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Тhe fundamentals are speaking: Is this a setup for a market crash - opinion

SPX

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- Stock markets have made a lower low this week.

"We already see for preconditions for transit to the bearish trend

"As long as the resistances hold, a breakthrough under the support will open the door for a large seloff.

For those who follow my analyzes last year, I will know that I warned that a break below 2880 on SPX would lead to a potential adjustment of 20-30%. And when the index falls in the region 2250-2335 I commented that a bottom formed, which subsequently pushed prices back to 2800.

Currently, we have a new breakthrough on the same signal around 2880, for which the signals came weeks ago. And, the structure that is visible on the market now resembles that of the crash in 2018.

I would like to remind that my analyzes are based on the condition that markets move from the human sentiment and are, inherently, fractal. This means that they are variably self-similar at different degrees of trend. And as such, patterns often repeat themselves and are not necessarily driven by the essence of any event or news.

For those who question my words, think about what Bernard Baruch had written so many years ago:

"All economic movements are, by their very nature, motivated by the psychology of the crowd, without the due recognition of table thinking ... our theories of economics leave much to be desired." It always seemed to me that the periodic madness that struck humanity must reflect a deeply rooted trait in human nature - a trait similar to the force that motivates bird migration or the influx of lemons to the sea ... is a force that is totally undefined ... but the knowledge about it is necessary for the correct judgment of m Nava events. "

Moreover, during his term as President of the Fed, Alan Greenspan testified many times before various committees of Congress. Greenspan, before the Joint Economic Committee, noted that markets are moving from "human psychology" and "waves of optimism and pessimism."

In fact, he even said:

"The reason for economic despair, however, is the propensity of human nature to move from fear to euphoria and vice versa, provided that no economic paradigm has demonstrated the ability to suppress without difficulty." The regulation, the allegedly effective solution to today's crisis, has never been able to eliminate crises in history. "

Ultimately, as Greenspan rightly acknowledges, market trends determine market sentiment. In fact even the news of the day is interpreted based on prevailing market moods. That's why we often see the rally in the markets, despite the announcement of bad news, and explains why markets are falling, despite the announcement of good news. So, the main market sentiment is what I'm trying to analyze and use analysis of trends, support and resistances

As I have noted many times in the past, studies have been conducted over the last 20-30 years that supported this common viewpoint that market attitudes are endogenous instead of being affected by exogenous events in the way many believe.

For example, in a document entitled "Large Financial Crashes," published in 1997 in Physica A., published by the European Physical Society, the authors, in their conclusions, present a good summary of the overall phenomena in the financial markets:

"The stock markets are fascinating structures with analogies to what is perhaps the most complex dynamic system found in natural sciences, ie the human mind, instead of the usual interpretation of the Effective Market Hypothesis in which traders draw and incorporate consciously ( through its action) all the information contained in market prices, we suggest that the market as a whole be able to show "emerging" behavior, which is not shared by any voters, in other words, we mean the process of emerging intelligently on a macroscopic scale on which the individuals in the microscopic rocks have no idea, this process is discussed in biology, for example, in animal populations such as ants colonies or in connection with the emergence of consciousness.

For this purpose, you may also want to look at the following survey. In August 1998, an article by Tom Walker was published in the Atlanta newspaper, which conducted its own study of 42-year "surprising" news events and relevant stock market reactions. His conclusion, which would be surprising to most, was that it was extremely difficult to determine the relationship between market trading and dramatic surprise. Based on Walker's research and conclusions, even if you had the news in advance, you will still not be able to determine the direction of the market solely on the basis of such news.

This means that a news event can act as a catalyst for market movement, but the essence of this event will not always be enlightening to the direction of market movement. The best example I can give you is that during the trade wars in 2018 the stock exchange rose by 9%. Today, however, the market is already declining during the trade wars. While I'm sure many of you are going to try to explain why the market can rise and weaken in the news of the war, those of you who are intellectually honest about this will clearly see this and understand why the above-mentioned study presents a clearer reasoning. why have we seen these different market movements based on the same type of news.

Now, let's get to the thesis of this article. Since the market provided us with a lower level at the beginning of the week, it put us in a very bearish position. In fact, if the market falls directly below its next support of 2760-85SPX, then 2810SPX becomes resistance and the door opens for a sale that can see hundreds of points of loss from the market and pretty fast.

While the market can still provide us with greater consolidation before this potential downturn continues, I wanted to at least warn you of the immediate potential for this to happen earlier than I originally expected. And while each upward consolidation holds resistance below 2880-2920SPX, this set-up will remain as a major expectation.


 Trader Aleksandar Kumanov

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