Rashad
Short

Am I really the only person who sees this?

AMEX:SPY   SPDR S&P 500 ETF
740 12 12
An inverse correlation to the energy sector seems to proceed every market downturn. Additionally, does it not disturb anyone that American Economy has been doing relatively OK over the last 2 years while the global economy is stagnating? Resistance is being strongly tested at the 161.68% retrace from the 2008 low.

My Thesis
I believe low commodity prices will put pressures on emerging markets, and capital will continue to flow out of foreign markets. Rising rates will strengthen the dollar to critical levels which will put pressure on governments in emerging markets who borrowed in USD. As they default, this will begin to pull down the foreign equities . As a result, investments may continue to flow into the American market. This could also cause an overshoot of my resistance level.

Why will a strong US Dollar             will crash the market?
Very Simple. Energy prices are low right now, and billions were borrowed in order to extract oil             . As the dollar strengthens, global economies may weaken, and this may make it harder for these oil             companies to find buyers. (less business being conducted equals lesser need for oil             ). This will in turn will lower demand for oil             pushing the price down further (A spiral if you will). These defaults will lead to ripples in the economy which could result in massive layoffs and other social unrest. As Assets sell off, this could lead to economic deflation, thus a recession is born!

How bad will the market sell off be?
Besides energy, other areas of the economy seem fine for now. I think the S&P             selling off to 1550 points in 2016 is very reasonable.
Rashad
11 months ago
Yes I know I said every after every... Everyone makes typo's now and then... lol!

Interested in hearing some feedback. I'm sure this won't resonate well with the permabulls...
Reply
RationalTrader
11 months ago
Why would an market that almost all years turn up suddenly turn down for a longer period? we are just moving out of a correction aren't we...everyone know the oil will stay low in 2016. but S&P only cosist of mere 6% energy companies....consumer goods and other sectors are taking over and the market is correcting itself and turning upwards again...I don't think we will have to wait very long for the S&P to at least hit 2100. The market is volatile..surely is, but it S&P will recover its bullparade I am quite sure.

The only reason the US interest rate is raised btw is to correct inflation and reach the inflation target of 2% IMO...FEDs will calibrate to reach this target. An increase in interest rate is a sure sign of a healthier economy - and not so much more.
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Rashad RationalTrader
11 months ago
Two things. 1. Nothing in life is certain. 2. The Fed was EXPECTED by the market to raise rates. This is already priced into the market. Why do you think when the FED Raised rates the EURUSD pair did not move significantly? The Fed has to raise rates in order to instill confidence. No matter how toxic an investment is, if investors are confident that an investment is great, it might as well be great.

Cheap oil will have a short run positive effect on consumer staples and discretionary, in America. Do not forget that alot of these companies make substantial portions of their profits selling goods overseas. Those countries rely on commodity exports for alot of their wealth. Therefore as commodity prices plunge, they will have less money to spend, thus there will be less consumer discretionary spending, which should reduce the profits of many multinational corporations.

The second effect of cheap oil is that it WILL lead to hundreds of defaults on billions of dollars of debts in the Energy sector. Is this not at ALL disturbing to you? As these companies default, a large amount of people will lose there jobs. Many states in the south will experience the Energy Crisis much early than the Northeast. These people will spend less money, and maybe default on their personal debts, etc. These effects then ripple through the economy, etc

The third effect of falling oil and falling commodity prices coupled with rising rates is a strengthening US dollar. A lot of sovereign nations borrowed money denominated in the US dollar. As the US Dollar strengthens, it becomes harder for these countries to pay there debts, thus defaults should occur. Defaults in emerging markets should lead to a contagion effect in global equity. Don't forgot that the US market IS correlated to the performance of global equity.
+2 Reply
RationalTrader Rashad
11 months ago
Good arguments and valid points that are true...its just the problem that it's very hard to beat the market remember, and this is a bull market. Take a look at my ideas, and you might change you mind. I'm not saying to expect any fast gains in this market, and it might get quite volatile, but the YOY will be positive I am quite sure. Oil is a commodity loosing it's ground, and becoming less and less needed...market are forced to readjust and find other ways of making money, -and I'm quite sure they will.

Again regarding the strengthening of USD, don't you think this has already been for sure well thought through before the FEDs actually decided to increase the rent.

Anyway time will tell:)


..And btw I am an Norwegian, and as you might know we export a very large amount of oil. Lots of lots engineers have lost their jobs, still we're holding steady against other currencies as USD, strange isn't it:s
Reply
Trance-Man RationalTrader
11 months ago
See news out on OIL and OPEC just now, yay. But oil is pushing at resistance, might turn out to be a non event, we will see. OPEC less of an issue these days as well, do I care about them, not alot.
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Rashad Trance-Man
11 months ago
We should care about OPEC because they have they could have the power to influence the price a vital commodity. Oil is pushing a major support line, a nice bounce would be much welcome and could help to offset a downturn. In fact it is very important that oil prices rise. A lot of leverage was taken out to extract it. If people can't make money selling it, that could surely send ripples through credit markets.
Reply
Trance-Man Rashad
11 months ago
Asia down over 560 (Hang Seng). I meant I don't care about oil, it's a disgrace for over 100 decades. I am big-time short the markets. For the record.
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RationalTrader Trance-Man
11 months ago
you never know what OPEC does...one thing is sure, do they care about other countries..I don't think so hehe.
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Rashad RationalTrader
11 months ago
Here is a short video and article from Yahoo Finance I think people should see. It helps to illustrate why I don't completely have faith in the fed.
http://finance.yahoo.com/news/-475-billion-year-end-fed-auction-suggests-more-problems-in-credit--mutual-funds-023901085.html?soc_src=mediacontentstory&soc_trk=fb
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Trance-Man
11 months ago
Well said, Amen. Agree.
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RationalTrader
11 months ago
well Chinas negative PMI data today surely gave the index quite an impact:s the MSCI world index of course have a big impact on export for S&P companies, therefore they are quite correlated, probably have some of the same companies in the index as well of course.
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kevinmick
11 months ago
great chart and great call for this past week
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