At the time of writing this, the markets are at all-time-highs… but are we setting up for a Fall edition to the 2020 stock market crash?

If you’ve followed me for any length of time you’ll know I’m not one for making bold market predictions, based on gut feelings.

I take a systematic approach to trading.

So let’s just start by looking at the facts:

1.) This November, we have the Presidential Election. This is and has always been a significant event for the markets.

I’ve found a website (Isabelnet) that has charted what has happened over the last 23 elections.

Has the stock market crashed the fall before an election?

Let’s take a look at what historically happened in the 3 months leading up to the election:

As you can see, 14 out of 23 times the market went up. 9 out of 23 times the market went down.

The moves to the downside haven’t been what I would consider significant, with one exception: The 2008 Financial Crisis

But because that was a unique circumstance, I would consider it a bit of an anomaly.

Other than that, the losses are less than 3.5% and the gains are anywhere between 2.5–8%.

So over the last 92 years, the markets have gone up 61% of the time.

Based on this data alone, you could make the prediction that it’s very unlikely we will see a stock market crash this fall… at least before the elections.

And there’s one REALLY simple reason for it:

Trump wants to be re-elected.

And right now he has a great story to tell:

“Look at the markets. They are at all-time highs and I did that!”

And look, I could care less what political affiliation you have, this is just my take on it.

It seems that the stimulus packages as well as the Fed measures that they implemented seem to be working.

So Trump would be stupid to “rock the boat” right now.

Yes, we still have a conflict with China. But in reality, that’s ‘piddle — paddle’.

It’s like 2 girls in a sandbox saying:

“You’re mean!” — “No, you’re mean!” — “You’re ugly!” — “No, YOU are ugly!”

And right now I don’t think that Trump will do anything that could potentially send the markets sharply lower, because THAT would likely decrease his chances of being re-elected.

On the horizon, I don’t see any other major events that could potentially crash the markets.

Looking at the economic reports, for the most part, everything is being reported better than expected:

Some additional good news is that pretty much all companies in the S&P 500 have reported earnings for the past quarter.

And 84% of the companies reported better than expected earnings.

So all of this is positive news for the markets, and it seems that we are handling the pandemic well, at least economically.

So what COULD send the markets lower right now?

One thing: PROFIT TAKING.

No market can go up forever!

At some point, there will be some profit-taking and the markets will pull back.

The key question that remains is:

How big of a drop could the markets see — Are we talking crash or pullback?

So there are 2 tools that I like to use to get an idea of how much the markets could potentially drop:

1.) Fibonacci Retracements: Now I’m the first to admit I’m not an expert in Fibonacci, and there are probably much better ways to do it, but here’s how I do it.

Grabbing the Fibonacci Retracement tool, I’m going to find the low from the Pandemic Crash and run from that low to the first high before a noteworthy pullback as you can see from the image below.

Looking at it, you’ll see that from the low to high swing the SPX found support around .50% retracement, or a 50 percent retracement of that swing.

Make sense?

For me, this is just an easy way to give me an idea of where we might find support during a pullback.

So let’s take a look at the most recent pullback. And we’ll run the tool from it to the current high, to give us an idea of where we could end up if we see some profit-taking:

From what I can see, I would expect the S&P to find support around the 3500 or 3400 levels.

2.) Missed Pivot Points: The second tool that I like to use is one created by my friend Rob called the “Missed Pivot Points.”

So if you’ve never heard of “Pivot Points” before, it’s the high + the low + the close, divided by 3.

So what he likes to look at are Monthly and Weekly Missed Pivots Points. In TradingView they’re available as a free indicator. When we plot them you’ll see that they align right around the same area of the Fibonacci Retracements we just ran.

So are the markets going to crash in the next three months?

Everything is possible, but based on my analysis, it’s not likely we’ll see a full-blown stock market crash this fall 2020. But as we’re all aware at this point, 2020 has been full of surprises.

I do believe that we could see a correction to these levels I discussed (3400 or 3500), but based on the analysis that I’ve discussed, it’s more likely that we will keep drifting higher.

 


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Editors’ Picks

EUR/USD tests nine-day EMA support near 1.1850

EUR/USD tests nine-day EMA support near 1.1850

EUR/USD remains in the negative territory for the fourth successive session, trading around 1.1870 during the Asian hours on Friday. The 14-day Relative Strength Index momentum indicator at 56 stays above the midline, confirming steady momentum. RSI has eased but remains above 50, indicating momentum remains constructive for the bulls.

GBP/USD consolidates around 1.3600 vs. USD; looks to US CPI for fresh impetus

GBP/USD consolidates around 1.3600 vs. USD; looks to US CPI for fresh impetus

The GBP/USD pair remains on the defensive through the Asian session on Friday, though it lacks bearish conviction and holds above the 1.3600 mark as traders await the release of the US consumer inflation figures before placing directional bets.

USD/JPY rebounds above 153.00 ahead of US inflation data

USD/JPY rebounds above 153.00 ahead of US inflation data

USD/JPY stages a comeback and regains 153.00 in the Asian session, snapping a four-day losing streak amid some repositioning ahead of the US CPI report. However, expectations that Japan's PM Sanae Takaichi could be more fiscally responsible, along with bets that the BoJ will stick to its policy normalization path and the risk-off mood, could support the safe-haven Japanese Yen, capping the pair's upside.


Editors’ Picks

USD/JPY rebounds above 153.00 ahead of US inflation data

USD/JPY rebounds above 153.00 ahead of US inflation data

USD/JPY stages a comeback and regains 153.00 in the Asian session, snapping a four-day losing streak amid some repositioning ahead of the US CPI report. However, expectations that Japan's PM Sanae Takaichi could be more fiscally responsible, along with bets that the BoJ will stick to its policy normalization path and the risk-off mood, could support the safe-haven Japanese Yen, capping the pair's upside.

Gold: Will US CPI data trigger a range breakout?

Gold: Will US CPI data trigger a range breakout?

Gold retakes $5,000 early Friday amid a turnaround from weekly lows as US CPI data loom. The US Dollar consolidates weekly losses as AI concerns-driven risk-off mood stalls downside. Technically, Gold appears primed for a big range breakout, with risks skewed toward a bullish break.

AUD/USD consolidates below 0.7100 as traders await US CPI report

AUD/USD consolidates below 0.7100 as traders await US CPI report

AUD/USD consolidates the previous day's retracement slide from the vicinity of mid-0.7100s, or a three-year high, holding below 0.7100 as traders move to the sidelines ahead of Friday's release of the US consumer inflation figures. In the meantime, the divergent RBA-Fed outlooks might continue to support spot prices amid subdued US Dollar demand, though the risk-off impulse could act as a headwind for the Aussie.

Bitcoin, Ethereum and Ripple stay weak as bearish momentum persists

Bitcoin, Ethereum and Ripple stay weak as bearish momentum persists

Bitcoin, Ethereum and Ripple remain under pressure, extending losses of over 5%, 6% and 4%, respectively, so far this week. BTC trades below $67,000 while ETH and XRP correct after facing rejection around key levels. With bearish momentum persisting and prices staying weak, the top three cryptocurrencies continue to show no clear signs of a sustained recovery.

A tale of two labour markets: Headline strength masks underlying weakness

A tale of two labour markets: Headline strength masks underlying weakness

Undoubtedly, yesterday’s delayed US January jobs report delivered a strong headline – one that surpassed most estimates. However, optimism quickly faded amid sobering benchmark revisions.

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