What To Watch Before Calling A Bottom (Dow Jones)
Updated
I've explained why I expected a market crash to occur over and over again during the last year. I'll link those posts at bottom. One of my reasons was the "Great Depression Fractal." This is why I've included the Great Depression chart on the left in this post. It's funny how I kept talking about another Great Depression, well before anyone was putting forth the idea that it could happen so soon. At worst, people were fearing a large recession. Now I hear a lot of speculation that we could quickly enter another depression. It seems so sudden, but it was all there in the charts. What caused this isn't the virus, but human greed and neglect. If our economy weren't set up to oppress the many and benefit the few, we would not be having a crisis right now. The fact that we've gone so quickly into panicking about a depression and quickly into a situation where many people are already out of work (likely fearing for their homes, health, and communities), shows precisely how fragile things were before this all happened.
Why do people behave this way, and why are things set up like this? It's because people are so pathetically unaware of their own mortality that they only live for the now. They actively suppress this fear. Screw the future. We don't need to prepare for the worst when we can live our best lives right now! This is why we've been so slow to treat the environment, let alone each other, better. Neglect and the act of withholding is a supreme form of power. It allows us to exert control, while we fear for what we cannot control - our own mortality. So what causes the markets to drop? The people with all the actual money start becoming more conscious of their mortality.
In any case, you can see that the setup for how severe the Dow Jones can decline depends a lot on the broadening pattern I said would likely mark the point of no return, before the Dow crashes towards at minimum 12K (got fairly close already), 8K, or even 5K. Based on the broadening pattern when compared with The Great Depression, it seems fairly reasonable to assume that it will test the long term uptrend (red) at some point. I think that's likely to coincide with those 2008 Recession lows, because the bailouts and QE have not solved the structural problems facing our economic system. A drop that severe would probably cause financial institutions to think hard and perhaps reverse course. Unfortunately, if they cannot do this, I think we can end up with a drop similar in magnitude to The Great Depression. The ultimate decline back then was around 90% from peak to trough. In this case, I'm conservatively leaving my lowest possible target around 5K, which is not quite that severe. A decline of that nature may end up resulting from big tech companies finally losing their lofty valuations.
Before I call a bottom, I'm going to observe this structure and see how it evolves. At this moment, we've held off a more severe crash. But we're propped up by a significant amount of money printing as we were even prior to the crash. I don't expect this to last long if a major breakthrough isn't achieved with the virus within the next several weeks. As you can see, we're actually holding right above the broadening support (pink), after capitulating briefly below it. If we crash down below it again, and if we test it as strong resistance, I think it's safe to say we will see a further decline. HOWEVER, if the bottom has already been reached (perfectly possible), I'd like to see buy volume come in and support us above that broadening pattern.
Again, I find it eerie that the charts present stark similarities between each other, and I pointed this out well over a year ago. Only now are major news outlets saying that we can easily see another Great Depression. Some are even positing that it could be worse. Emotionally, I can see this being the case, since much of what made that period manageable was community entertainment. Now, people are isolated at home, without the meaningful connections they need to feel hopeful about survival and progress.
I do really hope we exit this on the right side. I don't want to see the rich abandon those without resources in favor of an even more starkly divided society. I also don't want to see an AI/VR takeover, which could be used to quell the hopeless masses through entertainment. This would create two classes: The money-making class and the zombie class. Right now, dystopian versions of the future really seem possible, but I think it's these fears that tend to keep us on the right track. Let's just hope some action is taken soon. We should all be doing something to make things a little better.
That's it from me.
Not financial advice. These are just my speculations and ramblings.
-Victor Cobra
Why do people behave this way, and why are things set up like this? It's because people are so pathetically unaware of their own mortality that they only live for the now. They actively suppress this fear. Screw the future. We don't need to prepare for the worst when we can live our best lives right now! This is why we've been so slow to treat the environment, let alone each other, better. Neglect and the act of withholding is a supreme form of power. It allows us to exert control, while we fear for what we cannot control - our own mortality. So what causes the markets to drop? The people with all the actual money start becoming more conscious of their mortality.
In any case, you can see that the setup for how severe the Dow Jones can decline depends a lot on the broadening pattern I said would likely mark the point of no return, before the Dow crashes towards at minimum 12K (got fairly close already), 8K, or even 5K. Based on the broadening pattern when compared with The Great Depression, it seems fairly reasonable to assume that it will test the long term uptrend (red) at some point. I think that's likely to coincide with those 2008 Recession lows, because the bailouts and QE have not solved the structural problems facing our economic system. A drop that severe would probably cause financial institutions to think hard and perhaps reverse course. Unfortunately, if they cannot do this, I think we can end up with a drop similar in magnitude to The Great Depression. The ultimate decline back then was around 90% from peak to trough. In this case, I'm conservatively leaving my lowest possible target around 5K, which is not quite that severe. A decline of that nature may end up resulting from big tech companies finally losing their lofty valuations.
Before I call a bottom, I'm going to observe this structure and see how it evolves. At this moment, we've held off a more severe crash. But we're propped up by a significant amount of money printing as we were even prior to the crash. I don't expect this to last long if a major breakthrough isn't achieved with the virus within the next several weeks. As you can see, we're actually holding right above the broadening support (pink), after capitulating briefly below it. If we crash down below it again, and if we test it as strong resistance, I think it's safe to say we will see a further decline. HOWEVER, if the bottom has already been reached (perfectly possible), I'd like to see buy volume come in and support us above that broadening pattern.
Again, I find it eerie that the charts present stark similarities between each other, and I pointed this out well over a year ago. Only now are major news outlets saying that we can easily see another Great Depression. Some are even positing that it could be worse. Emotionally, I can see this being the case, since much of what made that period manageable was community entertainment. Now, people are isolated at home, without the meaningful connections they need to feel hopeful about survival and progress.
I do really hope we exit this on the right side. I don't want to see the rich abandon those without resources in favor of an even more starkly divided society. I also don't want to see an AI/VR takeover, which could be used to quell the hopeless masses through entertainment. This would create two classes: The money-making class and the zombie class. Right now, dystopian versions of the future really seem possible, but I think it's these fears that tend to keep us on the right track. Let's just hope some action is taken soon. We should all be doing something to make things a little better.
That's it from me.
Not financial advice. These are just my speculations and ramblings.
-Victor Cobra
Note
I can see the Dow actually heading all the way up towards the top range for a large Dead-Cat Bounce/double top. Even if the virus becomes no longer an immediate threat, there are other issues that can arise. All the market needs is another catalyst, and then things can unravel quickly. However, it's possible that the drop to 18K may have been enough panic. It'll be really interesting to see what happens if the market continues to sustain a rebound. The financial system is now even more precarious than it was beforehand, so I'd be very careful. 
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