According to technical analysis theory the rising wedge points in the opposite direction to the breakout.
In this hourly chart of the coronacrash we can clearly see the rising wedge pattern formation.
This pattern also predicts that the length of the move into the wedge “X” is the same distance as the length of the break-out “X”.
Therefore X = X.
The downtrend into the wedge was a drop of 1,000 points, ergo the breakout will be a 1,000 point drop. Caveat. I have back-tested stock chart patterns and they are not 100% true, but in general, they are better than 60%.
That’s not saying much.
Mostly the direction will be set by the news, especially today with 2 big news items. 1. GDP Advance Announcement – Productivity in the Economy 2. GDP Spending – very important for the economy and sentiment, spending drives the economy
I expect both of these to be bad numbers, but will it be the start of the resumption of the much-needed downturn in the market?
Not necessarily.
The “Trump Pump” will be in full effect I am sure with a new announcement of stimulus designed to boost spending and therefore save the stock market. It will be interesting to see if the technical analysis Rising Wedge is predictive in this case, or will ultimately fail because of government intervention. I believe the monetary policy is now to encourage healthy inflation above 2% and keep interest rates at close to zero for the next decade, to ensure the debt burden is reduced over time. As Ray Dalio calls it a “Beautiful Deleveraging”.
An interesting day ahead, and be sure, the only thing that can save Trump’s re-election campaign is to ensure the stock market does not collapse, and he will do everything to save it.
Stay safe and like and follow if you want more.
Barry
Comment
⋅
Latest Headlines BBC - Up to Half of Global Workforce could lose jobs. Bloomberg - US Economy Shrinks at 4.8% Signalling Recession. THE STOCK MARKET RALLIES!!!!!! TRUMP PUMP
Comment
⋅
Ouch, looks like a break of the Rising Wedge, on a vicious day of trading.
Comment
⋅
Another fail to break the resistance day today...pressure is building
Well, the market can be irrational much longer than some can stay solvent. I say, follow the trend, and that trend is UP for now with moving averages in play that were not a week ago. Most of the negatives have already been factored in for now and it is not going to get worse from here on out. Good luck longs and shorts!
MystryBox
⋅
@franknzupan, IMO none of the negatives have been factored in. The market is living on hope of a quick recovery after the shutdowns are lifted. Meanwhile the market has just been ignoring the ever growing list of depression-level economic factors that have been piling up. Once the shutdowns start to be lifted, and the economy doesn't immediately rocket back, there's a lot of ignored problems the market will have to eventually face. I don't expect it will be pretty.
franknzupan
⋅
@MystryBox, 2/3 or more of companies of reported earnings. Restrictions being lifted across the country. Over the top of the curve on COVID-19. Kinda clear that the worst is in the REAR mirror. Good luck!
MystryBox
⋅
@franknzupan, you are out of your mind. We just had the worst jobs report in history. We've been shedding jobs faster than during the Great Depression and the Fed predicts an eventual unemployment rate of 32% (the peak of the Great Depression was 25%). All those unemployed are not going to be spending, and anyone with half a brain (individuals and businesses) will also cut spending just to be safe--so where will the rebound be coming from? Who is going to spend? Airlines, rental cars, cruise lines, casinos, restaurants, shows/concerts, pretty much everything leisure and oil related, it's all been decimated already. Most existing businesses are feeling a pinch and if there is not a significant rebound many of them won't be surviving for long either.
The markets are being juiced by Fed money, but it's just money, it's not economic function. The Fed can't write a check and create employment, demand, functioning supply chains, etc. So what happens weeks from now when all that money is spent but business and the economy still aren't functioning as they were?
We can look to the past and see what happens... all the debt the system runs on will come under pressure and defaults will accelerate. And all the people that depended on getting those defaulted debt payments won't be able to pay their debts either. Then there's more defaults, more unemployment, more business failures. And that leads to more cutbacks, more unemployment, even less spending. It's a viscous circle and it's called a deflationary spiral. That's what we're facing, just like the 1930's only it happened even faster. That's the future once the sugar-coated rally runs out of Fed-fuel.
franknzupan
⋅
@MystryBox, Exactly! We just HAD is PAST TENSE!!! lol
MystryBox
⋅
@franknzupan, no, we haven't had the results yet. Businesses are holding on hoping someone will start to spend again. But it ain't going to happen because nobody has a fucking job anymore. It's easy to shut an economy down (surprisingly!)... to paper over the initial defaults with free money... but it's not so easy to bring it all back to functioning again. We haven't seen that yet. And based on everything we're seeing, it's not going to happen like people like you are predicting.
franknzupan
⋅
@MystryBox, actually the results came out this morning and you just said so yourself. We just had the worst jobs report in history. Yes, that is part of the picture. Even the weekly unemployment claims are trending down now and businesses are opening back up slowly and YES...this will take time, but the market is a forward looking mechanism. It is called consolidation...that is where we are now. You'll never see new lows in the S&P 500. Could the market pull back 10% - yes. Will there be more bad news in the future. YES! The market knows that and that is the very reason why the devastating jobs report did not crush the market today.
MystryBox
⋅
@franknzupan, sorry but a market that is being pumped by the Fed is not telling you anything except there is a pump. GDP is already crashing. Bloomberg predicts a 40%(!) GDP contraction from this unemployment number. We've been rallying the entire time on Fed money, so where is the true market response that confirms all this bad news? Eventually the market will fall to retest lows and find fair price. That's what a market does when it's allowed to function--it goes up and DOWN to see what levels hold and which don't. That's the only way anyone knows what an actual fair market price is.
When Fed money is spent and the market turns and tests lower again, everyone will suddenly notice, "gee, nobody is employed, GDP has crashed, and stocks are the most overvalued in history... maybe I should sell." It's going to be the most horrific market crash the world has ever seen, and it's been caused by the Fed making the market LIE. Lies can't cover the truth forever.
MystryBox
⋅
@franknzupan, here's two questions for you to ponder:
1) Where is the spending/demand going to come from to get things back to normal when there is so much unemployment and businesses and people are cutting back?
2) Where will the market go when the rally eventually turns and there is a massive, ugly, double top on every major index?
franknzupan
⋅
@MystryBox, I can understand your frustration with a market that makes no sense! We should have been down today and down BIG! The market had other ideas. Bumping up against resistance, but like I said before - CONSOLIDATION. All the information you put forth could be truth, but the market looks ahead and it looks right past that horrible job's report today. I can't predict the future, but the market is saying something LOUD and CLEAR. Good luck to all!