Today is the day for the US Fed to announce their rate decision and we believe the 25 basis point rate cut is the only option they have at the moment that will attempt to settle foreign market fears and allow for a suitable “unwinding” of the credit/debt “setup” we highlighted in Part I of this research post.
We believe out August 19 expectation of a global market PEAK and the beginning of a price reversion move is related to multiple aspects of the timing of this Fed move and the current global economic outlook. The unwinding of this debt/credit bubble will likely take many more years to unravel. Yet, right now the US Fed is trapped in a scenario they never expected to find themselves in. Either continue to run policy that supports the US economy (where rates would likely stay between 1.75 to 2.75) over the next 5+ years or yield to the global market and attempt to address a proper exit capability for this debt/credit “setup”.
We believe global investors are expecting a massive collapse in the US stock market as a reaction to this move by the Fed and because of the expectation that another bubble has set up in the US. But we believe the actual bubble is set up in the foreign markets and not so much in the US. Yes, the US markets have extended to near all-time highs and the US consumer is running somewhat lean. It would be natural for the US economy to revert to lower price levels and for the US economy to rotate as “price exploration” attempts to find true market support. Yet, our fear is that the foreign markets are much more fragile than anyone understands at the moment and that a reversion in the US markets will prompt a potential collapse in certain foreign markets.
Weekly SPY chart
This Weekly SPY chart highlights what we expect to transpire over the next 6 to 8+ months. We believe the August 19 peak date that we predicted months ago will likely start a process that will be tied to the US election cycle event (2020) and the US Fed in combination with global market events. We believe a reversion price process is about to unfold that could be prompted into action over the next 2+ weeks by the US Fed, trade issues and global central banks.
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If the US Fed drops the FFR by 25pb, the fragility of the foreign market debt/credit issues is not really abated or resolved. It just allows for a bit of breathing room that may allow these foreign debtors enough room to wiggle out of some of their problems. The US Fed would have to decrease rates by at least 75 basis point before any real relief will materialize for these foreign debtors.
Asian Currency Custom Index
This Asian Currency Custom Index used by our research team highlights the weakness in the foreign markets. The recovery in 2018 is related to the Chinese/Asian currency market recovery that initiated in Feb/Mar 2018. The recent weakness in this custom index is related to strengthening major market currencies (USD, CAD, JPY, CHF) in relation to weakening Asian currencies. Notice how the price channels have set up to warn us that any further downside move will initiate a new “price exploration” phase that could see a -20% to -25% decrease in currency valuations – possibly much deeper.
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We believe this is the real reason the US Fed is opting to decrease the FFR rate now and is not taking a more stern position related to US economic performance. We believe the US Fed is, again, donning the “Superman cape” and attempting to Save The World from their own debt/credit mess.
We are holding to our original predictions and expectations. We believe the US stock market indexes will enter a reversion price phase over the next few weeks that will prompt a downside price reversion toward recent lows (2018 levels or deeper). We believe this process will end in early 2020 and that the lows established by this move will represent incredible opportunities for skilled technical traders.
Weekly Dow Jones chart
This Weekly Dow Jones chart highlights our expectations. We believe a mild price rotation will start this move over the next 2~4 weeks before the August 19, 2019 date prompts a breakdown move. After that date, we believe an extended downside price leg will continue to reach a price bottom near the end of 2019 or in early 2020.
This Weekly Dow Jones chart highlights our expectations. We believe a mild price rotation will start this move over the next 2~4 weeks before the August 19, 2019 date prompts a breakdown move. After that date, we believe an extended downside price leg will continue to reach a price bottom near the end of 2019 or in early 2020.
(Click on image to enlarge)
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