MENT Grey Swan Warning
September 12, 2020: Released Jointly by MENT.COM Technologies and The Technical Traders LTD.THE SETUP – POSSIBLE MASSIVE PRICE COLLAPSE IN THE WORKS
Our researchers believe a major price event, we're calling it a Grey Swan” event, is about to unload on the US and global markets. Our deep market cycle research suggests a major price event is about to unload on an unsuspecting market. After the US Fed and global central banks have poured trillions into preventing the COVID-19 virus event from disrupting capital and credit markets, we are now at a point where a confluence of major cycle and price events appear to be converging.
We are terming this setup a “Grey Swan” event. What is a Grey Swan? We believe a Grey Swan even is an event that is clearly evident to investors and traders given the economic data, future economic expectations and the phase of the market trend. Currently, we are in what we believe is an “Excess Phase” - which is very similar to the 1998~1999 DOT COM bubble rally. This phase is indicative of spiraling upside price trends based mostly on speculation and retail trading – ignoring the obvious liquidity, solvency and future economic expectations of the organic local and global markets.
A Grey Swan Event is the sudden realization that the party won't go on forever – much like the end of the DOT COM bubble. Where traders/investors suddenly realize the current price levels and valuations of a hand full of stocks are so disconnect from the reality of the market that the markets contract away from these risks. Think of it as “we should have seen it building, but we were too busy trying to ride the upward trend that we didn't pay attention to the risks”.
The setup is most clearly seen in the SPY and the FAANG index. A clear downside price rotation has taken place and there is a very clear support level that is in place on the chart. If this support level is broken to the downside, we believe a much deeper downside (unwinding of risk) will take place prior to the US presidential elections. If this support level is not broken over the next few days/weeks, we believe a moderate upside price move will take place to setup an ultimate peak in the markets within about 14 trading days. Eventually, this ultimate peak will likely present another volume price rotation in the markets that may present the real final top.
Notice the large Fibonacci Price Amplitude Arc near the “3” on this chart. This Fibonacci Price Amplitude Arc is critical to the understanding of price function. If our research is correct, this ARC will act as a very strong price inflection point – potentially collapsing price over the next few weeks and months. Additionally, pay attention to the upper YELLOW price channel that originates from the peak in 2018. This price channel is acting as a key “overbought” level in price. The US Fed was able to support the markets enough that speculators jumped into the trends in the technology sector. Now, after the major markets peaked near this upper channel – there is a very big risk of an unwinding of capital. We believe this unwinding could turn into a collapse if enough momentum exists the markets prior to the US elections.
The Fibonacci Trigger level near $333 is critical at this stage of price correction.
The FAANGs Index sets up a similar pattern with a very clear support level near $941.25. Because of the correction in the US markets and the technology sector, the current support level in the FAANGs Index becomes a very critical price trigger level. If the FAANGs Index collapses below this level, it could begin a downward price collapse that targets $782 or $700 to the downside. This could represent a huge 16% to 25% price decline in the FAANGs Index.
A breakdown below the $900 on the FAANGs Index would represent the potential start of a deeper price decline within the US stock market. This decline could prompt a -11% to -23% price decline overall.
DEEPER CYCLE ANALYSIS
Before we get further into price charts, let's take a look at my longer term cycle charts. We need to understand the broader Super Cycles and how they apply to the relationship of current price activity as we attempt to reconcile the opportunities that lie ahead of us. The ORANGE, shorter-term, cycle line is climbing higher after settling near 71% on 2019. The YELLOW, intermediate-term, cycle line is moving slightly higher after basing near 60%. The BLUE, longer-term, cycle line is staying flat/sideways near 58%. This suggests that the recent upside price rally, prompted by the US Fed and speculative traders, may have pushed price above the historical normal levels and a price reversion may be setting up in the near future.
These longer term Super Cycles suggest we move into a solidly bullish price trending phase after 2023. They also suggest that moderate upside price activity may be broken by volatile downside price events. The longer-term, BLUE, line suggests that no real organic upside price trend should exist until near or after 2023. Because this is the longer-term super cycle level, it suggests that any shorter term upside price event may contract very violently and deeply.
The Super Cycles suggest that we will likely find some “consolidation bottom” between now and 2023 whereas the current price highs, near all-time highs, are not supported by the Super Cycle structures.
This long-term mapping of 7/14 year price cycles suggests the peak in price cycle activity should have happened in 2017-18 (see the black line). Past market price cycle highs have triggered later into the high price cycle ranges (see the RED/PINK areas near the 80% to 100% top of this chart), but they never form near the low price ranges (see the GREEN areas near the 0% to 20% bottom of this chart). If we think about how unusual it would be for a peak in price to occur outside of these cycle ranges, in an opposite construct to the true price cycles and after a very deep price correction (setting up a deep price low), it starts to dawn on us that the current price highs are manipulated/false price exploration prompted by the US Fed and speculative investors.
THE CURRENT SETUP & WARNING
The reality is that the true price high did occur in 2018 and the previous price peaks in the market that were prompted by speculation and global central bank activities were really false price peaks – much like the one we are seeing right now (See the Smart Cash Index chart below). The peak in organic economic activity took place in January 2018. This was the true peak in the markets. Since then, the US stock market has declined into a sideways price channel with a range between 140~170 on this Smart Cash Index chart.
The Head-n-Shoulders pattern (see the MAGENTA lines on the Smart Cash Index chart) suggest a broader topping formation has setup. Additionally, we continue to see a downward sloping RSI peaking channel that suggests we have reached a peak level in price highs right now. If the Smart Cash Index chart is showing the underlying price structure related to true economic activity/recovery results, then we can see the current peak in price is still far below the level of organic economic activity from 2017 and early 2018.
Our researchers believe this conclusion suggests the peaks in 2019 and 2020 were driven by extreme “excess and speculation” related to the amount of capital being poured into the global markets and by speculators/traders chasing high-flying price trends (very similar to what happened in 1999~2000: the DOT COM bubble).
GOING BACK TO THE SPY CHART
Now, as we revert back to the first SPY chart showing our Fibonacci Price Amplitude Arc and other technical data, take a minute to try to digest what is really happening in the markets right now. We have shown you that the broader Super Cycle data suggests a moderate price basing should be setting up and that the 7/14 year price cycle data suggests we should be setting up a momentum base just after a peak level has been reach (in 2017-2018). The Smart Cash Index chart highlights the fact that the organic price trend peaked in 2018 (just as we suspected would be the TRUE PEAK in price). Yet, the current price highs are flying nearly 25%+ higher than that 2018 price peak. What could be causing price activity to be pushing so far above the true price peak level and why is this happening?
Next, we introduce the TTCharger Monthly SPY chart. This chart is very important to understand how the Expanding Wedge formation/pattern over the past 2.5 years has setup with extreme volatility in place. Remember, what causes the “excess phase” to take place is that a prior trend breaks away from true organic growth, but speculative traders/investors continue to pile into select sectors and push the trend higher because they continue to “feed the beast” in terms of outcomes. It happened many centuries ago with the South Seas Trading Company and it happened in 1927~1928 and in 1998~1999. The cycle of “excess” is hard to understand, but all you need to think of is a “feeding frenzy” where the primary feeders are those pushing the buying at every opportunity and pushing the mantra of “it will go up forever”.
Remember the Bitcoin peak where everyone was suggesting Bitcoin would rally to $50k or $100k within 6 to 12 months. Well, Bitcoin is trading at $10,250 now (nearly 33+ months after the peak and currently at a -47% level from the peak levels). The excess phase is the crazy, stupid money phase where everything seems so simple and the “we can't lose” belief seems un-phased – until it breaks down.
Now, back to the TT Charger Monthly SPY chart. Notice the Expanding Wedge formation highlighted by the DASHED RED bars. Also notice the “core price trend ranges” highlighted by the range envelopes on this chart. The deeper CYAN color range envelope suggests the deepest support level on this chart is currently at 245.25 – that represents a very deep -88.86 point (-26.60%) decline from current price levels. The secondary downside support envelope suggests additional support can be found near 284.35 – that represents a -49.68 point decline (-14.87%).
Historically, price as rebounded off of the secondary downside support levels four times since the bottom formed in 2009. Each time, price has rallied more than 32% (in the largest case rallying more than 85%). Yet, price only crosses the deeper CYAN envelope when a critical price trend change takes place or extended sideways price channeling takes place. If we are correct and a broader market decline is setting up where price may attempt to target the lower price envelop on the TT Charger price modeling system, then we are looking at a potential for a -16% to -26% downside price correction from current levels (possibly even lower).
If our Super Cycle research is correct suggesting a downward/basing price pattern should take place which will likely end near 2023, then we may be looking at a breakdown of this Expanding Wedge formation with a very strong likelihood that the original 2016~2018 price range may become critical support for the markets (see the YELLOW HORIZONTAL LINES on the TT Charger chart).
This TT Charger Gold Monthly chart highlights the continued rally in Gold that is clearly illustrating the underlying fears related to the global markets and credit expansion efforts by the global Central Banks. Pay very close attention to how Gold started to rally after 2000 and rose from levels near $275 to a peak just below $2000 in 2011. Now, pay attention to how Gold bottomed in 2015~2016 and has begun to rally higher from levels near $1080 to current price levels near $1950. If history is any reference, this upside price trend in gold translates to a roughly 90% price increase – very similar to Gold moving from $275 to $525 back in 2002 to 2005. What about the rest of the rally after 2005? Where is that represented on this chart? We have not even begun to see the type of upward price explosion that took place in late 2005 through the peak in 2011 yet. It's just starting that move right now (we believe).
If Gold could rally over 700% from 2002 to 2011 as fears drove a massive shift in how precious metals were viewed by the global markets, could another 700% rally take place from the recent lows near $1080? Could Gold really rally above $7000 and what would the US and global markets look like if something like this happened?
Here is what we are watching as confirmation of the breakdown in the markets and potentially the start of a new bearish price trend. Our Weekly Adaptive Fibonacci Price Modeling System is suggesting the 11,093 level on the NASDAQ is the current Bearish Trigger Level for price. Any breach of this level and a strong downside price close below this level will constitute a potentially strong new bearish price trend.
Right now, the NASDAQ is trading near 11,470 and is well above this Fibonacci trigger level. As long as this upward trend is price continues, we have no technical confirmation relating to the breakdown in price and/or the Grey Swan downside price trigger. We are still cautiously bullish at this time – watching and waiting to see if the Grey Swan trigger confirms.
The downside targets for the NASDAQ Weekly chart are clearly visible near 9500 (as the first level of support). The deeper Fibonacci price projection levels suggest a much deeper downside move could be a result of this potential Grey Swan warning.
This next ES, S&P 500, Weekly chart highlights our Adaptive Fibonacci Price Modeling System and the fact that the ES ass already traded below the Bearish Fibonacci Trigger Level – near 3395. Currently, the ES price level has rallied just above this Bearish Trigger level – which stalls the Bearish Trigger until price confirms a Weekly bar close below the 3395 level. Typically, price reacts to these trigger levels as a support/resistance level – moving below or above the level until finally breaching it or moving away from it (possibly resulting in a new bullish price trend).
Support below current price levels on the ES chart are found near 2715 & 2364. Again, we've seen an intra-week price breach of the Bearish Fibonacci Price Trigger Level and we need to wait for an end of week technical confirmation (a Weekly bar closing below the Bearish Fibonacci Trigger Level). If the top in the markets continues to form, as we expect, and the custom Indexes continue to present further confirmation of the downward rotation in price while Gold and Silver continue to rise, we are very likely to see a downside price rotation event take place before or near the November 3 election day. We believe the global markets will enter a phase of “unwinding the excess” as we continue to get closer to the November election day. This unwinding, coupled with the uncertainty of the election event and the potential change in policy/execution related to legal challenges, social unrest and other issues could paralyze the global markets to some extent.
Remember, this is a WARNING of a Grey Swan event – not a trade trigger (yet). We are issuing this warning because we believe our research team has accurately identified a potentially critical price trigger that may result in a very deep market price collapse. We are issuing this warning to attempt to alert our friends and followers of a very critical setup that MAY confirm over the next few days/weeks and result in a very aggressive downside price event.
Longer term, looking out 4+ years, we see a bottom forming in the markets between now and the end of 2023 which will likely prompt a very strong upside price advance based on our longer term Super-Cycle analysis. Ultimately, the next rally in the US stock market will target levels well above 40,000 for the Dow Jones. We just don't see that move happening without a deeper confirmation of the downside move taking place, as our Super-Cycle research suggests.
Stay prepared for this potential breakdown in the US and global markets. Protect your assets accordingly and take proper actions to effectively trade this event if/when it happens. We are still waiting for confirmation of this event and we feel it could confirm within the next 3 to 6+ weeks (before the US election date).
We'll leave you with this SPY chart highlighting the research and expectations from our research team. This is a Monthly SPY chart that highlights some of the key elements of our research and also suggests where we may find a bottom in the market (near or after September 2021 through April 2022). Be prepared if this event does take place as we are suggesting it might.