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Have We Reached A Turning Point For Stocks? Tuesday Was The Worst Day For The Stock Market In 6 Months

by Michael Snyder, The Economic Collapse Blog:

The post-election stock market rally is officially over. After hovering near record highs for the past couple of weeks, U.S. stocks had their worst day in six months on Tuesday. For quite some time it has been clear that the momentum of the post-election rally had been exhausted, and a pullback of this nature was widely anticipated. But even though stocks fell by more than 1 percent during a single trading session for the first time since last September, it is going to take a whole lot more than that to bring stock prices back into balance. In fact, stocks are so overvalued at this point that it would take a total decline of about 40 to 50 percent before key stock valuation measures return to their long-term averages.

So we are still in a giant stock market bubble. All Tuesday did was shave about one percent off of that bubble.

Let’s review some of the numbers from the carnage that we witnessed…

-The Dow was down 237.85 points (1.14 percent)

-The S&P 500 was down 1.2 percent on the day

-The Nasdaq was down 1.8 percent at the closing bell

-Financial stocks were down more than 2.5 percent

-Overall, it was the worst day for banking stocks since the Brexit vote

-Bank of America is now down more than 10 percent since Trump’s speech to Congress

-The Russell 2000 (small-cap stocks) dropped about 2 percent

Some prominent names on Wall Street were warning ahead of time that this was coming. Marko Kolanovic was one of those voices…

Marko Kolanovic has done it again.

Last Thursday, one day ahead of the massive quad-witching where over $1.4 trillion in options expired in relatively tame fashion, the JPM quant warned of “near-term market weakness” and suggested “reducing US equity exposure. And, sure enough, JP Merlin’s Gandalf timed it impeccably yet again. To be sure, the jury is still out on what caused the selloff – lack of votes to repeal Obamacare, fears about Trump’s fiscal policy agenda, the market’s sudden realization that it is at 30 CAPE, or just a technical revulsion – what matters is that once again, like clockwork, Kolanovic called a key inflection point just days in advance.

Of course the mainstream media is telling everyone not to worry. They are insisting that this is just a temporary blip and that a market “correction” is highly unlikely. The following comes from CNN

Few experts are predicting a correction — which is a 10% pullback from a market high. Even fewer see a bear market, a 20% drop or more, on the horizon.

Hopefully CNN is correct.

But it should be noted that experts such as Kolanovic are warning that more panic selling may be coming in the days ahead

Furthermore, the modest but rising uptick in realized volatility is starting to cause outflows from volatility-sensitive investors the JPM quant calculated and, as a result, the break in short-term momentum may cause modest equity selling by trend following strategies.

In other words, in the absence of a positive catalyst over the next few days – and with uncertainty ahead of the Thursday Trumpcare vote only growing by the hour we fail to see one emerging – the double whammy of gamma positioning and the CTA momentum “flip” will be the catalyst for the next, extremely overdue, move lower.

It is going to take quite a few more days like today before we can talk about the kind of “financial crisis” that I have been warning about for a long time, but we may have already reached a key turning point.

So much of the post-election stock market rally was based purely on hope, and meanwhile the underlying economic numbers have continued to deteriorate. Corporate earnings are down, it is being projected that U.S. GDP growth will be about one percent during the first quarter, and used vehicle prices are dropping for the first time since the last recession…

In its March report, the National Association of Auto Dealers (NADA) reported an anomaly: dropping used vehicle prices in February, which occurred only for the second time in the past 20 years. It was a big one: Its Used Car Guide’s seasonally adjusted used vehicle price index plunged 3.8% from January, “by far the worst recorded for any month since November 2008 as the result of a recession-related 5.6% tumble.”

The index has now dropped eight months in a row and hit the lowest level since September 2010. The index is down 8% year over year, and down 13% from its peak in 2014.

Read More @ TheEconomicCollapseBlog.com

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