After KWN reported on Christmas Eve that the public appeared to finally be gambling "all in" on soaring stock markets, the world just witnessed a major warning signal that preceded the stock market crashes in 1987 & 2007.  The fantastic piece below covers this major warning signal and also includes two critical illustrations.

By Jason Goepfert Founder & CEO Of SentimenTrader 

December 31 (King World News) – "According to regional Federal Reserve banks, stress in the financial markets (not just stocks) has been rising steadily, and we've now seen a possible inflection point. This preceded stock crashes in 1987 and 2007 (but not in the early 1990s).

On September 12, we discussed financial stress measures as distributed by four of the regional Federal Reserve banks.

At the time, a composite of the stress measures was showing a historic level of calm. Never before in 40 years of history had financial conditions been so good.

As we see so often, when the environment is good and calm, then risk-taking tends to overshoot and we run into trouble. Stocks got clipped by nearly -10% shortly thereafter, which was likely more of a coincidence than anything, but it did serve as a kind of initial shock to the financial stress indexes.

Since then, financial stress has continued to rise, even though stocks have recovered to new highs. This is very similar to what happened at the peak in 2007 (see charts below).

KWN SentimenTrader 12:31:2014

KWN SentimenTrader II 12:31:2014

The previous dates were 15-Jun-1987, 24-Dec-1991, 14-Sep- 1992 and 12-Jul-2007.

A concern is that this preceded the crashes in 1987 and 2007 by a few months. The warnings didn't precede anything other than 5%-7% pullbacks in 1991 and 1992 that were quickly recovered, so whether one considers this a serious warning is up for interpretation." This is just a small portion of today's fantastic report. To try a free 14-day trial of the internationally acclaimed work that Jason Goepfert produces at SentimenTrader simply CLICK HERE.

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Eric King