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FxPro
Posts: 118
(@fxpro)
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Joined: 7 months ago

S&P500 may fall 93% before finding a real bottom

In 2008, SPX recovered about half of loss in March-May recovery, before fall much lower lately
SPX recovered about half of loss in March-May recovery, before fall much lower lately

In 2008, the Fed and JPMorgan Chase agreed on financing for the troubled Bear Stearns bank. Then it brought the markets back to growth for exactly two months. During this time, S&P500 has added 13%, winning back more than half of the downward dynamic from October to March.

Later, however, by the end of that May, optimism started to meltdown. In 2008, the worst for the markets was the realization that the problems are far beyond the banking industry. As a result, the index found its bottom only after 2.6 times deeper decline than the first wave from October 2007 to March 2008 – precisely at Fibonacci levels.

The application of the same model shows that the S&P500 index may sink to 230 (!), which is 93% lower than the peak. These are the lows last seen at the end of 1987. It looks like a unbelievable drop.

Recent recovery in S&P500 brought back 2/3 of its loss in February-March
Recent recovery in S&P500 brought back 2/3 of its loss in February-March

On the other hand, it is no more fantastic than negative oil prices, negative rates, and more than 20 million jobless growth in just one month, to its all-time highs in the postwar period. Approximately the same 90% the Dow Jones lost approximately the same, 90% from the peak before bottoming out on the Great Depression. Therefore, it’s technically impossible to deny this option.

It should by no means be considered a forecast, but only a warning that the worst for stock markets may be ahead, as the economy remains on the trajectory of sharp decline.

The stocks are supported by the demand for cheap securities that were strong in the past. However, the current market has not changed in any way. During crises, a multi-year growth paradigm is often broken, and the behaviour pattern is fundamentally changed. People have already changed their model, but markets have not yet. Plainly speaking, it is extraordinary to see this. Right now, investors have not yet started to spend their savings and still believe in eternal market growth. However, this is a dangerous misconception refuted by more than three years of a downward trend after the dot-com boom, 1.5 years of global financial crisis decline (since 2008), and ten years of the sideways trend since the 1970s.

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FxPro
Posts: 118
(@fxpro)
Estimable Member
Joined: 7 months ago

The dual nature of markets in 2020

The foreign exchange market is much more restrained.  The leaders of growth against the dollar since the beginning of the year are Swiss franc, Swedish krone, and Japanese yen. However, their increase is not even 3%. There is a much longer list of those currencies that have been seriously affected since the beginning of the year. Among them the Brazilian real (-25%), South African rand (-16.5%), and Mexican peso (-15.6%).

For the most part, the current picture of the currency market correlates with the situation around the coronavirus. Countries that were not included in the hot spot lists, as well as those that managed to provide an organized exit from quarantine, enjoy interest from buyers.

However, the franc, yen, and euro may well strengthen against the dollar if the situation with COVID-19 in the U.S. remains alarming. In this case, the Fed and the U.S. government will continue to pump the economy with dollars, which will reduce their value.

In fact, at the expense of such a policy, the U.S. artificially creates a model of economic boom, when money is cheaper compared to the prospects of economic growth. Dollars printed by the Fed and distributed by the U.S. government are used to buy stocks, among which a number of high-profile names are chosen.

It should also be noted that the interest in stocks is accompanied by the strengthening of gold. Seemingly in an attempt to insure against the declining dollar value. Gold and a number of other similar instruments can not meet the demand of all those who want to save capital from the loss of purchasing power of the dollar.

This boom in the American high-tech market also has a secondary effect that is positive for Americans: products and services are becoming more competitive in the world market due to the weakness of the dollar, but companies have more and more capital to expand. This means that if the U.S. currency weakens, U.S. policymakers won’t worry about it for a long time, opening the door for potential depreciation not only against the franc and yen but also against the euro and several other currencies. As for the stock market, the current division is likely to remain in place. Some companies make an adequate assessment of markets based on prospects and multipliers, whereas the capitalization of others is getting higher and higher because of the extremely favorable attitude towards them from investors.

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FxPro
Posts: 118
(@fxpro)
Estimable Member
Joined: 7 months ago

Silver Wave Analysis

 

• Silver reversed from pivotal support level 18.95

• Likely to rise to 20.00

Silver recently reversed up from the pivotal support level 18.95 (former multi-month resistance level which started the sharp (C)-wave at the end of February, as can be seen below).

The upward reversal from the support level 18.95 continues the active upward impulse sequence 3 of the impulse wave (3) from the middle of April.

Silver is likely to rise further toward the next round resistance level 20.00 (likely price for the completion of the active impulse wave 3).

 

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