Oversold Rally Coming, Then the Real Crash Begins

Summary

Dr. Cal from Money Time Machine delves into an intricate analysis pointing towards imminent market events, highlighting the triggering of the 'Three Horsemen of the Apocalypse' crash signal for the first time since 2008. This signal indicates the onset of a recessionary bear market, predicting market downturns and the potential for an oversold rally before deeper declines. The discussion includes a breakdown of market indicators like the S&P 500, consumer staples performance, and yield curve inversions, suggesting a prolonged bear market with expected counter rallies and significant long-term downside targets.

Highlights

• An ominous market signal, 'The Three Horsemen of the Apocalypse,' has flashed, indicating potential trouble ahead. 🚨
• Despite potential short-term rallies, long-term market prospects seem bleak with signals suggesting significant downturns. 🙈
• Historical trends are used to predict possible future market movements, implying tough times ahead. 📉
• A detailed look into various market indicators reveals a recurrent pattern that may signify prolonged economic challenges. 🔍
• Significant market movements are expected starting as early as this week, driven by FOMC minutes and international trade maneuverings. 🔄

Key Takeaways

• The 'Three Horsemen of the Apocalypse' signal indicates a looming recessionary bear market despite possible short-term rallies. 📉
• Expect a possible short-term oversold rally even as market conditions hint at deeper long-term declines. 📊
• Market indicators such as inverted yield curves, performance of consumer staples, and U.S. Treasuries suggest tough times ahead. 🌧️
• Similar patterns from historical market downturns suggest possible future market movements. 📘
• Key analysis signals suggest a turbulent market period ahead with expectations of serious declines. 📉

Overview

The insightful video opens with Dr. Cal of Money Time Machine addressing the complexities of current market trends, with a focus on the S&P 500, yield curve inversions, and treasuries. The discussion hinges on the appearance of the ominous 'Three Horsemen of the Apocalypse' signal, heralding a recessionary bear market reminiscent of past economic downturns, notably the 2008 financial crisis. The narrative is riveting, with Dr. Cal mapping out the market trajectory based on historical and current indicators, painting a picture of forthcoming economic turbulence.

Throughout the video, Dr. Cal elucidates on the steps leading to the current market status, using visual aids to explain key market indicators and their implications. These indicators include the inverted yield curve and the outperformance of consumer staples and treasuries, painting a narrative of caution for investors. The detailed analysis is peppered with references to past downturns, adding depth and context to the conversation, suggesting that while some short-term market rallies may occur, the overall trend points towards unfavorable conditions.

Concluding with a forewarning and strategies for cautious investors, the video outlines the importance of recognizing patterns in market behavior. Dr. Cal emphasizes an expected tactical counter-rally, but with a focus on defensive positioning given the predicted prolonged bear market phase. The discussion wraps up with a note on upcoming events that could influence market directions, urging viewers to stay alert and prepared for a volatile economic landscape.

Chapters

• 00:00 - 00:30: Introduction and Overview In the introductory chapter titled 'Introduction and Overview,' Dr. Cal begins the session by recording at 9 a.m. Eastern time. He introduces a chart with a focus on the S&P 500 and its relative performance to long-term US treasuries. Dr. Cal also mentions his own metric, the 'imminent doom indicator,' which signals during particular market conditions. This chapter sets the stage for an analysis of financial markets.
• 00:30 - 01:30: The Imminent Doom Indicator The chapter titled 'The Imminent Doom Indicator' discusses a specific financial indicator on the monthly chart of the S&P 500 relative to treasuries. This indicator is identified when the chart closes below the 10-month moving average, which is visually represented by a shift from a green to a red line. The chapter focuses on a ratio between the S&P 500 and long-term treasuries, tracing the chart back to 2007 to highlight trends and patterns that signal potential economic downturns, labeled as the ‘imminent doom indicator.’
• 01:30 - 03:30: Three Horsemen of the Apocalypse The chapter discusses a crash signal referred to as the 'three horsemen of the apocalypse,' which has activated for the first time since the 2008 global crisis. The signal went off on April 1st, and the author explains the significance of this event, having already informed a trading community about it. The chapter promises to delve into the details and implications of these signals.
• 03:30 - 05:30: History and Significance of the Signals The chapter titled 'History and Significance of the Signals' discusses the importance of certain signals in predicting recessionary bear markets. A particular signal, referred to as 'the three horsemen of the apocalypse crash signal,' was recently triggered, indicating the beginning of such a market. The time of this signal's announcement was noted as April 1st at 4:30 p.m. local time or 9:30 a.m. Eastern time. The chapter underscores that this signal is the most critical indicator used to identify the onset of a recessionary bear market, distinguishing it from other types of bear markets.
• 05:30 - 09:00: Predictions and Impact of Recent Actions In this chapter, the author notes that all three economic indicators are signaling the beginning stages of a recessionary bear market. The 'Three Horsemen' indicators have historically flashed concurrently only once before, in November 2007, which preceded a market high. The timing of current signals suggests a similar warning, as they appear exactly five 'units' of time (though not specified) from some significant point, paralleling the 2007 event. This raises concerns about the potential for another economic downturn.
• 09:00 - 12:00: Market Conditions and Predictive Analysis The chapter discusses the prerequisites for a market downturn, also referred to as the 'three horsemen'. The first indicator is an inverted yield curve that has started to normalize, a condition met months ago. The second indicator is the performance of long-term Treasury bonds relative to the S&P 500, which requires the ratio between the two to exceed the 10-month moving average, a condition only recently met.
• 12:00 - 15:00: Short-term and Medium-term Market Structure The chapter discusses the recent trends in the market, highlighting that a significant signal has emerged after a prolonged period of observation. Consumer staples, also referred to as defensives, are outperforming the S&P 500 significantly. This performance has crossed above the 50-week moving average, a crucial indicator. Although this signal has appeared intermittently for months, the chapter stresses the importance of confirming this signal with additional criteria.
• 15:00 - 18:30: Bracing for a Counter Rally The chapter discusses the occurrence of a market crash signal, which involves three unspecified indicators flashing at the same time. This event transpired at the end of March and was confirmed on April 1st. The author released an advisory note right before the market opened on April 1st, indicating that the market has entered a recessionary bear phase. The chapter implies that subsequent to such crash signals, certain market behaviors, such as counter rallies, may occur.
• 18:30 - 22:30: Understanding Bear Market Patterns A typical pattern in bear markets is a brief rebound after a signal is triggered before a market crash. This pattern was seen in 2008 and 2002. However, a deviation occurred with an immediate crash due to unexpectedly harsh tariffs introduced by the Trump administration, surpassing negative expectations.
• 22:30 - 27:30: Indicators and Signal Analysis The chapter discusses the unexpected use of tariffs by the Trump administration. Instead of strategic application, tariffs were imposed broadly on multiple countries, which was considered the worst-case scenario. This approach affected expected economic rallies typically seen after such policy implementations.
• 27:30 - 29:30: Upcoming Market Events and Conclusion The chapter discusses historical patterns in market signals, specifically focusing on instances from 2010, 2011, 2014, and 2018, where counter rallies typically occurred following certain signals. However, it highlights an exception in 2008, suggesting the current conditions are significantly more bearish.

Oversold Rally Coming, Then the Real Crash Begins Transcription

• 00:00 - 00:30 welcome back you legends I'm Dr Cal Let's get right into it I'm recording this at 900 a.m Eastern time And I want to start with this chart Up top is the monthly chart for the S&P 500 Below it is the S SNP relative relative to long-term US treasuries an indicator that I've developed otherwise known as the imminent doom indicator and it flashes when one specific thing happens
• 00:30 - 01:00 and that is when the monthly chart of the S&P 500 relative to treasuries closes below the 10month moving average This moving average right here that switches from green to red is the 10-month moving average This is the ratio between the S&P and long-term treasuries Up top is the S&P 500 This chart on your screen is the monthly chart and it goes back all the way to 2007 The imminent do indicator is one
• 01:00 - 01:30 part of a threepart crash signal that I developed called the three horsemen of the apocalypse And I'm going to go through all of them and explain what happened exactly But the three horsemen of the apocalypse signal has flashed for the first time since the 2008 global crisis The signal flashed on April 1st That means the beginning of last week And I put out a note in the trading community explaining exactly what
• 01:30 - 02:00 happened This was posted April 1st 4:30 p.m my time which is 9:30 a.m Eastern time And here's the note and please pay very close attention because this is the most important signal that I use to establish the beginning of a bare market a recessionary le bare market Not just any bare market but specifically bare markets that develop because of a recession The three horsemen of the apocalypse crash signal has finally been triggered It is official As of this
• 02:00 - 02:30 morning we have all three signals indicating that we're now at the very early stages of a recessionary bare market Again this morning because 4:30 p.m my time is 9:30 a.m Eastern time Going back 22 years the Three Horsemen have only flashed once concurrently and that was in November of 2007 just a month after the market formed its final high Similarly we're now exactly five
• 02:30 - 03:00 weeks after the market made its last all-time high And here's a quick summary of what the three horsemen are and what they mean Number one we need an inverted yield curve that has begun to normalize Check We've had that for months Number two we need long-term Treasury bonds to outperform the S&P 500 to a large enough degree where the ratio between the two crosses above the 10-month moving average This has not happened until last
• 03:00 - 03:30 week I've been waiting on this signal for months and months and months It has only flashed last week Number three consumer staples otherwise known as defensives outperforming the S&P 500 to a large enough degree where the ratio between the two crosses above the 50week moving average This signal has flashed on and off for quite a while now for several months However we need both number two and
• 03:30 - 04:00 three to flash concurrently That means the same week for the crash signal to trigger And that happened at the end of March and it was confirmed on April 1st And I put out and I put out this note just before the market opened on April 1st last week In other words for all intents and purposes we are now in a recessionary bare market Typically after this crash
• 04:00 - 04:30 signal is triggered we don't crash immediately Typically we get typically we get a couple of weeks of a rebound right like what happened in 2008 a similar example back in 2002 as well So what is unusual about this time is that we immediately crashed that was obviously because of the much much worse than anticipated than hoped uh tariffs by the Trump administration The overwhelming consensus at the time
• 04:30 - 05:00 was that the Trump administration was going to use tariffs as a negotiating tool and not just put these blanket tariffs across the globe on everything Unfortunately what happened was the worstc case scenario Trump went out and said "We're tariffing pretty much every single country in existence." This was the worst case scenario That's why we did not get That's why we did not get a counter rally as is often the case after
• 05:00 - 05:30 these signals flash Right we've had one after 2018 We've had one in 2014 Again we had one month counter rally in 2011 Again in 2010 Pretty much in every single example that I've seen we had one counter rally after the signal flash This was the only exception And this indicates that conditions are much much more bearish since this signal flashed all the way back in 2008 Now I
• 05:30 - 06:00 have two vertical red lines and I have multiple dotted orange lines And here's why The three horsemen of the apocalypse signal only flashed two times in in the last 25 years That is 2007 and last week Okay these dotted lines are when the imminent doom indicator signal flashed without the other signals flashing concurrently namely the inverted yield
• 06:00 - 06:30 curve Right so up top is the S&P 500 Down below is the 10 to yield curve And whenever we get an inversion of the yield curve that is when it crosses below the one line and then crosses back above So it needs to invert and then revert And that reversion triggers the crash signal Every single time we had this happen the market ended up topping either right after or just before Every
• 06:30 - 07:00 single time without exception including right now And you always need to be careful when you hear folks saying this time is different almost never is different especially for major shifts like the yield curve inversion like the imminent doom indicator and like the final horsemen of the apocalypse that is when consumer staples relative to the S&P 500 cross above the 50we moving average So in very simple terms the three horsemen of the apocalypse are
• 07:00 - 07:30 number one US treasuries relative to the S&P 500 outperforming the market number two consumer defensives outperforming the market and number three an inverted yield curve that has now reverted When we get all three signals concurrently on the same week it flashes the three horsemen of the apocalypse crash signal and it indicates the beginning of a brand new recessionaryled bare market Now each
• 07:30 - 08:00 individual signal of these three that is this treasuries defensives and the yield curve each one on its own is bearish but the crash and the market top is not confirmed until all three are flashing together For example here's the defenses relative to the S&P We had multiple closes above the 50week moving average right here However we did not have treasuries outperforming the S&P 500 at that stage and so that would have been a
• 08:00 - 08:30 false signal and again the yield curve has reverted months and months ago It reverted late last year and again this signal on its own is not sufficient We need all three together and it has finally happened as of April 1st last week We finally got the signal So what does that mean number one it means the market has topped 613 That's it That's the top for the S&P 500
• 08:30 - 09:00 Likely for multiple years That's likely going to be the top for multiple years Remember between the top in 2007 and when we made new highs in 2013 it was five years We had five years of a weak recovering economy and market until we finally cleared that high So this is very serious Yes the last couple of days were especially bearish very bad In fact
• 09:00 - 09:30 the declines from Wednesday all the way to Monday morning today are among the worst in S&P 500 history That includes 2008 financial crisis That includes the 87 flash crash That includes the multiple bare markets in the 70s It includes all of it Okay so this is the long-term outlook We're looking at a recessionary le bare market that will likely last well into the middle of next year at least That means 12 months plus
• 09:30 - 10:00 That also means likely declines of around 50% for the S&P 500 potentially slightly more than that for the NASDAQ 100 It also means the beginning of a period where long-term treasuries significantly outperform the S&P 500 So it's all defensive positioning from this point on So what about the medium-term and short-term outlook let's get right into that So let's get right into that So this is the daily chart for the S&P
• 10:00 - 10:30 500 who've been making lower highs and lower lows Since that top in February just before the market crashed just before Trump announced his tariffs we had formed this double bottom with a bullish divergence slightly lower low versus the low in March Significantly higher low on the RSI So this was the perfect bullish setup And the fact that it failed as soon as we broke below this low from last week as soon as that
• 10:30 - 11:00 happened it means the setup has failed And when one of the best bullish setups fails typically we get the waterfall sty selloff that we've seen in the last couple of trading sessions and extending into Monday So what are we looking at now typically in a waterfall style selloff we get two gap downs Number one this is the first gap Then two this is the second gap And then the third gap is typically an exhaustion gap an exhaustion gap capitulation gap And
• 11:00 - 11:30 typically that's when we kind of form a basic structure So beginning today Monday we'll likely see some kind of basing structure that sets us up for some kind of counter rally with a target of around 538 to fill this gap That may take several weeks but this week I'll be looking for some kind of bottoming structure around the 490 level Right this is a key key support level We had this gap that remained unfilled from
• 11:30 - 12:00 April of 2024 That means officially as of today we have erased one year worth of uh of market returns An entire year's worth of market returns in just three trading sessions which is absolutely bananas So why is 490 an interesting level well for a couple of really interesting reasons Number one we have this gap that I discussed Number two typically in a bare market which is what we have right now in a bare market we do
• 12:00 - 12:30 get vicious vicious deadcap bounces counter rallies etc However the market very rarely does it bottom and rally in a V-shaped kind of structure Typically what happens is you get the selloff right very sharp sell-off small counter rally second second decline we form a double bottom with a bullish divergence and then we get the rally This is very common in bare markets and I'll show you I'll show you a lot of examples in a
• 12:30 - 13:00 second here Yes we have the gap but it also serves as a very clean level to set up that first low and the double bottom kind of structure because the second low is around these prior highs from the 2021 market top Right so if we are going to form some kind of bottom at 480 we do need to get a bounce at 490 then an undercut of 490 tag 480 and then get that counter rally that lasts anywhere
• 13:00 - 13:30 between 3 to 6 weeks something like that And that's why in my opinion that level makes sense as well If I take a look at the RSI we're now at an extreme oversold condition And again for a bullish divergence we need the bounce then another decline undercut that low and for the RSI to form a slightly higher low That typically gives us that double bottom of the bullish divergence and sets us up for a nice counter rally We're not there
• 13:30 - 14:00 yet but we're getting closer Now let me show you why this kind of why this kind of structure is important in a bare market Let me show you exactly what I'm talking about This is 2022 The bare market began in a very similar kind of structure to where we to what we have now We have the first breakdown Then then we got the small counter rally second breakdown double bottom with a lower low higher low on the RSI that sets us up for a counter rally Okay we have
• 14:00 - 14:30 multiple examples of this Again we have this very severe sell-off We had this low counter rally came back down formed a slightly lower low that set us up for this counter rally Okay even the October bottom of that year same thing massive sell-off right counter rally and then we came back down form slightly lower low bullish divergence and that set us up for the next wave higher So that's what
• 14:30 - 15:00 I'm looking for right now Now I actually put out a note last week in the Discord trading community 490 was my uh downside target for this month Actually about around 495 to fill this gap We've already exceeded this level in the pre-market session We're about to open at that level And again we have one two and the third gap is typically the exhaustion gap Here's another example right first gap second gap and then the final gap That's the
• 15:00 - 15:30 exhaustion gap and then we got the counter rally Here's another example from the 2020 crash First gap second gap this is the third gap because we opened significantly lower That was the exhaustion gap and then we got the counter rally And even if I go back all the way to 2008 we see that exact same kind of structure right first gap second gap third gap is the exhaustion gap and then we get a big counter rally Typically guys the first counter rally
• 15:30 - 16:00 is not the bottom We usually go all the way back down undercut it and then we kind of start forming a basing structure So even if we get a really powerful counter rally just be aware it is not the bottom Typically we go back significantly lower and undercut that low And that is typically the actual bottom Okay So what's my downside target for the year my downside target for this year is around 440 That means we go all
• 16:00 - 16:30 the way down to this level This is the breakout level from that September October bottom in 2023 This was the key breakout level It is also the golden pocket from the October 2022 bottom all the way to the February 2025 top This is the golden pocket So this is my conservative objective downside target for this year for next year However next year I expect the market to very likely continue significantly lower likely even
• 16:30 - 17:00 undercutting the bare market low of 2022 and going all the way back down to this cluster of trades around this level This cluster let's see around 260 Let's see what that means 260 is about 58% So just 1% lower than the uh 2008 recessionary crash That's kind of my base cases right now where most of the declines actually happen either very late this year or early next year So
• 17:00 - 17:30 that's the medium-term short-term and long-term outlook Let's talk about some some more shortterm structures and signals Let's talk about the VIX for example This is the VIX futures We already have this huge gravestone dogee The last time we were this we had this extreme of a reading The market was actually forming a bottom and bouncing and it ended up bouncing the next day We're kind of in that we're kind of in
• 17:30 - 18:00 that situation right now This is the S&P 500 futures down below Uh VIX up top which is the volatility index We have this gravestone dogee at the top and this hammer candle at the bottom Typically that indicates that we are going to see a counter move very very soon and that the VIX is very likely topping Just be aware that when the VIX stops that's typically not the actual bottom in a bare market Typically what happens is we get the VIX top and then
• 18:00 - 18:30 we get another slightly lower high and that divergence gives us the actual bottom Okay that's very important in bare markets Always look for divergences the first counter move is is almost never the actual bottom Typically we always come back break that low form a divergence and that ends up being the actual tradable bottom So just keep that in mind Again this is the VIX We have this huge huge red candle
• 18:30 - 19:00 Expect something that looks like a hammer candle something that looks like this some kind of dogee Same thing with the SM for the S&P 500 today except I expect to see something that looks like a gravestone dogey something like that to indicate capitulation And here is why If I take a look at the bullish percent index for the S&P 500 we are now at an extreme reading And we're probably one day away from a very very extreme
• 19:00 - 19:30 reading Right 25 is a is is a very low reading And it typically corresponds with an actual tradable market bottom Right here's an example This was in uh late 2023 It corresponded perfectly with a market bottom Again perfectly with a market bottom And every single one of these spikes down has corresponded with a market bottom and some kind of counter move right every single one of these So
• 19:30 - 20:00 we're now in that extreme oversold reading where we should start to look for a some kind of counter move happening fairly soon as the market opens Let's see in about a couple of minutes here we will very likely see the bullish percent index for the S&P 500 cross significantly lower and come all the way back down to around the 15 reading for those very extreme readings Again if I take a look at the bullish percent index for the NASDAQ 100 again very low rating around 15 Again
• 20:00 - 20:30 these have corresponded with market bottoms in the past and counter moves So that means we should expect very soon a counter rally in tech likely happening as early as Tuesday that is tomorrow Now if I take a look at the Coen high low index actually we're not quite at the 0.5 reading We're not quite there yet This tells me likely again we will see more downside
• 20:30 - 21:00 to come and that may very well be today Monday we where we go all the way down to 0.05 Typically the coen high low index is not a great indicator at calling bottoms However one way to improve it I found is that you will need to wait for a bullish divergence first and that divergence typically calls the bottom What what does that mean we go down to 0.05 get a counter rally then move back
• 21:00 - 21:30 down That second dip is typically the actual bottom Look see it is that that ends up being the actual bottom again Not the first one Second dip That typically is the actual bottom Again not the first dip the second one That ends up being usually the actual bottom in a bare market In a bull market 0.05 is enough In a in a bull
• 21:30 - 22:00 market 0.05 is enough In a bare market it is not enough We need to first establish a bullish divergence I'm trying to keep this very short guys I'll come back with a more comprehensive video update But for now that has to do it Let's talk about the upcoming events for this week Two major events FOMC minutes on Wednesday and then CPI and PPI later this week These are going to be the biggest market moving events this week plus all the news all the news
• 22:00 - 22:30 about retaliatory tariffs from the EU China all these big economies So stay tuned Very likely we're looking at some kind of counter move beginning as early as tomorrow and then we get a counter move and then we move back down to 480 to establish some kind of bullish divergence and then we get a larger counter move