to providing opportunities to clients? 7; as they seek long-term financial success. Its customized programs are designed with the potential to help grow, lower overall risk and conserve client assets by delivering a high level of personalized service and skill.
For more information, call 866-286-2268 or visit http://www.bennettgroupfinancial.com
Securities offered through Western International Securities Inc. (WIS), member FINRA/SIPC. BGFS and WIS are separate and unaffiliated entities.
About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program on called Financial Myth Busting http://www.financialmythbusting.com
She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included Rock Legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN as well as take podcasts on the road and forums for interaction.
The show is a great complement to Dawn’s monthly investing seminars that take place at Tysons Corner in McLean, VA, where she discusses investing.
She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett or email@example.com