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July 26, 2007

2007 Market Crash
by Greg Silberman

They say history doesn't repeat it merely rhymes. If that's the case, we may be setting up for a 2007 market crash. Take a look at this 1987 stock market crash picture:

Chart 1 - 1987 stock market crash picture

Since the early 80s the stock and bond markets had been motoring along nicely. Bonds made a high in early 1986 and had been building a top formation into 1987 (not shown). Then in early 1987 Bonds moved lower out of their top formation. The weakness continued until early May when all told the Bond market received a 15% haircut.

The stock market however wasn't phased. It was quite content to plough ahead even in the face of a deteriorating bond market. In fact, once bonds made a short term bottom in May the stock market celebrated and rallied to fresh highs.

The summer of 1986 saw bonds and stocks rally together -- until July. Bonds began declining again (I'm sure the expectation was a double bottom as the stock market continued to surge).

Then came Fall (excuse the pun). Bonds broke below their May lows in September and the market finally sat up and noticed. From then on out it was Katy Bar the Door - the stock market proceeded to tumble into what culminated as the largest 1 day decline in history - Black Monday 19th of October 1987.

Fast forward to today:

Chart 2 - 2007 market crash?

Bonds made a high at 115 in late 2006 and have been trending lower ever since. The stock market likewise has been unfazed (except for a brief hiccup in March) and has been boldly moving higher.

We are now entering an especially interesting phase in relation to 1987. Bonds began their latest leg down in earnest in March at which time the stock market surged higher -- eerily similar to 1987. Now, Bonds have been staging a moderate bounce since June and if the 1987 picture is to unfold again, the minor rebound would be close to over.

If bonds turn lower (as they very well could because of the weak Dollar) I would take that as the first sign of caution. If bonds break below their June lows I would take it as a MASSIVE warning.

Not co-incidentally, gold stock prices are beginning to come alive!

More commentary and stock picks follow for subscribers...

Greg Silberman CA(SA), CFA
www.goldandoilstocks.com

Profession: Research Analyst and Newsletter Editor
Company: Ritterband Investment Management LLC

Career Brief: Greg qualified as the youngest Chartered Accountant and Chartered Financial Analyst (CFA) in South Africa in 1998 at 25 years old. After completing his traineeship with Grant Thornton he moved to London where he worked for JP Morgan Chase in their Fixed Income Swaps Division. Sick of the grey skies and cold weather Greg relocated to Atlanta, Georgia where he spent the next 4 years freelancing as a management consultant. His targeted clients were fast growing mid size US based companies and he worked across many industries including credit cards, health insurance and energy trading. Greg has recently returned from Sydney Australia where he spent the last 2½ years working in Equity Derivative Structuring for Perpetual investments a major Australian Asset Management Company.

Greg has a passion for the markets and has been writing Greg's market newsletter for 2-years. A newsletter focused on metal and energy stocks and recently non-resource small caps listed in the US and Internationally.

This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.