Hi friends! Welcome to this update analysis on the S&P 500, via the E-Mini futures contract. Let's get right to it!
In front of you I have two charts. On the right, is the current weekly S&P chart. On the left, I have the same chart, but looking at the fall during The Great Recession. If you have seen my previous analyses comparing today's market condition to the market during 2008, you know that I have exposed undeniable fractal similarities in the two markets. Today, we're going to assess how things have been progressing, since the last comparative analysis.
As you can see on the current chart, after the head and shoulders broke down, we touched the bottom of the new downtrend channel (in blue.) That was the deep selloff that we had in the market during late December. Since then, we have rallied powerfully off of the bottom of the downtrend channel, exactly as we saw in 2008. However, things are slightly different today. We can see on the 2008 chart that the S&P rallied off of the bottom of the channel, but never really made it to the neckline of the head and shoulders pattern. That is a slight contrast to today's market, which has surpassed the neckline of the head and shoulders pattern, but has found resistance at the 50 EMA (in orange.) As I said, this is slightly different than what was seen in 2008, but the general pattern remains the same.
From here, if the pattern is to maintain a close symmetry, we should see a breakdown below the neckline. That would be an ideal price movement for the market to trade mostly in sync with the movement of 2008. Additionally, that would be a generally bearish price movement. Confirming the 50 EMA as resistance, as well as failing to hold the head and shoulders neckline as support, would basically be two major consecutive failures after a powerful rally.
I do believe that the market will continue to slide, even if we rally up to the top of the downtrend channel first. I believe that the top is in for the market, and we are in the process of entering a new bear market. A fall from here, would be a remarkable synchronicity with the price action of 2008, and an additional evidence of the fractal repetition. With that said, I have arrows on the chart to show what the S&P could do, if it continues to replicate the price movement of 2008. In such as scenario, we could see the S&P at about 1234 within 18 months.
In the short term, if the neckline of the head and shoulders is held, we could see another test of the 50 EMA. If that is surpassed, the top of the downtrend channel would be a wall for the rally. That would be a stark deviation from the price action of 2008,a
Be smart. Be nimble. Good luck trading everyone!
I'm the master of the charts, the professor, the legend, the king, and I go by the name of Magic! Au revoir.
***This information is not a recommendation to buy or sell. It is to be used for educational purposes only.***
-JD-
Comment
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Sorry, I meant on the left is the current chart, and the right is the 2008 chart.
question to the general public here:
Do you think the real estate market is in a bubble?
If a dollar crisis does take place (fed printing to save the economy and go overdrive), wont hard assets like real estate go up?
MagicPoopCannon
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@NQ95, historically, real estate has been a safe haven investment in recessions, because the Fed suppresses rates buys up assets, pumping liquidity into the market. That liquidity often gravitates to low interest rate investments, and their prices rise as a result. The 2007 recession was different, because it was created by subprime lending in the housing industry, so the real estate market suffered as a result.
Today's story is different. If you notice, the market has reacted incredibly negatively to the minor 0.25% interest rate hikes, even though we're still at record low rates - only 2.5%. That tells me that businesses, and particularly consumers, cannot tolerate these rate hikes. Just look at how real estate has already responded. That is a sign of underlying weakness in the consumer. Now, we have to ask "why?" In my opinion, it is partially because debt is growing rapidly while wage growth is stagnant, in addition to many other factors. In other words, people can't afford higher rates, because they're already so indebted.
This is a major problem. I do see more downside in the market, and I do see the Fed attempting to rescue it. I wouldn't be surprised to see more QE, or negative interest rates, meaning the banks will charge you for your deposits. That could be implemented to encourage money movement in the economy, but it would be an act of desperation. That isn't far fetched either. In 2009, rates were at 5.25% and the Fed had a relatively clean balance sheet. Now, the market is much higher, and rates are less than half of 2008's, plus the Fed owns trillions in debt.
If the global debt crisis unravels, and China (for example) decides that holding US treasuries had become dangerous for it's economy, they could sell those bonds like junk bonds in the market. The Fed could lose control of interest rates, and rates could skyrocket, causing the national deficit to balloon out of control. These things are not at all far fetched, given that the global economy is nearly $250 Trillion in debt. Also, as soon as the market starts to collapse, I believe that corporate debt is going to weigh heavily on the economy. US corporations are severely over levered to debt, and they would falter greatly in the face of recession. Many need elevated share prices to sustain debt leveraging, but EPS growth has capped off, in my opinion. So, companies who don't have tremendous cash will go bankrupt.
All in all, I think the debt crisis is serious enough to rapidly spin out of control. Even QE and other Fed policy could fail to save the economy this time. With a debt crisis comes a currency crisis. And with a currency crisis comes war.
NQ95
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@MagicPoopCannon,
This is such a great read, I read it twice to make sure I digest it all. Appreciate your input to this question, didnt expect it
I wasnt aware that the corporations that have leveraged debt have collateral their own shares, so if shares go down then their "equity" is going down, this sounds like 2008 all over again, how insane.
Plus its scary that China could be the catalyst to the US crisis, by selling the humongous amount of bonds they're holding, I can easily see how this whole thng can escalate
NQ95
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@MagicPoopCannon,
I'm reading Dalio's book and he talks abou debt growing faster than income, like you do. the December non farm payrolls really took me by surprise though, mainly the wage growth... but could that also be a sign of the labor market overheating, or the start of wage growth, because that coupled with fed keeping rates stagnant would be a beautiful formula to get out of the problem.
Interest hikes should only come when theres too high inflation (symptom of overheat), like idk why theyre pushnig rate hikes so desperately, ruining all their 10 year work right at the end.
P.S Negative interest, banks charging for your deposits is all that BTC needs haha, "be your own bank"..
UnknownUnicorn1375590
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@MagicPoopCannon, Wow. I hope poop includes more macro picture alongside price analysis!
VisionCodeX
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@MagicPoopCannon, This level of analysis is needed in your Bitcoin updates! =D
earthling
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@MagicPoopCannon, YES YES! great read magic. All good points. Thanks. Also of note: people like to blame gov't spending, (which is a problem) but your comment about "people can't afford higher rates" is dead on target. I read recently the American People have 13 Trillion of personal debt in 2018, passing the old record set in 2008 by almost 300 billion. So here we go again ! And people will blame again. Often the govt here really is a reflection of what the American people are doing as well with their personal money...and we have the "victim / blame dynamic going on so well here in America which also shows up on this site. And since you mentioned "wage stagnation": another good read is : "the Economics of Inequality" by Piketty and "Irrational Exuberance" by Schiller. Things look grim. but... (I know this isn't TA) often imbalances and bubbles go on for much much longer than they ought to...
Netromforlife
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@MagicPoopCannon, Great great question and answer as well! I've actually thought about this question a lot of times. My brother owns an apartment in Copenhagen, and we have been talking about maybe he should sell. Alongside we thougt about the same: " wont hard assets like real estate go up?"
MCassICT
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@Netromforlife, @MagicPoopCannon If you haven't, I suggest reading Mark Blythe's book "Austerity: The History of a Dangerous Idea." I think you would find it rather interesting.
Do you think the real estate market is in a bubble?
If a dollar crisis does take place (fed printing to save the economy and go overdrive), wont hard assets like real estate go up?