There’s a famous old quote that advises: “If you find yourself in a hole, stop digging.” This seems applicable in so many instances today: Trump and the Epstein files, AI investment, FOMC policy, crypto investment, the overall economy…
It’s perhaps the principle which best explains what’s happening to the financial markets. There’s a correlation in chart patterns known as the Head & Shoulders Pattern. Once you’ve dropped below and backtested the neckline, there’s more downside than people expect.
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According to the H&S pattern, SPX easily has another 5%+ downside from yesterday’s close to its 6,330 target. ES’s is more like 6314.
The question is “when?” SPX and ES’ charts suggest it could be this week. VIX suggests a more long, drawn out affair that bottoms around the end of the year. It only matters, I suppose, if you’re an options trader rather than swing trader in equities. But, a delay in the drop would mean a breakdown of ES’ rising red channel, which would be riskier.
Currencies remain largely on the sidelines, but have the potential to slow or accelerate the downturn. There’s a lot of speculation on whether the BoJ will again devalue the yen in order to protect stocks. So far, it appears they will.
MBS is visiting Trump today, no doubt firming up plans to support the US economy via production targets (aka putting a lid on inflation by engineering falling prices.)
