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Is Another 1987-Type Market Crash On The Way?

Stock Market
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EDITOR'S NOTE: Gains, Pains, and Capital asks a very simple question. Are we setting up for another 1987-type crash? Their answer is unnerving. The blog presents evidence that we are at the tail end of both a stock market and Treasury bubble that is on the verge of bursting. While no one can predict when a market crash will happen, they do present some major signs to look for that will precede a crash. One of those is to keep an eye on the most heavily weighted companies on the S&P 500. When those stocks start to “break” bad, we’ll know we’re in trouble and heading for another 1987-like nightmare scenario. 

Over the last few weeks, I’ve been outlining the clear evidence that stocks are in a bubble, arguably the largest stock market bubble of all time.

In truth, however, it’s not just a bubble in stocks, it’s a bubble in Treasuries, which the Fed has manipulated to absurd levels via over $2 trillion in Quantitative Easing (QE) during the last 18 months.

These bonds are the senior most asset in the current financial system. Their yields represent the “risk free” rate of return against which all risk assets (including stocks) are valued. So, when the Fed created this bubble in Treasuries, it was creating a bubble in Everything, which is why I call this the Everything Bubble.

Of course, this begs the question… when will it burst?

Put another way, when does THIS happen?

stock charts

Predicting the actual week, let alone the day, of a market crash is all but impossible. However, there are certain key developments that MUST happen for the market to crash. 

Think of them as BIG warnings, or the FOUR Horsemen that precede a stock market apocalypse.

What are they?

The most heavily weighted companies began to break down badly.

Technically, the S&P 500 is made up of 500 companies. However, each of those 500 companies don’t receive the same weight from the index. Rather, certain companies receive a disproportionate weight giving them a much larger impact on the market’s price action.

Because of this, in order to get a crash, you need the heaviest weighted stocks to break down badly. Even if most of the 500 companies in the overall market are in a downtrend, if the heaviest weighted stocks DON’T break down, it’s pretty much impossible for the overall market to crash.

I’ll outline precisely how this played out before the 1987 Crash (arguably the worst single-day collapse in stock market history) in tomorrow’s article.

In the meantime, if you’re concerned about another crash hitting stocks soon, I recently detailed certain key signals that flash before every market crash in a Special Investment Report How to Predict a Crash.

To pick up a free copy, swing by

Originally posted on Gains, Pains & Capital.

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All articles are provided as a third party analysis and do not necessarily reflect the explicit views of GSI Exchange and should not be construed as financial advice.

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