The Market Collapse of 2024
A macro and technically driven prediction
Following my previous article about being puzzled about the stock market, I took time to study further on the technical structure of the market and some component stocks. If you would like to see the details more visually, here’s the YouTube video and you can skip the rest of the article.
In brief, I believed that there are a few factors that were not so obvious that signals that the market really has turned bearish.
- The divergence between Nasdaq and S&P500 (and DJIA).
- The component leader stocks not making new high while S&P500 made all-time high.
- The falling 3-month treasury yield below Fed’s lower bound target rate.
- Potential completion of Elliott Wave 5-wave structure.
- The failing Democrat campaign.
Point 5 is something that I did not discuss in my video because it is generally more of a subjective assessment that might be influenced by narrowing of what I view on TikTok and YouTube based on their algorithm. But I did mention that I think Kamala Harris will lose the election and Trump will be the next President. If he survives. And the reason I came out with the conclusion has nothing to do with the campaign but everything to do with my prediction that the financial markets will start to fall and historically, and statistically, the incumbent party will lose.
Now that you have read this far, I am assuming that you didn’t watch the video and so over here, I will talk about each point above (except point 5).
Divergence between Nasdaq and S&P500 (and DJIA)
The divergence in particular refers to the fact that S&P500 made new all-time high while Nasdaq only high it’s recent high.
Now, given that there are quite a number of component stocks that are the heavily weighted in both indices, that should suggest that both should move in lock-step. And while they do, the amplitude difference between the 2 can be explained by the more diversified S&P500 really is being pushed by other less leader-like stocks, or less techy stocks. The details of it is really not that important as the big picture that I am presenting. If you are interested, you can do the study yourself by pulling out the component stocks performance for S&P500 and Nasdaq and do a comparison.
But quickly, I can verify this by looking at a number of tech stocks that were in recent times, the darlings of the stock market.
The Component Stock Leaders
From the above chart, you can see that I have presented the 2 indices that were the subject of the previous section and 6 component stocks that no one will fail to recognize.
There are 2 main things that I want to mention when you look at the stocks:
- They did not make a new high.
- They had huge volume sell down on the last bar (with the sole exception of Amazon which had a bullish candle — I had to go into lower timeframe to still call this stock a short. Yes, you need to see the video.)
3-month Yield fell below Fed lower target rate
The yield fell below 4.75% the day after the FOMC announcement and fell even more on Friday itself. This signals to that the Fed will have to cut another 25 basis points minimally.
I mentioned in the video that the Sep FOMC 50bp cut was not normal, although it will fully expected (see my other YouTube video). Usually the Fed cuts interest rates when the market has fallen and cutting rates serves to calm the markets. But September cut was done when S&P500 was at all-time high. I believe that things will go back to normal and market will crash, leading to 3-mth yield crashing also, which then leads to Fed cutting rates. Also, if fast enough, unscheduled or emergency cuts will also be on the table.
Completed Elliott Wave 5-wave structure
Elliott wave analysis is quite a controversial subject. If you are open to it, you can study the above chart where I made the case for S&P500 peak using wave 1 = wave 5.
Now that you have stayed this far, here’s a little tidbit that I have missed out in the video: the updated lower degree count.
From the above, you can see that I have plotted Friday’s move as a 5-wave down (that will be minor wave 1), and then a 3-wave corrective move up (that will be minor wave 2).
What will follow should be a wave 3 down that should bring S&P500 down to 5620 for an initial conservative target.
An Abrupt Ending
That’s all. Good luck!
