Pop

For much of the last decade bears have been claiming that the "historic," "unprecedented," and "reckless" experiments in financial engineering by global central banks, led by the FOMC, had produced the mother of all bubbles which would end badly. They were made to look foolish by the market's relentless upper 90 trajectory as 401k millionaires have ben minted by the truckload. 

I study technicals, and one thing that is fascinating is how much market price action follows unwritten rules. Price discovery follows patterns, sometimes in ways that nature itself is ordered. The presence of the Fibonacci ratio in nature is well-documented. Why is it there? We can't really explain it, but we also cannot ignore its existence. 

Consider another example from nature- the hurricane. We know that a hurricane has certain limiting factors. First, it must have plenty of warm water beneath and in front of it. The warmer the water, the stronger the storm *could* become. We know that there is absolutely zero chance of a hurricane forming in the North Atlantic in January. The water doesn't support it. There are other limiting factors as well, such as wind sheer and topography near the storm's circulation center. However, when all of these factors align, we can have a good idea of the threat level of a hurricane in the days leading up to its landfall with surprising accuracy. 

So it is now with stock market. The waters have been very warm for a long, long time now and nothing scary has happened. But the conditions are ripe for a historically rapid intensification. I expect a crash of 30% over a two day period, which will represent a 38.2% retracement on the S&P 500 relative to the 2009 lows. I'm not going to share my charts here because I'm starting to view them as IP that I should keep closer to the vest, but I will share one chart with you that should catch your attention.

I will also say that the VIX has been suppressed since 2020 and is primed for a major breakout. The August spike, which many have called a growth scare, was really more of an outer band. The eye wall is still to come. And that is not to say that it's clear skies after this crash. This could be a very long hurricane season. I hope you've boarded up some windows.