It really doesn’t make my morning to wake up with the phrase ‘Dow at incredibly low levels’ ringing in my head sas if I was receiving a direct message from the ‘choir invisible.’
Having said that we could be at the beginning of a historic crash.
Everything is right for it. The market is extremely high, we have a trade war sand the political picture is next to terrifying. Nasdaq is a bubble. There is reverse-QE
However stock tips from the other side should not be taken as law, in the same way as stock charts are not destiny.
My long term thesis is the market will be held in a sideways range by the Federal Reserve as they de-lever their balance sheet. This reverse-QE is now about a year old and its ramifications around the world are serious punching a hole in dollar funding in many smaller markets and generating a lot of economic pain. All those perky, swaggering emerging markets are not so dynamic now they have to struggle to find dollars at a price that doesn’t hurt.
This is a process we say after the dotcom crash.
The Federal Reserve has the reverse-qe/QE lever to pull and push and this is directly connected to equity prices as the cash chases profitable interest bearing ‘carry trades.’
As the economy grows the money being removed by reverse-qe should be replaced by money created by new economic activity. So the Federal Reserve can navigate their reverse-QE process to hold assets values at a level until new monies take on the role of providing liquidity.
In this model, we should experienced a series of corrections in a sideways channel as per 2000-2002.
If this isn’t what is going to happen then market crashes are very much on the cards.
As evidence, this year the Federal reserve has QE’d against the flow of its planned reverse-QE. It is also clear that crashes are now anathema to regulators to the extent that it is now in their remit to prevent them. Adjusting reverse-QE is a way of preventing this outcome and so far the reverse-QE process has been trouble free.
So how do we know if we are in this benign environment or if we are in a laisse-faire, ‘crash can happen’ dynamic instead.
The simple answer is we don’t but I think we can look at the past and see foot prints.
It makes sense for there tyo be a well followed moving average as a guide for this kind of operation. Even if it isn’t we can still see this level provides an indication of extreme support.
As such if the market stays around the 200MA Im going to be sanguine. If it breaks south by much then all bets have to be off.
If we get here then I would tend to want to follow the dream voices in my head.
You don’t have to know much charting to see a huge ‘head and shoulders’ but as always charts only ever accurately predict the past. Sometimes that past can give you the edge.