...And just like that, the downside target was reached! Hi friends! Welcome to this update analysis on the S&P 500, via the SPY ETF! Lets get right to it!
Looking at the daily chart, you can see that today's candle fell exactly, and I mean EXACTLY to my initial downside target of 240.32. Price actually made a low of 239.98, but turned slightly higher to close the day at 240.70. If that isn't perfect technical analysis, then I don't know what is. If you recall from that last analysis, I said "Right now, it looks like a bear flag building just below the head and shoulders that SPY recently broke down from. And look, it projects a fall exactly to major support, at $240.32. Funny how those things work." When technical projections align perfectly with important levels, it usually turns out to be a deadly accurate indicator.
So, where do we go from here? Well, we will obviously have to see what happens on Monday. Now that the bear flag target has been reached, and price is sitting right on top of support, we will need to see how the market responds. Remember, the head and shoulders pattern above, projected a fall to the bottom of the rising parallel channel. You can see that with the red dotted vertical trendlines. Now, it's important to note that formations don't always produce breakouts that reach the full measured potential of the pattern. As I've said on many other occasions, I believe that the top is in for the stock market, and I believe that there is a high probability that we will break down below the rising blue parallel channel, that the S&P has been trading in since The Great Recession.
From a fundamental standpoint, you have to realize that earnings per share (EPS) growth has already peaked. Additionally, the market is CLEARLY acting extraordinarily negatively, to tiny 0.25% interest rate hikes. Folks, understand one thing, when a market like this, can't handle 0.25% rate hikes, while rates are at historic lows (only 2.5%) we have a MAJOR problem. Not to mention an inversion of the yield curve, economic pressure from the trade war, severely over-leveraged corporate debt, problems in Europe, such as Brexit issues, problems in Italy and France, and general economic tension in the Eurozone.
And what can the Fed do this time!? Cut interest rates? Reverse course? QE4? Interest rates are only at 2.5%! In 2007, the federal funds rate was 5.25% — more than double its current level. That means the Fed has little adjustment space, to jump-start the economy again. Furthermore, they already have a heavily inflated balance sheet, well in the trillions. So, they are increasingly powerless, to rescue this market (THAT THEY INFLATED) when it starts to collapse. And what will happen then? Corporations will default on the debts they are over levered against. There will be rolling bankruptcies, and we could be looking at an EPIC debt crisis as a result. That introduces the possibility that bond yields could collapse. Particularly, if we fall into a recession, that the Fed is unable to rescue us from. Bond yields would be in very dangerous territory, if China, Japan, and others were forced to sell US treasuries, to protect their own economies from economic turmoil. That would cause bond yields to plummet, because they would obviously not sell those bonds at a AAA rating, and then interest rates would skyrocket, causing the 22Trillion federal deficit to skyrocket, far surpassing GDP. That would literally cause the Fed to lose control of rates. Sound far fetched? I can assure you that it isn't.
This stuff may not happen immediately, but the stage is set. How can the damage be reversed? We are living in an artificially inflated economy, and the debt crisis that looms in the background is going to usher in the greatest financial crisis that humanity has ever witnessed. That's my opinion, and it is well justified. Do you realize that we have 116Trillion in US unfunded liability debt? $116 TRILLION! Don't believe me? Visit usdebtclock.org and see for yourself. Those numbers are generated directly from the Federal Reserve. Our unfunded liability debt is equal to 77% of the value of our national assets. That includes our military, our infrastructure, our intellectual property, our aerospace industry, our medical industry, tech, everything that America owns, is 149Trillion. We have a major, major problem, when debt accounts for 77% of our national assets. It may not happen immediately, but this thing WILL collapse. The Fed may kick the can down the road, and try to lower rates and start QE4, but they'd just be further inflating the greatest bubble of all time. I hate to be the bearer of bad news, but this is a very serious economic risk. That said, the risks that I have defined are my OPINION. I do not condone or suggest any financial reactions to this statement of my opinion.
If the rising blue parallel channel is lost, you can kiss this market goodbye. The selling will be swift and violent. The MACD is beginning to cross below the recent support level, showing a continued expansion to the downside. Sell-side volume is towering on the chart. We will see what happens in the coming sessions. It may happen immediately, but the chickens are coming home to ROOST!
Happy Holidays 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.***
I wonder if people will bail from the stock market and put all their money in Bitcoin as it begins it's bull run early next year.
mezase
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World collapses pn Monday
ant187
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Good read, what are you hedged with? I have about 20% of my portfolio into silver atm, which is fairly high. At risk of sounding like those old men that tell you to buy metals. Do you have any other hedges?
@just-give-me-10-percent, I'm sure he doesn't want to go anywhere near BTC after shorting the local bottom in Feb and longing the top in May. Scarred for life.
beck59
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@MrMarketMaker, Well with this scary bit of in site We are really left with too choices, Buy metals or Bitcoin, Bitcoin right now is at an undervalued price. I also went shopping today to meet some local gold dealers. I am scared to death, Not only is my IRA going to crash but I am in a business that is based on discretionary income. I think we are close to the end of the financial system as we know it
east-west_trading
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Another very simple thing that many of you might have picked up is the relationship between the death cross and the market testing that blue trend line off the bottom of the 2009 low. I agree with poop, if that line cracks, it's all over
ClaymorePT
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Mr. @MagicPoopCannon , sometimes... you scare the shit out of me...
When should you sell if you plan to sell out long term holdings in US equities?