Here is this weeks video
I made a new StS chart like the thumbnail for the video after the markets closed today, Monday 9/20, a mildly bad day in the markets, down less than 3%.
This is what it looks like:
The overall score moved down to 37 from Friday’s 46. Two sectors moved from the Bull side to the Bear side - Textiles and Electronics. In both July and August, the market bottomed at 36 or 37 on the overall score. And here we are a 3rd time looking at the potential for the major 4 O’clock Loop downturn.
If we are down more than 10% off the highs (S&P under 4050) by the close on Thursday, then Friday or Monday could be really a bad day in the markets, like single day down another 10-15% (S&P 3400-3600.)
What is different this time is that America was disgraced in Afghanistan by leaving over 500 Americans behind less than a month ago, football stadiums across the nation are filled with students chanting “F*@k Joe Biden, F*@k Joe Biden” every weekend, Congress is beginning hearings this week to raise taxes by $3.5 Trillion for Biden’s social programs, a fence has gone up again around the capitol in D.C., and a Chinese real estate company is on the verge of defaulting on $300 Billion in debt as soon as Thursday.
The Chinese real estate company is Evergrande. To put this into perspective, Evergrandes debt is about half of what Lehman Brothers Bank debt was when it was the trigger for the 2008 Financial Crisis.
Evergrande has sold 1.4 million homes to be built or finished yet, and Evergrande does not have the money to finish or build them. Nor do they have the money to return to the buyers, and the price of lumber has gone so high they would lose money on each one they build.
Evergrande also has a wealth management business, and the investors can’t get their money back from them. Just IOU’s that are now no good. I don’t know the size of their wealth management business, but it is not included in the $300 Billion of debt that Evergrande is obliged to service.
I think it is quite likely we will see the markets 10% off their highs either this week or next. A complete 4 O’clock Loop downturn may also occur in that time frame, which would mean a decline of 15%-25%. That could easily happen this week if China fails to do something really big in regards to Evergrande.
Evergrande is now where Lehman Brothers was in early September 2008. The absolute bottom of the market was still over 2 months away. But the 4 o’clock loop happened in September 2008.
There was actually a market double bottom in 2008. The first in mid November, a nearly 30% rally by early January, and then a second bottom March 9, 2009.
One of the things I look for in putting in a market bottom is having a significant percentage of stocks at or very close to breaking their Point & Figure chart positive trend support. We are not yet there by any stretch of the imagination. Only 9% of the S&P’s 373 positive trend stocks are within 1 box of their support, and only 23% are within 5% pricewise of their support line. However, a 20% drop in the S&P would put us at over 50% of stocks as being at positive trend support. That is very close to normal market bottom numbers.
Let’s Go Get the Money,
or at least keep what we have now.
JimB