This is unusual as the holiday season typically enjoys a bullish environment. Also, November to April are typically the best 6 months of the year for equities (while May to October is the worst).
But we’ve been predicting since Q2 2018 that this time will be different and the trend is NOT your friend. We have been waiting for this market tumble for some time now as we saw the drop as inevitable, regardless of whether or not Donald Trump would be interjecting with his tweets or not.
“The only problem our economy has is the Fed,” the president said in a tweet. “They don’t have a feel for the Market, they don’t understand necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders. The Fed is like a powerful golfer who can’t score because he has no touch — he can’t putt!”
But we’ve been predicting since Q2 2018 that this time will be different and the trend is NOT your friend. We have been waiting for this market tumble for some time now as we saw the drop as inevitable, regardless of whether or not Donald Trump would be interjecting with his tweets or not.
“The only problem our economy has is the Fed,” the president said in a tweet. “They don’t have a feel for the Market, they don’t understand necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders. The Fed is like a powerful golfer who can’t score because he has no touch — he can’t putt!”
Trump shares the same view as Robert Patyk when it comes to the Fed(eral Reserve) being out of touch with reality. It is almost like it is their intention of making sure that the market crashes, as Mr. Patyk believes the recent interest rate hike by the Fed was the final nail in the coffin for U.S. stocks.
Markets were jittery also over a shutdown (which is really just their excuse to have longer holiday season) but markets are worried that, with more democrats in the U.S. House of Representatives, it will be more difficult for Trump to implement more pro-business policies and laws. In fact, he will face a harder time with more subpoenas and investigations (even a threat of the possibility of jail time...which I don't think will happen but the markets don't know this)
Adding further fuel to the fire, is the fact that Treasury Secretary Steven Mnuchin, after making phone calls over the weekend to major U.S. banks, made a reassuring statement that the health of the banking system is better than ever. But markets took this statement and its timing as unusual which reminded us of a drunk person saying that he isn't drunk.
The 3 major indices finished lower for the fourth consecutive day, a feat not seen in over 3 years. The Dow Jones tumbled 653.17 (-2.91%) lower to continue its sell off from last week, which was its worst-performing week in a decade.
The losing streak can be attributed to carry-over selling from last week, which was the the worst-performing week for U.S. equities in a decade. The lighter holiday volume didn’t make matters better, since stocks can see larger jumps (as well as movements lower) when there are less traders actively participating.
The CBOE Volatility (VIX) Index, also known as the “Fear Gauge,” which traders use as a barometer of how fearful the markets are, just hit its highest level since Feb. 5th, 2018. It closed at 36.07 after having spent most of the year in the low teens. Robert has been warning for a couple years about the dangers of a low VIX, in that when it eventually was to spike, that would enable the markets to see increased volatility. In other words, enabling stocks to crash harder and lower. Today, this has become a reality.
The 3 major indices finished lower for the fourth consecutive day, a feat not seen in over 3 years. The Dow Jones tumbled 653.17 (-2.91%) lower to continue its sell off from last week, which was its worst-performing week in a decade.
The losing streak can be attributed to carry-over selling from last week, which was the the worst-performing week for U.S. equities in a decade. The lighter holiday volume didn’t make matters better, since stocks can see larger jumps (as well as movements lower) when there are less traders actively participating.
The CBOE Volatility (VIX) Index, also known as the “Fear Gauge,” which traders use as a barometer of how fearful the markets are, just hit its highest level since Feb. 5th, 2018. It closed at 36.07 after having spent most of the year in the low teens. Robert has been warning for a couple years about the dangers of a low VIX, in that when it eventually was to spike, that would enable the markets to see increased volatility. In other words, enabling stocks to crash harder and lower. Today, this has become a reality.
Your takeaway from the chart above is that the higher it goes, the larger the price movements in the market are. This means that stocks can fall (or rise) more sharply in less time.
This spells bad news for markets, since we are of the opinion that there are 10 reasons why the market will fall for every 1 reason why it might continue to rise. With the probability of a downward move far out-weighing the chances of a rise, combined now with the VIX confirming that we are about to see massive movements, I conclude that we have the potential to see a massive move lower more easily than at any other time in the past six months (chart shown above).
Keep in mind that once volume returns to the markets after the holiday season, that some of the spikes which were enabled due to the light trading activity, may get undone, resulting in a small bull run after the bears begin to once again face opposition in larger quantities. But that doesn’t change our long-term bearish stance we are still in the midst of the perfect storm, one that could see us fall another -32% lower from here and we would STILL be higher than the PRE recession levels around 1,600 for the S&P 500. One of the multitude of factors which I’m seeing negatively impact the global economy is China just announcing that it won’t resort to massive monetary stimulus next year.
This spells bad news for markets, since we are of the opinion that there are 10 reasons why the market will fall for every 1 reason why it might continue to rise. With the probability of a downward move far out-weighing the chances of a rise, combined now with the VIX confirming that we are about to see massive movements, I conclude that we have the potential to see a massive move lower more easily than at any other time in the past six months (chart shown above).
Keep in mind that once volume returns to the markets after the holiday season, that some of the spikes which were enabled due to the light trading activity, may get undone, resulting in a small bull run after the bears begin to once again face opposition in larger quantities. But that doesn’t change our long-term bearish stance we are still in the midst of the perfect storm, one that could see us fall another -32% lower from here and we would STILL be higher than the PRE recession levels around 1,600 for the S&P 500. One of the multitude of factors which I’m seeing negatively impact the global economy is China just announcing that it won’t resort to massive monetary stimulus next year.