Is the next stock market crash imminent?

Trading Discussion
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Hello traders!

The question that has been on many traders’ minds - when will we see the next historic stock market correction/crash - is covered in great detail here by Ky Trang Ho:

Forbes Welcome

She is a Forbes contributor as well as the founder of Key Financial Media LLC.

The article covers many angles, from different sources (investors, analysts, etc.), trying to assess if the period from late-September to mid-October, for example, could see a further correction to the downside.

How is this relevant to us, Forex traders? Clearly, if you had a, say, 10% correction to the downside of the Nikkei225 index, all Yen pairs would follow it, regardless of the strength of each individual pair (say, the USD/JPY in the wake of an imminent Fed rate rise); equally, a further collapse in USOil could affect the CAD, and a further correction from China’s stock market would further drive NZD and AUD to the downside, not to mention the German DAX’s drop having a bearing on the Euro.

Happy reading.

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October: The Month Of Market Crashes?

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Hello traders!

Some of us have been getting used to watching the equity indexes (like the S&P500) going strong

whenever the Non-Farm Payrolls data would disappoint expectations, and to do the reverse when

that data exceeded expectations; this is because US-Dollar hawks, and the Fed’s own tightening regime

(post-Bernanke), are stronger in their mandate when indicators on labour (and wage) growth support

their call for moving towards a less accommodative policy, and in turn, a stronger US Dollar has usually

meant bad news for QE-backed equity investors, who would see a strengthening Greenback as a symbol

or threat of the Fed’s ‘cheap money’ supply being finally pulled out from under their feet - in essence,

the end of cheap investment credit, and the withdrawal of that safety net for investors.

In light of these risk relationships, then, some of us may have been surprised at the deep moves south

from the markets today (by which I do not mean Forex (although it also applies to some Forex pairs));

this article by Tanya Agrawal at Reuters sheds some light as to why we saw such a reaction:

Wall Street stumbles as jobs data puts rate hike in doubt | Reuters

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I never have an opinion of my own, with “fundamentals”, really; but over the last week or two I’ve heard a couple of institutional traders I respect commenting that if the Nasdaq doesn’t fall 20% or more over the next few months, they’ll eat their hats (or my shoes, in one case).

So I take it from that, too, that the chances of some kind of stock-market collapse must be quite a bit higher than they typically are. :19:

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NSDQ WEEKLY.jpg700×305 29.3 KB

Weekly Chart NSDQ
This Trend Line is since April 2013 (Age: 2 years 6 month)

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DJIA.jpg700×332 38.4 KB

Wait for a new move back above the 200 day moving average to go long the DOW again.

-Adrian

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Nah, neither the NQ, nor Dow - S&P rules the game.

Only joking, though mind you, possible that a lot of hat and shoe eating come Christmas :slight_smile:

On a more serious note, Adrian may confirm, earnings are key.

Pipme, remember Yazz?

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The only way is up? :wink:

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Lol, since I posted I see she is singing at the top of her voice, three of my trades singing along with her.

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I am not a clever man but I no longer have any confidence in stock markets. There are so many matters that do not make sense any more but it seems the globe is continuing as though nothing has changed and everything is going to carry on as normal for ever more - I don’t think so - but that doesn’t mean collapse is imminent either! Things that concern me:

  • Everyone knows on a personal level that you cannot live on increased borrowing indefinitely, yet many major countries are doing just that. And within thöse countries the counties and towns are doing exactly the same - entire political infrastructures surviving on the availability of continuing credit. For how long?

  • global oil supplies are not infinite. Some claim the peak is already past and yet the world has not yet found suitable and sufficient alternative energy sources, especially for transport which keeps global economies mobile,

  • Global warming is presenting ever increasing catastrophies across the world and leading to dramatic changes in local climates producing droughts and environmental changes that are leading to environmentally induced refugee problems in addition to the damage results of floods and typhoons etc.We hear all the time how much the damage is worth but not where the money is going to come from or who is going to pay

  • In the western world, healthcare has progressed so rapidly, especially in the field of drugs, that we can now keep people alive almost indefinitely by juggling their drug doses, sometimes 10-20 different tablets a day. People’s life expectancy has increased dramatically in a relatively short time from 70-75 to 85-95 yrs. This has a dramatic impact on pension investment funds where the actuarial calculations have been based on a much shorter lie expectancy. There are now, effectively, 2 generations of retired people. 60-75 and 75-95. The pressure this also imposes on healthcare services is astronomic and the costs of attending to pensioners from 75-95 is constantly growing - not to mention the ethical problems of when life ceases to be worthwhile anymore!

  • The world is in a state of turmoil with millions of people wandering as asylum seekers around europe looking for a new home - the costs are again astronomic, some are repatriated and others have to be integrated into totally different cultures despite language problems and intrinsic rasist problems that will take decades to dissolve.

  • terrorism and exploitation of arms sales impose incredible additional costs on all major economies

  • population explosion towards 10 billion imposes almost impossible demands on land and food resources leading to increased inter - national tensions and shortages of fertilizers, etc

  • the 80% of the world’s have-nots now want the same lifestyle as the 10% who “have”. Trouble is the 10% who “have” use about 80% of the wold’s resources to “have” it! So we are not going to all “have” it! Trouble is, the days of manipulated cheap/child labour is over.

Soooo, all in all, I would not be at all surprised by a major stockmarket/property collapse - but whether it is this year or 20 years away, I have no idea - but the signs and the reasons are there.

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Haha

The lyrics start with:

“We been broken down
on the lowest turn
and been on the bottom line
sure ain’t no fun”…

It sounds familiar, does it not? US Dollar, S&P, GBP/JPY, EUR/USD… you name it! All stuck on trendlines
, or going nowhere… It certainly isn’t fun, not for trend trading anyway!

:slight_smile:

As for previous posters, thank you for your contributions:

LEXY:

[QUOTE=] Over the last week or two I’ve heard a couple of institutional traders I respect commenting that if the Nasdaq doesn’t fall 20% or more over the next few months, they’ll eat their hats
[/QUOTE]

I hope that they won’t… Sore tummies make for bad trading sessions :slight_smile:

I heard it said that the S&P500 would make it to the 3,000 mark by the end of 2015; then, I also heard
that it would see another 10% move down in the last quarter (but not a complete crash); yet, as the article
I posted earlier highlights, many are also fearing ‘The One’, which is where long-term positions will have to
be closed and other investments will have to be found… A market-wide deleveraging will create great buying opportunities (assets will become cheap once again) but those caught in the turmoil will certainly suffer… I am not thinking of us, the retail traders: I am thinking of those with big money who make it their business to trade, and also of the computers in banks and in stock exchanges which will trigger waterfall stops when big sell-offs occur, spiralling a similar (artificial/synthetic) sentiment to the more organic one which used to occur on trading floors when human emotions spread across the floor traders’ minds as they ‘heard’ and ‘felt’ sentiment taking hold of the trading floor. So even if traders thought their hats were safe, those of many others will not be, simply because they will have to eat them out of starvation, as they may watch their profits drained by a market drop that was ‘never meant to happen’. Also, even the best trader will never know how to manage risk when they do not know where risk is going to come from… You may be managing risk well on one out of three pairs, but maybe you were less stringent and more generous with your stops on a ‘safer’ pair in your forex…like EUR/CHF… and then, February 2015 happened… That ‘you’ could be any of ‘us’… We are humans, and the market can catch any of us by surprise… Otherwise you would never hear of big firms going bust…

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Manxx,

This is not a put down, far from it. Possible that I am a little older than you, not quite as old as the time frame that this article is referring to, but it’s just that I have witnessed so many times that the end is nigh, or the prefect storm, or that a crash is imminent.

As I have become older I tend to look for evidence, if the thinking is about the future then I try to think where that might lead, cynics call that prediction, I call it forward thinking.

Many thanks for your thought provoking post, hope you are not offended by this link.

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Not offended at all! Great article! Horse-manure will never look the same now :slight_smile:

I am sorry if I was too gloomy… The ‘market crash’ talk has gone hyper this month, so I am just posting thoughts about that… This does not prove anything, of course - there may never be one this year…

:slight_smile:

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Btw, have a look at the author’s note on the then world’s oil situation - he didn’t propose the solution, just knew that there would be one, that’s forward thinking.

Natural Shale Gas and Oil Reserves | Energy from Shale

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Interesting…

Of course, markets go in cycles,

so every boom cycle has a bust,

and 2001, 2008, 2015(*) are

all busts that washed out excessive

leveraging in assets like FTSE100

and S&P500…

That, per se, is a healthy market

necessity, so it is not negative; nor

will it ever not have the next part of

the cycle (confidence returning and

upward mobility)…

Similarly to the years following the 1929 Great Depression,

however, where it took the advent of

World War II a decade later to raise

GDP (through labour needed for the war

effort), there was falling unemployment

but there was not enough work to go round

for everyone, so the GDP slipped…

Was going to war the innovative solution?

I hope we do not have to have World War III

to come out of the Great Depression of 2008…

:slight_smile:
The Recovery from the Great Depression of the 1930s

I am away to bed…

Good night, Peterma, and good night, Babypips community!

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Good night Pipme,

I am a history nut, can seem to photo memory much before my time, sometimes even freaks me out, but yet I am constantly living in… now…bonne nuit :slight_smile:

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Ah you are one of our best resources on here…

I would gladly meet with you and listen to your take on markets (and the world)…

An Fx-Man to treasure.

Bonne Nuit a’ vous.

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Funny isn’t it? Talking heads call higher equity prices “good news” and lower equity prices “bad news” without saying for whom these price moves are good or bad. Just the same, they say that a fall in the CPI is bad without mentioning for whom it is bad. A trader is simply someone who understands that he can position his affairs to make a move in either direction good for him.

-Adrian

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Yes, you are right…

I suppose the concern may be over liquidity when brokers are faced with a huge sell-off and buy-and-hold investors may be unable to cover in time to avoid brokers being unable to fulfil their stops and slippage kicking in… When a crash occurs, it is not so easy to sell into it and make money, if you are not prepared, and it is probably quite easy to lose money if your risk management gets chewed up by broker failure to buffer the severity of a flash crash…

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Interesting discussion, and strangely the very subject that I was discussing with trader coach friend this weekend.

I know, from analysing my trades, that I tend to see the buy side. This reflects my general attitude to life, always the positive.

This is not necessarily a bad thing, it’s just that I am aware that my trading fits around this part of my phycology, it’s therefore likely that I could improve even more by adjusting.

The old masters countenanced against this normal human behaviour, it may sound easy but the reality that it seems that we are hard wired to look for the positive, apparently negative guys would shun the trading world in the first place.

My friend noted that he too sees this in many of his students, often they are on the buy side, more difficult to see the sell.

I remember a few years ago a discussion on similar lines, the author pointed out that on stocks the pull backs are often fast and furious because they are fuelled by fear, he figured that investors are usually optimists and that fear is optimism’s opposite.