RED ALERT — Get ready for a 'severe fall' in the stock market, HSBC says
HSBC's technical-analysis team has thrown up the ultimate warning signal.
In a note to clients released Wednesday, Murray Gunn, the head of technical analysis for HSBC, said he had become on "RED ALERT" for an imminent sell-off in stocks given the price action over the past few weeks.
Gunn uses a type of technical analysis called the Elliott Wave Principle, which tracks alternating patterns in the stock market to discern investors' behavior and possible next moves.
Gunn uses a type of technical analysis called the Elliott Wave Principle, which tracks alternating patterns in the stock market to discern investors' behavior and possible next moves.
In late September, Gunn said the stock market's moves looked eerily similar to those just before the 1987 stock market crash. Citi's Tom Fitzpatrick also highlighted the market's similarities to the 1987 crash just a few days ago. On September 30, Gunn said stocks were under an "orange alert," as they looked to him as if they had topped out.
And now, given the 200-point decline for the Dow on Tuesday, Gunn thinks the ｄrop is here.
"With the US stock market selling off aggressively on 11 October, we now issue a RED ALERT," Gunn said in the note. "The fall was broad-based and the Traders Index (TRIN) showed intense selling pressure as the market moved to the lows of the day. The VIX index, a barometer of nervousness, has been making a series of higher lows since August."
Gunn said the selling would truly set in if the Dow Jones Industrial Average were to fall below 17,992 or if the S&P 500 were to dip under 2,116. The Dow closed at 18,128 on Tuesday, while the S&P settled at 2,136.
"As long as those levels remain intact, the bulls still have a slight hope," Gunn said.
"But should those levels break and the markets close below (which now seems more likely), it would be a clear sign that the bears have taken over and are starting to feast. The possibility of a severe fall in the stock market is now very high."
Watch out.
Vocabulary Words:
1. Red Alert - (noun) a situation in which you are prepared for something dangerous to happen a warning of this
2. Sell-off - (noun) the sale of a large number of stocks and shares, after which their value usually falls
3. Discern - (verb) to know, recognize or understand something, especially something that is not obvious
4. Top out - (phrasal verb) if something tops out at a particular price, speed, etc. it does not rise any higher
5. Intact - (adj.) complete and not damaged
6. Severe - (adj.) extremely bad or serious
Discussion Questions:
1.What springs to mind when you hear the word ‘stock prices’?
2. Do you follow the ups and downs of the stock market? Why or why not?
3. What do you think will hapen if stocks prices fall?
4. What causes stock market crashes?
5. Would you advice people to invest in stocks? Why or why not?
