The Great Depression Fractal Part II - A Warning
Atualizado
I have a lot of thoughts to express, so I apologize if this is rather long. Since my first DJI analysis and short setup, we have dropped a good 14%. There was a chance that we could rally higher, sort of like we did before the Great Depression, but we've broken the bullish structure. Until we see any movement above the 26000 area, we can assume we will be in a bear market. I've read some articles trying to assure people that everything is okay, and that this sort of correction is normal. And yes, under CERTAIN CIRCUMSTANCES it would be considered a standard correction. However, it's extremely important to note WHERE this drop has occurred, in relation to the long term trend. That's why the log graph is so important.
My first DJI chart illustrated what a WORST CASE SCENARIO may look like, if the Great Depression fractal plays out (circled in green). What could cause a crash this severe, you may ask? I will argue that the bull market we've experienced since the 2008-09 crash has been artificial. The crash was meant to be much deeper, from a technical perspective, since we had made a lower low. Now we must reap the rewards of an economic system that is built on smoke and mirrors. I think this upcoming crash will, in the short term, cause a lot of pain. However, I believe that, in the long run, it needs to happen if we are going to survive. The overall trend throughout history has been towards a more global, unified society. A number of forces are trying to work against this right now (populist movements in many major countries like The United States, Great Britain, and Brazil). I think these movements will fail, resulting in a restructuring of our global financial system, amongst other things.
For the short term, we can expect somewhat of a bounce. In my previous analysis, I suggested that shorting the breakdown of 24000-23000 would be a good r/r trade. We have some support at 21500, so we could see some buying at these current levels, especially with the RSI looking pretty oversold, even on the monthly timeframe. This bounce, if it occurs, will likely be quick and violent, enough to wreck shorters. It could carry us all the way back up near 23000. If a bounce does not materialize, we will likely head straight down to the next support in the 18300 area, where we will need to see how the market reacts in order to gauge momentum.
In the long term, I think this will be a severe crash, with a target at MAXIMUM of near 13000. This would complete a 50% correction, which would be considered "healthy." However, I think we are about to witness something far more drastic, and I think we will need to at least test the lower bounds of this giant uptrend channel we've been in since we bottomed in 1932. Human society has changed so much in the last 100 years that we've hardly been able to adapt. Everything is easy for us now, and all we do is buy buy buy, even if we don't have enough money. I can't tell you how many people I met in the last year in the U.S. with less than $20 in their bank accounts who still wanted to spend money. I worked in direct sales for a while and plenty of potential customers handed me their debit cards, happy to part with $30, only to realize that they had no money in their account. I think people must be starting to become bored with all this meaningless buying. They don't know what to do with themselves. Even dating has become a tedious activity, and people are just getting lonelier, with marriages declining as well. It's only a matter of time before people wake up and realize that there is something VERY wrong. Only so much innovation can happen before we become complacent and realize that there must be something to life other than buying things. If one thing doesn't bring people happiness, eventually they will do the opposite. I believe this is the underlying reason why the expectations for growth have been diminishing. We're realizing collectively that everything is fabricated, and that the thousands of dollars we spend on Mac computers really doesn't make much sense, or bring us much happiness in the long run. I think tech will be valued less and less until it gets much cheaper because it is no longer "new" or even "necessary." I also had a conversation with a friend over the summer, and he said that he thought tech would just continue to grow exponentially without slowing down as we innovate more and more. If the majority of people believe this, it's clear we've been in a bubble.
I had a couple of conversations with strangers this past year, while stocks were still rallying. I met someone who made thousands trading recently and I told him Apple was probably going to drop soon. He asked me why, and I said because people will take profits, and $1 trillion doesn't sound like a number that should be associated with an individual company that hasn't really been much of an innovator in the last several years. Just like it was absurd when the crypto market cap reached close to $1 trillion, it seemed ludicrous to me that a singular tech company should be worth that much. The person said he thought it would continue going up. Apple was worth $230 per share at the time. It has since declined 37%. I also had a conversation with an Uber driver who thought stocks would keep going up. I told him he was probably in for a nasty surprise. He condescendingly brushed off my warning, as if I didn't know what I was talking about. "This isn't Bitcoin," he said. This was when the Dow Jones was still above 26000. I know I sound like someone who said, "I told you so." And well, I DID tell him so. The thing is, all markets can crash hard, if the majority collectively ceases to believe in something.
Obviously this is total speculation and shouldn't be treated as financial advice. I really just want to look back on this in a few years and see how accurate (or inaccurate) I was. I find this stuff really interesting so I enjoy speculating about it. However, it's hard to ignore this giant uptrend channel that has been carefully formed over the last nine decades. If we are to follow the "Great Depression Fractal ," we could see a drop that actually takes us lower than the 2008 low. This is based on the pink lines, which also seem to correlate nicely with the 1920's bubble. If this happens (yellow scenario), we will have broken the long term logarithmic uptrend for the stock market. At some point, growth needs to slow down, and I think now is as good a time as any for this to happen. This doesn't mean that we won't continue to grow. I just think we will grow at a slower rate in the future, as we work to solve major issues related mostly to the global financial system and the environment. Growth will likely be limited due to these problems.
All my possible bottom targets are in red on this chart. Our upwards momentum will likely be immediately suppressed by the rising trendline . We may need to meet it again sooner or later, but I think chances are much greater for a steeper drop soon since we broke our bullish structure. It's all psychological. If the vast majority of people realize that this thing has been going up for too long, then people will want to get out. It doesn't matter whether or not the banks are liquid. Just as banks have been responsible for us losing money in the past, we can be collectively responsible for the banks crashing today. If everyone wants to withdraw all their money, and banks only own 10% of what they say (as required by law, I believe), then things won't be good. For this reason, I think the U.S. Dollar is about to plummet as well and we will have a currency crisis. This is why I have hedged my savings with a cryptocurrency portfolio. I know it may fail, but I think the risk of staying "all in" on the U.S. Dollar is too great at the moment. Gold or silver would probably be safer investments, if one were to hedge, but I'm young so I can afford to put some money on riskier assets.
In sum, I expect this crash to be more severe than the 2008 recession, and that it has a chance of actually breaking the long term logarithmic uptrend. However, as I said above, I don't think this means that we will necessarily have an apocalypse or anything like that. Although there certainly could be enough mass panic to nearly cause a societal collapse. On the contrary, I think this crash will be healthy in the long run, and I expect some major restructuring to come out of it. Or at least I hope this will be the case. We will then experience a period of slowed down growth, as our society becomes more global and stable. Remember, these last few decades have been less violent than any other period in human history. I think our population growth has reached a peak, but now we really need to grapple with all the change we've created for ourselves.
Sorry for the long philosophical ramblings, but I do think it is related.
Happy New Year and stay safe out there!
- Love from Victor Cobra
Previous DJI analysis, USD, and crypto linked below.
My first DJI chart illustrated what a WORST CASE SCENARIO may look like, if the Great Depression fractal plays out (circled in green). What could cause a crash this severe, you may ask? I will argue that the bull market we've experienced since the 2008-09 crash has been artificial. The crash was meant to be much deeper, from a technical perspective, since we had made a lower low. Now we must reap the rewards of an economic system that is built on smoke and mirrors. I think this upcoming crash will, in the short term, cause a lot of pain. However, I believe that, in the long run, it needs to happen if we are going to survive. The overall trend throughout history has been towards a more global, unified society. A number of forces are trying to work against this right now (populist movements in many major countries like The United States, Great Britain, and Brazil). I think these movements will fail, resulting in a restructuring of our global financial system, amongst other things.
For the short term, we can expect somewhat of a bounce. In my previous analysis, I suggested that shorting the breakdown of 24000-23000 would be a good r/r trade. We have some support at 21500, so we could see some buying at these current levels, especially with the RSI looking pretty oversold, even on the monthly timeframe. This bounce, if it occurs, will likely be quick and violent, enough to wreck shorters. It could carry us all the way back up near 23000. If a bounce does not materialize, we will likely head straight down to the next support in the 18300 area, where we will need to see how the market reacts in order to gauge momentum.
In the long term, I think this will be a severe crash, with a target at MAXIMUM of near 13000. This would complete a 50% correction, which would be considered "healthy." However, I think we are about to witness something far more drastic, and I think we will need to at least test the lower bounds of this giant uptrend channel we've been in since we bottomed in 1932. Human society has changed so much in the last 100 years that we've hardly been able to adapt. Everything is easy for us now, and all we do is buy buy buy, even if we don't have enough money. I can't tell you how many people I met in the last year in the U.S. with less than $20 in their bank accounts who still wanted to spend money. I worked in direct sales for a while and plenty of potential customers handed me their debit cards, happy to part with $30, only to realize that they had no money in their account. I think people must be starting to become bored with all this meaningless buying. They don't know what to do with themselves. Even dating has become a tedious activity, and people are just getting lonelier, with marriages declining as well. It's only a matter of time before people wake up and realize that there is something VERY wrong. Only so much innovation can happen before we become complacent and realize that there must be something to life other than buying things. If one thing doesn't bring people happiness, eventually they will do the opposite. I believe this is the underlying reason why the expectations for growth have been diminishing. We're realizing collectively that everything is fabricated, and that the thousands of dollars we spend on Mac computers really doesn't make much sense, or bring us much happiness in the long run. I think tech will be valued less and less until it gets much cheaper because it is no longer "new" or even "necessary." I also had a conversation with a friend over the summer, and he said that he thought tech would just continue to grow exponentially without slowing down as we innovate more and more. If the majority of people believe this, it's clear we've been in a bubble.
I had a couple of conversations with strangers this past year, while stocks were still rallying. I met someone who made thousands trading recently and I told him Apple was probably going to drop soon. He asked me why, and I said because people will take profits, and $1 trillion doesn't sound like a number that should be associated with an individual company that hasn't really been much of an innovator in the last several years. Just like it was absurd when the crypto market cap reached close to $1 trillion, it seemed ludicrous to me that a singular tech company should be worth that much. The person said he thought it would continue going up. Apple was worth $230 per share at the time. It has since declined 37%. I also had a conversation with an Uber driver who thought stocks would keep going up. I told him he was probably in for a nasty surprise. He condescendingly brushed off my warning, as if I didn't know what I was talking about. "This isn't Bitcoin," he said. This was when the Dow Jones was still above 26000. I know I sound like someone who said, "I told you so." And well, I DID tell him so. The thing is, all markets can crash hard, if the majority collectively ceases to believe in something.
Obviously this is total speculation and shouldn't be treated as financial advice. I really just want to look back on this in a few years and see how accurate (or inaccurate) I was. I find this stuff really interesting so I enjoy speculating about it. However, it's hard to ignore this giant uptrend channel that has been carefully formed over the last nine decades. If we are to follow the "Great Depression Fractal ," we could see a drop that actually takes us lower than the 2008 low. This is based on the pink lines, which also seem to correlate nicely with the 1920's bubble. If this happens (yellow scenario), we will have broken the long term logarithmic uptrend for the stock market. At some point, growth needs to slow down, and I think now is as good a time as any for this to happen. This doesn't mean that we won't continue to grow. I just think we will grow at a slower rate in the future, as we work to solve major issues related mostly to the global financial system and the environment. Growth will likely be limited due to these problems.
All my possible bottom targets are in red on this chart. Our upwards momentum will likely be immediately suppressed by the rising trendline . We may need to meet it again sooner or later, but I think chances are much greater for a steeper drop soon since we broke our bullish structure. It's all psychological. If the vast majority of people realize that this thing has been going up for too long, then people will want to get out. It doesn't matter whether or not the banks are liquid. Just as banks have been responsible for us losing money in the past, we can be collectively responsible for the banks crashing today. If everyone wants to withdraw all their money, and banks only own 10% of what they say (as required by law, I believe), then things won't be good. For this reason, I think the U.S. Dollar is about to plummet as well and we will have a currency crisis. This is why I have hedged my savings with a cryptocurrency portfolio. I know it may fail, but I think the risk of staying "all in" on the U.S. Dollar is too great at the moment. Gold or silver would probably be safer investments, if one were to hedge, but I'm young so I can afford to put some money on riskier assets.
In sum, I expect this crash to be more severe than the 2008 recession, and that it has a chance of actually breaking the long term logarithmic uptrend. However, as I said above, I don't think this means that we will necessarily have an apocalypse or anything like that. Although there certainly could be enough mass panic to nearly cause a societal collapse. On the contrary, I think this crash will be healthy in the long run, and I expect some major restructuring to come out of it. Or at least I hope this will be the case. We will then experience a period of slowed down growth, as our society becomes more global and stable. Remember, these last few decades have been less violent than any other period in human history. I think our population growth has reached a peak, but now we really need to grapple with all the change we've created for ourselves.
Sorry for the long philosophical ramblings, but I do think it is related.
Happy New Year and stay safe out there!
- Love from Victor Cobra
Previous DJI analysis, USD, and crypto linked below.
Nota
As I expected (and if you read my full analysis), we've bounced from the Christmas Eve low, and it's been a pretty substantial one so far, and quick. We might have enough fuel to retest the broken support (green X). If we break out substantially above that, I may have to re-evaluate the mid-term bearish stance. However, there is still absolutely no reason to be bullish. I'm seeing articles pop up today about how stocks have "bottomed" and I've heard of people feeling really excited about these "cheap" prices. This is what happens at the beginning of a bubble pop. Anything can happen though, and if you're a trader, you can't stick stubbornly to one view of the market. I think the most likely path would be something like the yellow, if we even make it up that high. Below our recent bottom, we have some decent support at 20K (red X and converging support). If things start to look more bullish, I will re-evaluate. Stay safe! Nota
That pink support, by the way, is the corresponding support to what was broken at the start of the Great Depression. So I think that if that area falls, we will experience a lot more downside.Nota
Didn't mean to post that chart twice. Oops!Nota
"This bounce, if it occurs, will likely be quick and violent, enough to wreck shorters. It could carry us all the way back up near 23000." Quick and violent indeed. Let's see if it can sustain though.Nota
If we can somehow print a V-shaped bottom here (by rallying back above 25000 in the coming weeks) then the market might have room for one more big leg up. I think this is unlikely given the market structure, but it's a possibility one should not COMPLETELY rule out. Let's see what happens!Nota
Ooof, we didn't even manage to test 23000 as resistance. Already ran out of steam. This is really not looking very strong. This "historic bounce," in my opinion, was nothing more than retail traders thinking the bottom is in and allowing bigger players to exit some more positions if they haven't already. This has the characteristics of an initial selloff that signals a longer bear market. The best time to sell is often near the top of the large bounce that occurs after this initial drop. We should now expect prices to slide down to recent lows relatively soon, and eventually break that support. Obviously, any strong move back up above 25000 negates this idea. A good sign that we're about to roll over would be Google breaking back below $1000 and confirming a bigger downtrend.Nota
Looks like we're attempting another bounce! Let's see how we react to the 23000-24000 zone if we get there.Nota
So we've made it to my target for the bounce, albeit after a bunch of crazy up and down movement. We got rejected there so far. If we confirm below, we'll likely see the selling continue. If we break and hold above, we will likely continue on to the next resistance, around 24220. And then if we break above that, I'll have to reassess and consider the possibility that we could have one last huge FOMO rally for the market (a blow off top). HOWEVER, we're still in pretty extreme bearish territory here, so I'd exercise caution.Nota
Happy New Year everyone! By the way, if the DJI does confirm a reversal here to the upside, the great depression fractal shows a final increase of around 250% before the giant 90% drop. This means that if we get a final bull run for the market, it could be a huge FOMO induced rally that takes us all the way past 50,000. Obviously speculating, and we're still in bearish territory. But I see only extremes as possibilities from here on out, especially given the recent volatility.
Nota
Looks like we couldn't really confirm above my target resistance zone. We'll probably continue our drop now.Nota
Not really dropping much as I expected, so perhaps we need to consolidate here for a bit, like I originally outlined on my chart (below). The market doesn't have to behave in the way I see it. That's the gambler's fallacy. The market CAN move up from here, but it's really best to wait for confirmation. We would need to get up to that second resistance for starters. I'd say we need to drop below 22800 or so to confirm the bearish scenario.Nota
Nota
BAM. The report from AAPL aligns with my view that tech is slowing down. I explained my reasoning behind this in my main analysis. This selloff isn't extreme yet though. We need to break below 22400 to revisit 21000 levels. For now, I think I'll post less often, and only when major targets are reached, or something very unexpected happens. Don't want to overload this analysis with updates, unless requested. Nota
We didn't manage to break down below 22500 so it looks like we may target the higher resistance zone soon. A number of tech stocks might be in the process of forming a second top, so I'd pay attention to what happens when they reach resistance.Nota
The timeframe for the next top is sometime towards the end of the summer, so this actually might take a while to play out. This scenario, if it happens, would cause the DJI to probably look something like this over the next year:Nota
Making it up towards my next target nicely. The Dollar is dropping though, which shows continued hidden signs of weakness in the U.S. market. Nota
This is actually also a resistance zone, so we might not even make it up to my target. I guess we'll see. The fact that the dollar index has dropped below 96 isn't good.Nota
As I suggested would probably happen, after breaking and holding the previous resistance we've moved up towards the upper resistance. If we break that, we are likely to have a 3rd top in the DJI, which would end up corresponding with the 2nd top in many tech stocks. The dollar keeps sliding, which is the sign of a hidden bearish divergence in the market (smart people are losing confidence in the US market, while retail traders and market makers are pushing prices higher to get better exit points). TLDR: I'm still bearish in the long term. Nota
Right at the resistance zone. Could see a big drop soon if we stall here. If we break out, we will likely see that right shoulder develop. Nota
The declining volume is concerning.Nota
By the way, if we do happen to make a higher high in the stock market, the giant blow-off top idea I had in my original DJI analysis will be back in play. This would still correlate with the Great Depression fractal, as that rallied higher before ultimately dropping 90%.Nota
Heading back up towards the potential confirmation zone for a head and shoulders pattern. The dollar is dropping, which is a bad sign that people are losing confidence in the U.S. Nota
It’s been a while since I’ve updated this chart, and I’ll likely have to make a new one soon, given how things have played out. During the bounce since Christmas, the DJI has continued to smash through the resistances I’ve been looking at, and is now back above the bullish level of 26000. If we continue to rally here, chances will be higher that we will see the blow off top in the bubble I’ve been mentioning. This existed in the 1929 crash. This means that we can head all the way up to 70000 before crashing down to hit the same low targets. It’s actulaky even WORSE for the market that it looks like it wants it continue up. This means it’s following the fractal even more closely than I originally thought it would. Not at my computer, or I’d post a chart for comparison. I’ll just make a new analysis soon.Nota
If we don't start dropping hard here, this is what I expect to happen (updated analysis): 
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