Lets explore the current market conditions.
I think most people can agree that there is a LOT of different things currently affecting the global market. There has been such a steep drop in investor confidence that markets have retraced back to prices seen in 2017. It took 422 days to gain 1000 points in the S&P Index and less than a month to lose it. This is the most volatile the market has ever been, and this consequently makes it very interesting to analyze. Lets dive in.
Stair case up.. Elevator down.. Right?
1. Federal Reserve Prematurely Firing
Personally this is the most frightening thing that has occurred in recent news. Jerome Powell announced that rates would be reduced to 0% from 1%. This is a 100 base point jump. This leaves NO wiggle room should the unfavorable market conditions likely continue. The last time rates were 0% was towards the end of the housing market crash to revive the American economy.
This data is a little old, but the countries shown to the right still have negative interest rates. Infact, they've gotten lower. This means you get paid to borrow money, but you must also pay to store it. This is done to increase the velocity of money circulation, but in practice people spend less money.
2. Aggressive Repo Operations
This term often confuses people. Its a complex process with one end result. Add liquidity (native currency) into the market via adding 0s to a digital bank account and pressing enter. The exchange between government and central banks is a headache, but the outcome is significant. Money is being printed, and it is not adding to national debt. This is inflationary to your currency, and every time they do it, your money is worth less.
Here is a recent purchase made by the Federal Reserve. This one was for 142.650 Billion US Dollars. Although, it was only one out of five purchases made on March 17th 2020.
This calls intro question what exactly they are buying.. It is a combination of government treasury bonds, mortgage back securities, 'vital' companies, and other designations which would otherwise support the economy. This is the second strategy used to manage economic trends. The Federal Reserve is closed on weekends, but the printer has been on 24/7 recently. Not good for the consumer.
3. OPEC Deal Went South, Fast.
Many people had their doubts if this multi country deal would come to fruition. It was an agreement between all members of the Organization of Petroleum Exporting Countries. Agreements went sour and everyone began undercutting each other aggressively. The outcome of this is serious so lets analyze the cost production for a barrel of oil. I'll highlight the important parts in green.
This data is a little old to be considered 100% accurate, but the concept is clear. Countries are producing oil at a loss right now. Trading a little over $30 per barrel, it has put many countries in a tight position.
Una cerveza por favor¿ All joke aside, this disease is devastating the world economy. Productivity has halted, quarantines have started, and people are hunkering down. There is no end in sight, and its expected to only get worse as time goes on. While not too dangerous to the 'average' person, it is very dangerous with age, compromised individuals, or those with chronic health problems.
This is the first time in recent history where we have had such a significant biological threat. There is no playbook of expectations here. All we can do is take a technical look and analyze historical trends. I think most people can agree. There is a recession upon us.
This has acted as a very potent fundamental to expose the weaknesses found within the US economy. We have been bearish on USD since 2017. This charade of artificial growth had to end eventually. This virus has infected the market and the bears are coming out of hibernation.
5. Utter Lack of Investor Confidence
One month ago we were at all time highs in most indices. In less than 30 days the market sentiment has shifted. There are so many people discussing a recession that commentators have evolved forward to calling recent price action the start of a economic depression. The cardinal signs have always been there, but many people failed to recognize them.
Almost any spectator could tell you the same thing. There is massive uncertainty in just about every single sector and niche on earth. Now we're going to dive into the technical aspect of the market.
Stair case up.. Elevator down.. Right?
Here is my current outlook on the S&P500. This is a major indices and used to trend technical aspects of the US Economy. Other options like DJIA, Nasdaq etc are more niche specific. However, the charts are overall pretty similar when evaluating macro trends. Without further adieu..
S&P 500 1 Week
Price targets of 1400 don't seem unreasonable now do they? This is the bottom that I am looking for, but something has to happen first. Where the green circle is acts as an important zone of confluence for the long term trend line. Our members of Performante Premium will be getting a more in depth analysis of this key zone, but its important to know that If this breaks, there is a complete exhaustion of bullish moemntum. Markets have cycles. This one has ended.
Capitalizing on this opportunity.
Investors are shaking in their boots as their wins quickly turn into losses. Greed clouded the vision of the market and people are left with heavy bags. This extends beyond just equities. Cryptocurrency has been getting murdered, but that is a conversation for another blog.
The Performante Team has a sound understanding of the dynamics in play, and have been planning for a recession for literally years. We've got a roadmap on how to profit, and you're welcome to come learn from us.
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