I have a lot of thoughts to express, so I apologize if this is rather long. Since my first DJI analysis and short setup, we have dropped a good 14%. There was a chance that we could rally higher, sort of like we did before the Great Depression, but we've broken the bullish structure. Until we see any movement above the 26000 area, we can assume we will be in a bear market. I've read some articles trying to assure people that everything is okay, and that this sort of correction is normal. And yes, under CERTAIN CIRCUMSTANCES it would be considered a standard correction. However, it's extremely important to note WHERE this drop has occurred, in relation to the long term trend. That's why the log graph is so important.
My first DJI chart illustrated what a WORST CASE SCENARIO may look like, if the Great Depression fractal plays out (circled in green). What could cause a crash this severe, you may ask? I will argue that the bull market we've experienced since the 2008-09 crash has been artificial. The crash was meant to be much deeper, from a technical perspective, since we had made a lower low. Now we must reap the rewards of an economic system that is built on smoke and mirrors. I think this upcoming crash will, in the short term, cause a lot of pain. However, I believe that, in the long run, it needs to happen if we are going to survive. The overall trend throughout history has been towards a more global, unified society. A number of forces are trying to work against this right now (populist movements in many major countries like The United States, Great Britain, and Brazil). I think these movements will fail, resulting in a restructuring of our global financial system, amongst other things.
For the short term, we can expect somewhat of a bounce. In my previous analysis, I suggested that shorting the breakdown of 24000-23000 would be a good r/r trade. We have some support at 21500, so we could see some buying at these current levels, especially with the RSI looking pretty oversold, even on the monthly timeframe. This bounce, if it occurs, will likely be quick and violent, enough to wreck shorters. It could carry us all the way back up near 23000. If a bounce does not materialize, we will likely head straight down to the next support in the 18300 area, where we will need to see how the market reacts in order to gauge momentum.
In the long term, I think this will be a severe crash, with a target at MAXIMUM of near 13000. This would complete a 50% correction, which would be considered "healthy." However, I think we are about to witness something far more drastic, and I think we will need to at least test the lower bounds of this giant uptrend channel we've been in since we bottomed in 1932. Human society has changed so much in the last 100 years that we've hardly been able to adapt. Everything is easy for us now, and all we do is buy buy buy, even if we don't have enough money. I can't tell you how many people I met in the last year in the U.S. with less than $20 in their bank accounts who still wanted to spend money. I worked in direct sales for a while and plenty of potential customers handed me their debit cards, happy to part with $30, only to realize that they had no money in their account. I think people must be starting to become bored with all this meaningless buying. They don't know what to do with themselves. Even dating has become a tedious activity, and people are just getting lonelier, with marriages declining as well. It's only a matter of time before people wake up and realize that there is something VERY wrong. Only so much innovation can happen before we become complacent and realize that there must be something to life other than buying things. If one thing doesn't bring people happiness, eventually they will do the opposite. I believe this is the underlying reason why the expectations for growth have been diminishing. We're realizing collectively that everything is fabricated, and that the thousands of dollars we spend on Mac computers really doesn't make much sense, or bring us much happiness in the long run. I think tech will be valued less and less until it gets much cheaper because it is no longer "new" or even "necessary." I also had a conversation with a friend over the summer, and he said that he thought tech would just continue to grow exponentially without slowing down as we innovate more and more. If the majority of people believe this, it's clear we've been in a bubble.
I had a couple of conversations with strangers this past year, while stocks were still rallying. I met someone who made thousands trading recently and I told him Apple was probably going to drop soon. He asked me why, and I said because people will take profits, and $1 trillion doesn't sound like a number that should be associated with an individual company that hasn't really been much of an innovator in the last several years. Just like it was absurd when the crypto market cap reached close to $1 trillion, it seemed ludicrous to me that a singular tech company should be worth that much. The person said he thought it would continue going up. Apple was worth $230 per share at the time. It has since declined 37%. I also had a conversation with an Uber driver who thought stocks would keep going up. I told him he was probably in for a nasty surprise. He condescendingly brushed off my warning, as if I didn't know what I was talking about. "This isn't Bitcoin," he said. This was when the Dow Jones was still above 26000. I know I sound like someone who said, "I told you so." And well, I DID tell him so. The thing is, all markets can crash hard, if the majority collectively ceases to believe in something.
Obviously this is total speculation and shouldn't be treated as financial advice. I really just want to look back on this in a few years and see how accurate (or inaccurate) I was. I find this stuff really interesting so I enjoy speculating about it. However, it's hard to ignore this giant uptrend channel that has been carefully formed over the last nine decades. If we are to follow the "Great Depression Fractal ," we could see a drop that actually takes us lower than the 2008 low. This is based on the pink lines, which also seem to correlate nicely with the 1920's bubble. If this happens (yellow scenario), we will have broken the long term logarithmic uptrend for the stock market. At some point, growth needs to slow down, and I think now is as good a time as any for this to happen. This doesn't mean that we won't continue to grow. I just think we will grow at a slower rate in the future, as we work to solve major issues related mostly to the global financial system and the environment. Growth will likely be limited due to these problems.
All my possible bottom targets are in red on this chart. Our upwards momentum will likely be immediately suppressed by the rising trendline . We may need to meet it again sooner or later, but I think chances are much greater for a steeper drop soon since we broke our bullish structure. It's all psychological. If the vast majority of people realize that this thing has been going up for too long, then people will want to get out. It doesn't matter whether or not the banks are liquid. Just as banks have been responsible for us losing money in the past, we can be collectively responsible for the banks crashing today. If everyone wants to withdraw all their money, and banks only own 10% of what they say (as required by law, I believe), then things won't be good. For this reason, I think the U.S. Dollar is about to plummet as well and we will have a currency crisis. This is why I have hedged my savings with a cryptocurrency portfolio. I know it may fail, but I think the risk of staying "all in" on the U.S. Dollar is too great at the moment. Gold or silver would probably be safer investments, if one were to hedge, but I'm young so I can afford to put some money on riskier assets.
In sum, I expect this crash to be more severe than the 2008 recession, and that it has a chance of actually breaking the long term logarithmic uptrend. However, as I said above, I don't think this means that we will necessarily have an apocalypse or anything like that. Although there certainly could be enough mass panic to nearly cause a societal collapse. On the contrary, I think this crash will be healthy in the long run, and I expect some major restructuring to come out of it. Or at least I hope this will be the case. We will then experience a period of slowed down growth, as our society becomes more global and stable. Remember, these last few decades have been less violent than any other period in human history. I think our population growth has reached a peak, but now we really need to grapple with all the change we've created for ourselves.
Sorry for the long philosophical ramblings, but I do think it is related.
Happy New Year and stay safe out there!
- Love from Victor Cobra
Previous DJI analysis, USD, and crypto linked below.