Alert Issued for the Current Market Structure

As a courtesy, I am reaching out to you to give you a heads up about where markets stand and the extremely likely direction of where they are headed. This is just something to consider BEFORE the next round of losses occur and accumulate in the markets. As they say: “An ounce of prevention is worth a pound of cure”.

That said, let’s get into it. Yes, I am still looking for another big downdraft in markets. Especially with spiking Covid Cases globally and in the US, curfews and lockdowns being started again, expectations of a heavily contested election and the reality of no stimulus coming any time soon. (Also, remember we are still in a recession/depression)

Markets are currently at record valuation levels, as measured by the Total Market Cap to GDP ratio, are now twice as bad as they were at the peak of the DotCom Bubble:

TMC Vs GDP Ratio

Looking at the bigger picture to show you the pressures building in the markets is the VIX (Volatility) Index. It runs opposite to the markets, when VIX goes higher markets drop lower.

Daily chart: you will see back in February the VIX moved into a higher sustained range from 1/28 up to 2/28 then it exploded higher into March. See on the right side of the chart it moved higher on 8/21 and has stayed up since then, similar to the February setup. Also note that this entire period since the March bottom, VIX has been at a higher level during this entire period than it was before the crash. Stresses have stayed in the market structure and are getting worse.

VIX Daily Chart

Weekly chart: you can see both of the periods clearer, especially toward the right hand side.

VIX Weekly Chart

Monthly chart: Look at the 2007 into 2008 period and how the middle blue line moved higher and supported the 2nd thrust higher into 2008. Now look at today on the Right side, the same upward movement of the middle blue line supporting another crash higher (markets lower) just like in 2008.

VIX Monthly Chart

In addition, Sven Henrich (a Technical expert that I follow) has been detailing an expanding megaphone structure indicating the next downward thrust in markets would target the S&P 2000 – 2200 level at the blue trend line. (He was correct on his previous technical levels call in early February and you can see the crash in March to the lower blue trend line).

Expanding Megaphone

Also, his wife (who he admits is even smarter than him) late last year called for a VIX explosion in the 1st Quarter of this year to hit the 80 – 90 level. VIX Hit 85 as you can see below. She is now calling for another massive VIX explosion higher in the 4th Quarter (which started on Oct 1st). Which would mean another BIG downside move in the markets. (i.e.INVESTMENT LOSSES)

VIX Prediction

 

If nothing changes or gets better (Which it won’t because The Fed will not make their next stimulus action until AFTER the next crash) then you can see that the technical picture and everything else is supporting another plunge lower in markets.

BTW, look at my recent LinkedIn post: https://www.linkedin.com/posts/activity-6718563954383216640-6Pbn

“BofA – “The S&P 500 Index could end up somewhere between 2,200 and 4,000″

NEW YORK (Reuters) – Bank of America Corp’s BAC.N strategists cut their year-end forecasts for the S&P 500 index twice this year, trailing the U.S. stock market as it plummeted in a coronavirus-induced panic. Then, as the market rallied past those revised targets in the ensuing months, the strategists followed by increasing their estimates.
Now, the bank’s researchers, led by head of U.S. equity strategy Savita Subramanian, say of their year-end price target for the index that the “range is wide.”
They currently are forecasting that the S&P 500 will end the year at 3,250 – a level that is just 50 points below what they had been predicting in January. But the index could end up somewhere between 2,200 and 4,000, depending on the course of the virus and the economy, wrote Subramanian and colleagues in a Sept. 3 note.”

Kind of coincidental that BofA’s downside view lines up perfectly with Sven Henrich’s at the 2000 – 2200 level !!! (And that’s just to start with)…

What we covered here is a lite preview of everything I will be going over in our Q3 Market Update Webinar this coming Thursday Oct 22nd @ 4:30pm. The Zoom info can be found below.

 

You are invited to our online Zoom webinar: Q3 2020 Recap & Market Update.
When: October 22 @ 4:30 pm
Topic: Q3, 2020 Recap & Market Update

Please click the link below to join the webinar:
Q3 Quarterly Update
Password: 101287

Or iPhone one-tap :
US: +16699006833,,91377894582#,,,,0#,,101287#

Or Telephone, Dial:
US: +1 669 900 6833

Webinar ID: 997 6580 6453
Password: 101287

International numbers available: https://zoom.us/u/aeF1UYv7I1

 

Finally, you can always find our MOST RECENT “Model Fund Performance Graphs” (Updated Weekly) here: HK Wealth Management Fund Performance

See you online Thursday,

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