Why Markets Will Continue The Sell Off And Could Intensify – Large Number of Investors Could Get Hurt Here!
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The inset box reflects the three largest ETF’s in America. The second largest ETF has done poorly compared to SPY over the past 6 years and has formed a multi-year pennant pattern that is breaking down of late.
Vanguard Emerging markets ETF VWO can brag about it size, yet not performance. The breakdown from this pennant pattern could put the pinch to a bunch of assets!!!
Speaking of a large number of investors getting hurt, the number three ETF hasn’t been doing so hot of late, maybe that is why $1 Billion left GLD last Friday.
Beware of “Crowded ETF’s” and what can happen to there price when mass selling takes place!!!
GOLDMAN: Brace Yourself For More ETF Selling Of Gold Holdings – Only the United States, and Germany hold more gold than the ETF.
On ETF holdings, Currie writes (emphasis added):
This stretched positioning was confirmed in the most recent data on ETF holdings through Tuesday. The report showed acceleration in the liquidation of length, falling nearly 2.0 moz over the past week for a total of decline of 8.5 moz or 10% since the peak at the end of last year. We believe there is the potential for a further sell-off in ETF holdings given that a significant portion of the holdings, 8 moz or 11% of the existing holdings, were purchased at levels at or above current gold prices.
Finally, to put the size of the ETF holdings into context: at its peak of 84.6 moz, the ETF’s aggregate holdings were the third-largest in the world, ranking behind only the US and German central banks. The 8.5 moz liquidated from ETFs since the start of the year represent almost 10% of annual gold mine supply, which takes the aggregate ETF holdings down to a number four ranking, with only the IMF moving ahead. However one measures the aggregate ETF holdings, they are still extremely significant.
Copper, a barometer for the global economy, broke a key support level, signaling more selling ahead for the metal and possibly stocks and other risk assets.
“Today copper has been weak because the IMF came out with lower expectations of the euro zone economy and the IMF is saying we don’t see great physical demand at this time,” said George Gero, an analyst with RBC.
Copper fell all day, and continues to be weak into the evening.
Oil prices have cascaded lower in the global commodities rout and may still have further to go before finding a floor, analysts say.
“From the bear standpoint, everything seems to be dovetailing,” said Gene McGillian of Tradition Energy. “You have worries that the U.S. economic recovery is really stalling and starting to ehad lower, and we’re having more oil output showing up.”
This Is Bigger Than US Housing Crisis: Chinese Auditor Warns “Out Of Control” Chinese Debt Could Spark Bigger Crisis Than US Housing Crash
“This could be even bigger than the US housing crisis,” warns senior Chinese auditor Chang Ke, as his accounting firm has all but stopped signing off on bond sales by local governments (as we warned most recently here). As the FT reports, Zhang’s firm “audited some local government bond issues and found them very dangerous,” as they don’t have strong debt-servicing abilities. “It is already out of control,” he continues, “the only thing you can do is issue new debt to repay the old,” he said. “But there will be some day down the line when this can’t go on.” With more than 2,800 counties having discovered the investment-vehicle-bond (a way to avoid the prohibition or directly raising debt), Zhang notes that this “frightening” evolution has led to a situation where he puts little faith in the government guarantee, advising that “when the time comes, it won’t be the government that assumes responsibility. It will be the accounting firms and the banks that do.”
A senior Chinese auditor has warned that local government debt is “out of control” and could spark a bigger financial crisis than the US housing market crash.
Zhang Ke said his accounting firm, ShineWing, had all but stopped signing off on bond sales by local governmentsas a result of his concerns.
“We audited some local government bond issues and found them very dangerous, so we pulled out,” said Mr Zhang, who is also vice-chairman of China’s accounting association. “Most don’t have strong debt servicing abilities. Things could become very serious.”
“It is already out of control,” Mr Zhang said. “A crisis is possible. But since the debt is being rolled over and is long-term, the timing of its explosion is uncertain.”
Local governments are prohibited from directly raising debt, so they have used special purpose vehicles to circumvent these rules, issuing bonds under the vehicles’ names to fund infrastructure projects.
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What are and Why could Eiffel Tower Patterns be important to my investments/portfolio? If a rally creates a chart, that looks like the “left side” of the Eiffel tower, investors often end up experiencing the “right side” of the pattern too! True Eiffel towers on the right side, decline to where the left side started, in other words, wiping out all the gains!
The 4-pack below reflects completed Eiffel tower patterns in a variety of assets that took place over the last 17-years. Completed meaning the decline wiped out the prior gains!
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The Power of the Patterns showed that Apple could be forming this pattern at its peak (Apple Eiffel here) and that Gold could be forming one as well, within 10-days of its peak in August of 2011 (Gold Eiffel here). In hindsight, does any investor wish they had sold Apple at $650 per share or Gold at $1,850, when I present the Eiffel in the assets?
Now the Power of the Pattern is reflecting in the 5-pack above that the S&P 500 (SPY), Health Care (XLV) and Consumer Discretionary (XLY) could be forming Eiffel Tower patterns. Nothing is proven that these patterns are in place, yet the potential is there!!! The outcome of these patterns would have a big impact on portfolio construction!
Remember this when it comes to Eiffel Tower patterns…”its not the odds of this pattern coming true that is key, its the impact if it does!”
Europe Car Sales Heading for 20-Year Low on Germany
Italy May Need $9.2 Billion of Spending Cuts, Official Says
Yen’s decline hits cost of power in Japan
IMF Sees 20% of Corporate Debt Unsustainable in Parts of Europe
Record Gold Sell-off, How and Why (McAlvany Audio)
After the ugly day in the US, the selloff continues.
Japan is down 1.2%.
SPX just declined through Intermediate-term support this morning, raising the probability of a Flash Crash to 50% or more, IMO. The chances rise to 90% when SPX falls through its 50-day moving average at 1541.42 and the lower trendline of its Broadening Top at 1535.00.