When I write this article, I feel quite pessimistic about financial market in the being time. There are too much drawbacks which could cause aggressive sell off in next weeks: Geopolitical insecureness in Crimea, slowdown in China are two main major topics last week, and those two topics are also the reason caused the sell off last Thursday. Unfortunately, those incidents haven’t relieved yet, it will be pushed to higher level in this week, and I alert potential big jump of SPX next week. Before go to the detail, I recommend all traders should read this article:
Firstly, I mention to Crimea Referendum. I have reasons to worry about this Referendum. Why ?. Certainly, Crimea people would vote for the secession from Ukraine and re-join Russia Motherland, and EU as well as Washington dislike this. What I care is not the result of the Referendum, I care what will EU and US react after the Referendum; this would affect to financial market. Talk a little bit about this crisis; Putin and Russian seem over confident about their ability in control the affair, they think that strong military could threat Western, this is not COLD WAR, the difference between Soviet Union and Russia now is that Soviet Union didn’t have Stock Market , Russia has Stock Market, Putin should not ignore “invisible hand” which adjust the market. Economy always plays the deciding factor, not politics. Absolutely, I must keep neutral viewpoint about political incident, so I don’t go further, I come back Crimea Referendum. EU and US would have actions to payback, Russia could be isolated, and no one wants to come Russia to invest. Russian investor (plutocracy) would withdraw their capital in US. Please refer:
They withdrew more than 100 bln from US financial market last week. It means they are worry about punishment of US. No matter what happens, we should wait after the Referendum, and the reaction of EU and US, observe what they will do to payback Russia. We don’t know how far this incident will go, and the uncertainty could trigger sell off force.
Regarding to slowdown in China, simply China economy reached its limit; it cannot maintain GDP 10% per year, simply China needs to adjust their target; the rest of the world should adapt this change: to nourish 1.3 bln population is not simple. The slowdown in China would impact greatly on dependent countries such as Japan, Australia. You can check the reaction of Nikkei225 last week to see clearly.
Lastly, I talk about FOMC Minutes on Wednesday. Certainly, FED will continue unwinding its Stimulus. They will taper by 10bln more, and this benefits for USD, but I am not sure whether it benefits for Stock market unless FED has some support comments such as “we believe in the long term of development in economy …..”
In short, I have four scenarios on the table now:
- Crimea Referendum causes and FOMC Minutes lifts up SPX as well as USD.
- US and EU don’t have any action to payback Russia after the Referendum, it means nothing occurs, FOMC Minutes would lift up the USD, SPX .
- US, EU pay back drastically, and the sell off force would cover FOMC Minutes.
- FED has no comments, continue tapering; US and EU react strongly; this is the worst scenario, no one could save the financial market, you should sell any stock you hold and buy USD immediately.
I don’t have any idea for TA currently because FA dominates all , I pay my attention in FA, but I show one critical point on the chart, SPX would test this level next week.
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