Here is what Fitzpatrick had to say, along with his key chart:  “Looking at the equity market and some of the background dynamics we cannot help but be reminded of 2011.  Having said that, there are also some aspects of what we saw in 1998 and some similarities with 2000 that are worth noting....

Continue reading the Tom Fitzpatrick piece below...


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“Bottom line, we have had the view for some time that we would see a much deeper correction in the equity market (in excess of 20%).  After a 2010-2011 surge, helped by QE2 in November 2010 (A move that was guided since August of that year), the DJIA peaked with a head and shoulders formation completing in early August 2011(02 August break), at the same time as stocks break below the 200-day moving average.

The end of QE2 in June 2011, uncertainty about the US debt limit negotiations and (icing on the cake) a downgrade of the US by S&P on August 5, 2011 (Friday) created the backdrop for a sharp fall.  The target of the head and shoulders top was about 10,800 and the actual low hit in Oct 2011 (04 Oct) was 10,404. This gave us a high to low fall of 19% in the DJIA, while the S&P fell 22%. 

The present pattern could be viewed as another potential head and shoulders top with a neckline at 14,862, or as a double-top with a neckline at 14,760.  The target on a break of this range would be 13,800-13,900 or about 12% high to low (Compared to a 16% target in 2011 that was overshot).  The rising 200-day moving average now at 14,686, also needs to be watched. 

The 55 and 200-week moving average set up is (not surprisingly) also similar, albeit more stretched this time than 2011.  In 2011 the DJIA eventually overshot the 200 week moving average by about 2%.  A repeat of that would see the DJIA as low as around 12,200 or 22% off the peak set post the FOMC meeting.  While in 2011 we had some momentum divergence, this time around we have clear “triple momentum divergence” taking place at the peak.

The Equity market is in danger of seeing a much lower level over the weeks/months ahead.  High-to-low this move could end up being in excess of 20%.  Given the fact that the Fed has been “setting it’s store” on a move to tapering, it would be very difficult for them to quickly flip from tapering to no tapering and even further to expanded QE (This is pretty much what did happen in prior instances of equity market “stress”).


In our view that takes away the short-term potential for a “Yellen put” absent significant financial market/economic stress and makes it easier for that deeper correction to materialize.”

IMPORTANT - Due to the volatility, KWN will be releasing another interview within hours.

© 2013 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

The audio interviews with Robin Griffiths, Jim Grant, Gerald Celente, William Kaye, Dr. Paul Craig Roberts, Chris Powell, Michael Pento, Eric Sprott, Andrew Maguire, Grant Williams, Bill Fleckenstein and Egon von Greyerz are available now. Also, other recent KWN interviews include Marc Faber and Felix Zulauf to listen CLICKING HERE.

Eric King

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