Our research team has been all over this longer-term Pennant/Flag setup and the potential for the breakdown in the US/Global markets. The US manufacturing data released today confirmed what we believed would be the outcome of the extended trade issues between the US and China – a moderate slowdown in US manufacturing. Couple that with a US Fed that is attempting to navigate very difficult economic developments, consumers headed into the Christmas season unsure of what lies ahead, the US political environment (almost complete chaos) and uncertainties with foreign markets and we have a perfect setup for “investor malaise”.
This is something we last saw after 9/11 and even earlier in 1990 when the US invaded Kuwait. With each of these events, consumers and investors entered a phase of moderate indifference/malaise in terms of attention put towards global economics and investing as well as a general unwillingness to actively engage in anything related to investing and finance related. It appeared that consumers and investors were just busy taking care of their lives, families, jobs and watching the “news cycle” as it seemed every evening something new hit the news-cycles to distract from the markets.
If this is the case with the new Impeachment proceedings, the US Presidential election event (2020) and geopolitical trade/finance issues in today’s markets, then we may be entering a period where capital will continue to shift into safe-havens, protective stocks (DOW and dividend-paying stocks) and attempt to shun the high-flying, high-risk technology, Biotech and heavy-equipment and other stocks that rely on a booming global economy. We have about 13 months to go before the November 2020 US Presidential elections and it appears we have a dramatically changing economic environment ahead of us.
If this downward price move continues as we expect, capital will move away from risk factors and into safe-havens, bonds, and blue-chip stocks as a method of protecting against valuation risks. The NASDAQ and technology stocks could get crushed while the VIX index rockets higher.