{"id":158094,"date":"2019-10-21T18:33:21","date_gmt":"2019-10-21T22:33:21","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=158094"},"modified":"2019-10-21T18:33:21","modified_gmt":"2019-10-21T22:33:21","slug":"black-monday-1987-vs-2019-part-ii","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2019\/10\/black-monday-1987-vs-2019-part-ii\/","title":{"rendered":"Black Monday 1987 vs 2019 \u2013 Part II"},"content":{"rendered":"
October 21, 2019<\/div>
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By TheTechnicalTraders.com<\/u><\/a><\/strong><\/p>\n

Our research team has been attempting to answer the question that seems to be on everyone\u2019s minds right now \u2013 are we setting up another Black Monday type of event in the global markets and what should traders\/investors know before the event potentially takes place.\u00a0 Our research team has spent the past few weeks trying to better understand the global economic events that took place 8 to 20+ years before the Black Monday event happened and have been particularly interested in the 10+ years just before the Black Monday event.\u00a0 Additionally, we\u2019ll focus on the recovery event that took place after the Black Monday collapse completed.<\/p>\n

In Part I of this article<\/strong><\/a>, we attempted to highlight some of the similarities of today\u2019s global economic world to the scenario in the early 1980s.\u00a0 Many of you may not be old enough to remember the 1960s or 1970s, but at least one individual on our research team is old enough and was actively trading in 1985.\u00a0 His interpretation of the economic events prior to the 1987 Black Monday collapse and how they may be similar to today highlight some very interesting facets for our readers.<\/p>\n

The late 1970s was a period where most Americans worked hard, tried to play by the rules and struggled to attempt to get ahead in a world that seemed to be a little out of order.\u00a0 The 1960s was a period of awakening in America where music, culture, and people shifted away from the WWII era and post-WWII era thinking.\u00a0 Vietnam, Korea and a host of other issues, as well as rising US interest rates, presented very real problems for many Americans.\u00a0 By the time the US entered the 1980s, Americans had already experienced the assassination of John F. Kennedy, the race to the moon, multiple wars, victories and defeats, a cultural shift to near the extremes and another shift moving our culture back closer to center, Oil\/energy crisis events, a moderate malaise of economic prosperity, and continually higher US interest rates.\u00a0 Then the US elected Ronald Reagan.<\/p>\n

It seemed to everyone that Ronald Reagan had unlocked secrets to the American opportunity that had been somewhat lost over the previous few decades.\u00a0 In reality, the first 2 to 3 years of the Reagan Presidency resulted in very mixed economic results \u2013 almost identical to President Carter\u2019s.\u00a0 The biggest identifying factor that our research team found was that the US Federal Reserve altered its rate policy in the early Reagan years from a \u201craising stance\u201d to a \u201cdeclining stance\u201d.\u00a0 Throughout Carter\u2019s term, the FFR rate change averaged +2.08.\u00a0 Throughout the first four years under Reagan\u2019s term, the FFR rate change averaged -0.7825.\u00a0 By 1984, the US Federal Reserve had lowered rates, twice, by an average of over 7% after raising rates every year since 1977.<\/p>\n

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(source: https:\/\/einvestingforbeginners.com\/us-gdp-growth-history\/<\/a>)<\/p>

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Is this similar to what is happening today?\u00a0 The US Federal Reserve began raising rates in December 2015 and continued to raise rates until August 2019 \u2013 nearly 3.7 years of rate increases after nearly a decade of near-zero interest rates prior to 2016.<\/p>\n

Another interesting facet is what our research team calls the \u201ccapital shift\u201d that has taken place since just before 2015 \u2013 where foreign capital has poured into the US stock market and asset markets for safety, security, and returns.\u00a0 Prior to the point where capital controls were instigated in China (in 2015), a moderate capital shift event was already taking place.\u00a0 Once China installed these new capital controls, attempting to prevent capital from fleeing their local economy, a broader shift took place where the US markets began to rally and where foreign capital was more actively attracted to the US stock\/asset markets because of the strength of the US Dollar and the continued rally in the US stock market.\u00a0 This is similar to what happened in 1983 through 1987.<\/p>\n

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These comparison charts of the 1980s and the current 8+ years of the S&P 500 charts highlight some very interesting facets of both peaks.<\/p>\n

_\u00a0 Support set up nearly 24 months prior to the collapse in 1987. This support channel became the ultimate price channel level to break as Black Monday hit.<\/p>\n

_\u00a0 Price was able to rally above the upper price channel three times before the breakdown event began.\u00a0 This upper price channel mirrors the lower price channel slope and is anchored near the tops after the initial support bottom is setup.<\/p>\n

_\u00a0 The final rally attempt before Black Monday initiated near early January 1987 \u2013 nearly 9 months before the peak and 10 months before the price breakdown began.<\/p>\n

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Within the current S&P 500 chart, some slight variations are present.<\/p>\n

_\u00a0 Support set up nearly 44 months prior to the peak in 2019. This support channel is the ultimate price channel level that acts as ultimate support for the price trend.<\/p>\n

_\u00a0 Price has been able to rally above the upper price channel four times since the ultimate support level was set up in 2016<\/p>\n

_\u00a0 The most recent rally attempt initiated near early January 2019 and has lasted nearly 9 months before the current peak.\u00a0 As of today, we are nearly a full 10 months into this new price rally.<\/p>\n

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Although there are subtle differences in the price setup, rotation, and trend lengths, we can certainly see a similarity in between these two chart and we believe the recent price advance in the US stock market, along with the fact that capital has continued to pour into the US markets over the past 3+ years, sets up a similar type of event where current price levels, valuation, and risks may have been under-weighted dramatically.<\/p>\n

Could another Black Monday type of event happen in today\u2019s global markets?\u00a0 Certainly, it could.\u00a0 All it would take is for global traders\/investors to suddenly realize there is a new degree of risk or excessive price valuation that currently exists in the markets and to begin liquidating assets in a mass event.<\/p>\n

What would it take for something like this to happen?\u00a0 Quite possibly, China or Hong Kong could, again, present a very real risk for the global markets if a threat to the lower price support channel becomes threatened.\u00a0 A collapse in true value would relate as a potential \u201ctrue price exploration\u201d event (a reversion event) where global traders may attempt to retest substantial historical support.<\/p>\n

Our belief is that true historical support currently resides near 1860 on the S&P 500 \u2013 which aligns with the same type of price reversion that occurred in 1987.<\/p>\n

Time will tell if we are currently set up for another Black Monday event.\u00a0 In fact, we may know as early as Monday, October, 21.\u00a0 Until the lower support channel is seriously threatened by any new downside price move, the chances of this type of event happening are fairly low.\u00a0 As you are well aware..\u00a0things can change very quickly.\u00a0 Pay attention to near originating out of Hong Kong, China or Asia over the weekends as any type of real risk could spill over into the UK and US markets very early on Mondays.<\/p>\n

As a technical analysis and trader since 1997, I have been through a few bull\/bear market cycles. I believe I have a good pulse on the market and timing key turning points for both short-term swing trading and long-term investment capital. The opportunities are massive\/life-changing if handled properly.<\/p>\n

I urge you visit my\u00a0ETF Wealth Building Newsletter<\/strong>\u00a0and if you like what I offer, join me with the 1-year subscription to lock in the lowest rate possible and ride my coattails as I navigate these financial market and build wealth while others lose nearly everything they own during the next financial crisis.\u00a0Join Today to Get a Free 1oz Silver Bar with a subscription \u2013 Offer Ends This Week!<\/em><\/strong><\/p>\n

Chris Vermeulen<\/p>\n

TheTechnicalTraders.com<\/u><\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

By TheTechnicalTraders.com Our research team has been attempting to answer the question that seems to be on everyone\u2019s minds right now \u2013 are we setting up another Black Monday type of event in the global markets and what should traders\/investors know before the event potentially takes place.\u00a0 Our research team has spent the past few […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-158094","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/158094","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=158094"}],"version-history":[{"count":1,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/158094\/revisions"}],"predecessor-version":[{"id":158099,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/158094\/revisions\/158099"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=158094"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=158094"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=158094"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}