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  • Weekly Summary: The U.S. Stock Market is Crumbling: Signal Received, Loud and Clear

Weekly Summary: The U.S. Stock Market is Crumbling: Signal Received, Loud and Clear

This week the sign signaling an upcoming drop of the stock market was received. So, a downside scenario has now been confirmed, while a downside target may exceed the 2020 correction. The signal is similar to the one received this spring before a downturn of the S&P 500 broad market index by 20%. 

However, the current approaching drop could be far deeper than the one felt in spring. The correction of 20% from the current 4250-4300 points to 3200 should be considered as a very optimistic scenario. The reality may be much worse, as we may expect a decline of the stock market similar to that during the Great Financial Crisis in 2008 when the stock market plunged by 56% within one year. 

In this case, the S&P 500 index may drop to 2100-2300 points which is below the lows felt in the 2020 pandemic. So, these are the new targets for all short positions to be opened this autumn. The timing of such a plunge is not clear yet, as the index is already at its highs and may start declining soon, at the end of August or in early September. The technical picture for the S&P 500 index demonstrates an upside formation, but its primary target has already been met at 4150-4250 points, and any upside attempt to go further to 4350-4450 have failed. So, we may have a change of the formation to the downside within the coming weeks. Last week small-short positions of 20% of the targeted deal volume were recommended to be opened. This week it would be justified to open another short position from 4300 points for 50% of the targeted deal volume.

The crude market is running out of time to perform an upside scenario with a primary target at $135-145 per barrel for the Brent crude benchmark and secondary target at $160-170 per barrel. No drivers that could nudge this scenario can be currently seen. On the contrary, a U.S.-Iran nuclear deal that is thought to be closed soon, may force crude prices to collapse. So, no good positions for trades in this scenario can be seen now. 

Gold prices may remain within an upside formation by the end of August but the strengthening U.S. Dollar has put a lot of pressure on gold prices, pushing them to the nearest support level at $1700-1730 per troy ounce. This is disappointing as a short position that was planned to be opened at $1800-1820 with a target at $1350-1450 by the end of October is now seen to be unrealistic. However, prices may somehow recover amid geopolitical tensions over Taiwan.

EURUSD changed its formation to the downside with a target at 0.99500-1.00500. The pair is sending out contradictory signals as it may recover by the end of next week, while the downside targets are very close. So, it is better to abstain from opening any trades right now, at least for this and next week.

GBPUSD has exhausted a potential of an aggressive downside formation by meeting targets at 1.18000-1.19000. So, short positions opened at 1.21000-1.21400 should be closed now. The conditions for new trades are yet to be seen.