Are We Staring At The Beginning of a Meltdown?
Well if you have been following my thoughts since January or before you knew that I was indeed expecting this. The corrections that are now bucking and heaving away at the markets. The stock indexes are the ones most prone to the corrections because they suffered the most irrational run ups. Right about where price went vertical at the last power move to the upside you can see that this is where the market participants were all in and leverage was at its highest. This by itself is a high risk because the participants themselves cannot afford a large loss without triggering margin calls across the board. I think that this is what this correction is about. A shake out of the weaker participants that may have posed too much of a risk for the central bankers to want to back.
Therefor we need to go back to technicals to see how far the market ran away from its actual trend over the past two years or so. This is what is causing the fallout at the moment. Too far, too fast and too much leverage. One might extrapolate that this is where most market tops in the past have crashed. While I would not disagree I don't think that this is what is in store for this market. You can clearly see that the market DOW could fall back to the 20000 area or slightly lower just to return to the trend that has been in place since 2009. So at the moment we are not even close. I think we will get there but not yet. The Nikkei was far more a predictor of what was to come as it did fall below the trend line as low as 20000 but not too much further.
I wouldn't look for the North American indexes to recover these losses any time soon. The time to buy the dip is still not in. You could try a small long in the Nikkei here but I don't see any signs really of any sort of recovery. The USD/JPY still looks ready to break to the 100 or 95 mark (which by the way I called last year) so it really is not the time yet to back up the truck. That may come but not yet.
The problem with Trumps policies and Tarriffs is they are coming at a time when the markets can ill afford a major strain. You heard me comment on how these Tarriffs are going to effect the common man and his ability to deal with debt. Deflationary effects are more likely to take place and then it will come down to ones ability to deal with debt. If you can't afford to buy your products you go broke. It is that simple.
While it is still a little early to tell I do not see good things coming to anyone from Trumps protectionist strategies. You don't simply adopt a stance over decades that debt doesn't matter sort of thing and then all of a sudden say that it does once everyone is accustomed to living on the debt. This is where his internal problem is likely to come from which will bring this circus down if anything will. As I said the central banks cannot fudge their way out of this. There is no ability to paper this over.
Therefor we need to go back to technicals to see how far the market ran away from its actual trend over the past two years or so. This is what is causing the fallout at the moment. Too far, too fast and too much leverage. One might extrapolate that this is where most market tops in the past have crashed. While I would not disagree I don't think that this is what is in store for this market. You can clearly see that the market DOW could fall back to the 20000 area or slightly lower just to return to the trend that has been in place since 2009. So at the moment we are not even close. I think we will get there but not yet. The Nikkei was far more a predictor of what was to come as it did fall below the trend line as low as 20000 but not too much further.
I wouldn't look for the North American indexes to recover these losses any time soon. The time to buy the dip is still not in. You could try a small long in the Nikkei here but I don't see any signs really of any sort of recovery. The USD/JPY still looks ready to break to the 100 or 95 mark (which by the way I called last year) so it really is not the time yet to back up the truck. That may come but not yet.
The problem with Trumps policies and Tarriffs is they are coming at a time when the markets can ill afford a major strain. You heard me comment on how these Tarriffs are going to effect the common man and his ability to deal with debt. Deflationary effects are more likely to take place and then it will come down to ones ability to deal with debt. If you can't afford to buy your products you go broke. It is that simple.
While it is still a little early to tell I do not see good things coming to anyone from Trumps protectionist strategies. You don't simply adopt a stance over decades that debt doesn't matter sort of thing and then all of a sudden say that it does once everyone is accustomed to living on the debt. This is where his internal problem is likely to come from which will bring this circus down if anything will. As I said the central banks cannot fudge their way out of this. There is no ability to paper this over.
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