Market Structure Suggests Multiple Scenarios With Downside Potential.
As first discussed in the August 5th blog post, prior to market turmoil later in the month, my research suggested a downside pattern in the stock market materializing in late August or September. I based this suggestion partially on a multi-faceted analogy to 1998. Markets fulfilled this pattern and structure, as we all know. My thesis at the time integrated broad macroeconomic analysis, in light of developing sovereign events in Europe and China, and unique signatures that my mathematical models identified concerning price momentum, timing of events, and price series patterns.
Currently, the US equity market structure suggests a few potential paths, all leading to a similar probable ending point. Between September 9th and late October (my proprietary models indicate a very specific date), there is a high likelihood that equities will revisit the August 24th lows. I then expect a possible further break below them before prices reach another critical point (a stable attractor to use a term from chaos theory). At that time, the collective opinion of market participants will set the stage for a new trajectory in equities.
The odds of this scenario have increased significantly, but as always, a new path could materialize. My research and investment process is adaptive. If I identify new price and time signatures that suggest other high probability price evolution paths, I will communicate those adjustments to my thinking and positioning.
The current global economy continues to display instability across multiple asset classes (e.g. Brazil downgrade) as a result of a multi-year global low rate environment. In that context, sovereign debt issues are very likely to come to the forefront. The weeks and months ahead will potentially involve further devaluations of the Chinese Yuan to reduce pressure on capital flows out of China, accompanied by continued Chinese sale of US treasury bonds. Furthermore, the substantial decline in the price of oil over the past 12 months has impacted the recycling of US dollars into the US debt markets materially by oil-producing countries. Increasingly, this decline is impacting the movement of capital worldwide. It is under this fundamental macroeconomic context that my mathematical models work to identify signatures for major shifts in asset prices.
Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the author only. There can be no assurance that developments will transpire as forecasted and actual results will be different. Accuracy of data is not guaranteed but represents the author’s best judgment and can be derived from a variety of sources. The information is subject to change at any time without notice.