Is the US Stock Market on the Verge of a Crash?

After spending several months hammering out a top, US equities entered August 2011 facing a growing number of storm clouds (impending US downgrade, US recession fears, renewed eurozone turmoil). On August 3rd stocks appeared to be in free-fall when a late session rebound back into positive territory gave bulls hope that perhaps the worst was over:

Click to enlarge

Bull_Trap_2011

 

From Stockcharts.com: “Hammer candlesticks form when a security moves significantly lower after the open, but rallies to close well above the intraday low. The resulting candlestick looks like a square lollipop with a long stick. If this candlestick forms during a decline, then it is called a Hammer.”

In August 2011 the S&P 500 had just broken below the widely watched 200-day moving average. Last Thursday the S&P 500 broke below the 50-day moving average and the 6+ month uptrend line in one fell swoop. In addition, Friday afternoon’s rebound printed a hammer candlestick for the session – not too dissimilar from the candlestick formed on August 3, 2011:

Bull_Trap_Hammer

The patterns are eerily similar – in 2011 it was Europe which pushed US equities over the cliff, will it be China this time?