Q&A_ Is Dow Jones and global markets ready for a freefall?
Namaste!
US Markets substantially affect global market and their indices. There are two main indices which I track most often. DJI (Dow Jones) and SPX (S&P 500).
I expect it to be in a downfall in the coming weeks/months.
I follow a rule of thumb for a reversal (respecting support or resistance) is that it must close below low of the resistance testing candle within the next 3 candles.
My understanding says, "there is a >60% probability of prices moving in the candles closing direction if the prices consolidate". Consolidation can happen near the resistance levels. So, it means there is a <40% probability of reversing (respecting resistance) if the prices consolidate. The logic is very simple. If the sellers were powerful enough, the price will fall quickly, whereas consolidation indicates their unwillingness to sell or more buying pressure than selling at the level.
So, the 02 Nov candle closed below the level, hence the selling pressure is strong here meaning more probably price will fall. It is my opinion because I said this happens 60% of the time. This could be that 40% when I am wrong.
Disclaimer: The above written article is based on my understanding and experience in the markets. Please do your own analysis and/or consult your financial advisor before investing or trading.
US Markets substantially affect global market and their indices. There are two main indices which I track most often. DJI (Dow Jones) and SPX (S&P 500).
I expect it to be in a downfall in the coming weeks/months.
I follow a rule of thumb for a reversal (respecting support or resistance) is that it must close below low of the resistance testing candle within the next 3 candles.
My understanding says, "there is a >60% probability of prices moving in the candles closing direction if the prices consolidate". Consolidation can happen near the resistance levels. So, it means there is a <40% probability of reversing (respecting resistance) if the prices consolidate. The logic is very simple. If the sellers were powerful enough, the price will fall quickly, whereas consolidation indicates their unwillingness to sell or more buying pressure than selling at the level.
So, the 02 Nov candle closed below the level, hence the selling pressure is strong here meaning more probably price will fall. It is my opinion because I said this happens 60% of the time. This could be that 40% when I am wrong.
Disclaimer: The above written article is based on my understanding and experience in the markets. Please do your own analysis and/or consult your financial advisor before investing or trading.
Comment:
The rally from 14 July onwards was a "bull behaviour rally". Try to notice that this time it looks different. The bulls doesn't push the prices as quick as the recent rally was.
Comment:
I am still intact on my view mainly for 2 reasons.
1. The corona bear market recovered at a very fast speed which didn't happened in the modern history before. This was due to US Fed printing money to stimulate economy. Hence, they deposited dollars directly into the pockets of it's citizens. Money had to go somewhere. So, it (money) went in "spending" (resulting in profits numbers for corporations), "investments" (various assets and stock markets), etc. "Spending" fuelled demand in the economy, creating the inflation (which is highest since decades) in many countries.
2. To counter decade high inflation, the central bank (US Fed) will keep raising interest rates in the long term. And when interest rates rise, the market falls, it's a thumb rule.
1. The corona bear market recovered at a very fast speed which didn't happened in the modern history before. This was due to US Fed printing money to stimulate economy. Hence, they deposited dollars directly into the pockets of it's citizens. Money had to go somewhere. So, it (money) went in "spending" (resulting in profits numbers for corporations), "investments" (various assets and stock markets), etc. "Spending" fuelled demand in the economy, creating the inflation (which is highest since decades) in many countries.
2. To counter decade high inflation, the central bank (US Fed) will keep raising interest rates in the long term. And when interest rates rise, the market falls, it's a thumb rule.
Comment:
Most of this money doesn’t exactly go into circulation within the public and remains electronic. The US government technically owns these assets(stocks, etc)/treasuries and they can always sell them back to the banks when the current prices match those of pre-March 2020. Hence, the money was created as a way of making a buffer that allows the economy to absorb losses while it recovers (source: mediumdotcom).
The US government will eventually sell stocks in it's portfolio and other assets to the banks, investors, which will lead to Dow Jones falling.
The US government will eventually sell stocks in it's portfolio and other assets to the banks, investors, which will lead to Dow Jones falling.
Comment:
Refer 28 Nov, Dow Jones Index is down -1.45%. In technical terms, it is "respecting the level" and is resulted in a "fake breakout". There are 2 scenarios I am expecting.
1. The market may consolidate for days if not weeks until the index closes above 34410.
2. It may reverse from here to touch 30100 levels in the coming months.
There has to be some level for the crowd (investors) to refer. The free fall market is neither practical nor advisable to anyone. That's why "double bottom" pattern is generally formed before reversal and it is effective in it's work.
1. The market may consolidate for days if not weeks until the index closes above 34410.
2. It may reverse from here to touch 30100 levels in the coming months.
There has to be some level for the crowd (investors) to refer. The free fall market is neither practical nor advisable to anyone. That's why "double bottom" pattern is generally formed before reversal and it is effective in it's work.
Comment:
Dow Jones might make a 5th lower low take at 28000 levels. I am still intact on my bearish view on Dow. However, Indian markets are comparably very strong due to the fact it didn't fell into bear market when most of the global market did.
Comment:
Disclosure: I am short on Nifty50 via options for the next year.
Comment:
I expect anyone who is reading my writings to know that there is nothing "certain" in the markets. Neither the %gain on stock nor "out-performance" or "under-performance". There is a risk and opportunity cost involved in both, buying and selling. Selling at any price can often result in "opportunity loss" when the stock moves higher and higher. Human psychology is a culprit here. For e.g. I post any stock which seems undervalued or overvalued to me on tradingview. When anyone makes money on that, they wont appreciate me "a single word". But when they lose or it results in opportunity loss, they are bound to blame me. I don't criticize any person, because I know their psychology has defeated them. At last, there is nothing like "easy money" in the markets. The survival of the fittest holds absolutely true here.
Comment:
One other example of a culprit human psychology. I am short on Nifty50, so I started looking for reasons of market falling. I found that there is a pneumonia outbreak in China recently. It felt me happy because I was short on Nifty50 and it may result in falling market (correction). But, is it humane? Praying to god to make people die, just to make some money in the short position? It felt really bad after realizing this. May be that's why the god made bull markets more often and more lasting (time) than bear markets. Pessimism is short-lived whereas optimism lives longer. Optimism always wins in the long term. Take for instance a glass half-filled with water. You can't get or achieve anything seeing it half-empty. But, you surely achieve something seeing it "half-full".
Comment:
I am not a financial expert and everything I am saying is based on my understanding and opinion. Take everything I am writing as a grain of salt. You must consider your financial advisor before taking any actions. DJI and Nifty50 have hit all time high, whereas S&P 500 did not yet. I did not make anything substantial in the year 2020 by buying at a discount. And I think many of the investors couldn't have as well. Anyways, lets calculate the returns of DJI, SPX & Nifty50 since Dec 2020 till Dec 2023. DJI +23.14%, SPX 26.98% & Nifty 50 +55.42%. Now subtract them with FD rates (India has 7% and I don't know about USA, lets take 3%). So, after deducting FD returns for 3 years, DJI +14.14%, SPX +17.98% & Nifty50 +34.42%. -10% correction is more often than -20% corrections. So, let's take -10% correction every 1-2 years and -20% correction every 2-4 years. My point here is, markets hitting all time high, it's very good, but you can not rule out corrections. If, by any chance we could buy at correction (say 19-30%), we would be standing at the same level as the guy who bought on 31 Dec 2020. But, it's a tough nut to crack for most people. Do you think money makes money in the market? Then, you're wrong. Patience makes money in the market. It's not a sell advice either. The point I want to make is, when we're patient enough, the market have a very big heart and it might give us another chance to buy. But, it demands one thing for sure, "patience".