Many investors and traders probably felt quite lost in the current market and I have been receiving a common question – how low would the stock market go?
I will be sharing my trade plans which are prepared using technical analysis or chart reading. I mainly use trendlines, price actions and trading volume to make my assessments and they have made me a fortune trading the markets as a full time trader in the past decades.
These trade plans have been painstakingly honed and refined. They require a lot of work to prepare but you need to do this before putting trades in the market, just like you don’t go to war without a plan in the first place.
Straits Times Index (STI)
On 9 Mar 2020, my trade plan told me that there’s an important uptrend line, which if broken, STI could go to 2,659 support level or 2,523 strong support level.
Fast forward to 13 Mar 2020, STI indeed hit 2,529 which was close to my indicated strong support level.
I believe that STI must hit 2,230 before we can see a reasonable rebound coming.
What about Trump stimulus policies
When the downtrend is set in motion, nothing can stop it. Not even Donald Trump. Over the last weekend, we saw Donald Trump released a set of new stimulus measures and subsequently the Fed announced zero interest rate and to kickstart Quantitative Easing 4 (QE4).
How did the market react?
The US equity index futures faced a sharp selloff during the Asian trading hours to a point there was a trading halt as the circuit breaker limit was breached.
In the last 11 years of bull run, investors and traders have been very accustomed to The Fed and Donald Trump supporting the market at every dip. But this time it is different, no matter what they did, the market is no longer responding. That is a dangerous sign.
Dow Jones Industrial (DJI)
On 9 Mar 2020, my trade plan told me that a break below 24,680 would trigger a downward acceleration towards 23,930 and even 21,591.
On 16 Mar 2020, the trade plan had worked very well as DJI hit 21,591 and staged a strong rebound.
I believe DJI would go on to test 17,475. This may be quite unbelievable for you but we shall see.
For the last 11 years of bull run, the S&P 500 uptrend line has not been broken until now, with S&P 500 closing at 2,529 at the time of writing.
You can see the trade plan in the image below and the corresponding support levels for the S&P 500 as the prices fall.
I believe S&P 500 could reach the low of 2,330 by end of this week. The worst case would be 1,454.
The Worst Has Yet To Come
There are only 2 occasions the Wall Street was closed for trading. The first came in October 1997, where the circuit-breakers introduced after the Black Monday crash were triggered for the first time, as traders belatedly tried to come to terms with the Asian financial Crisis.
The second time was after the 9/11 attacks of 2001, when the damage from the collapse of the twin towers made it impossible for the nearby stock exchange to function. Trading was aborted on Tuesday, Sept. 11, and didn’t resume until the following Monday. This was a remarkably calm and orderly response.
I believe we could see circuit breaker hitting 13 pct and 20 pct triggering a trading halt for the 3rd time in history.
Investors have always relied on The Fed and Donald Trump to come to the rescue when the market tanked . They are doing damage control now and whatever they throw at the market in the last 1 week didn’t seem to work , in fact, it was counterproductive. This is an ominous sign of a big meltdown that is coming.
I am a full time day trader and have over 25 years of trading experience. I am also a 5 times award-winning trading representative from one of the largest stock brokerage firms in Singapore. I’m also the first trader who did LIVE trading on SGX seminar room with over hundreds of professionals watching me trade. My work has been featured on SGX, Societe Generale, The Business Times, The New Paper, Zao Bao and Wo Bao, and through the years, I’ve helped hundreds of students succeed in their trading journey.