The US-China trade war just might be the catalyst that will send America into its next great recession.
But I don't worry about that because there is always a profit opportunity that will follow…
In fact, there is one indicator that shows a major 20% crash for the S&P 500 is likely, thanks to this impending recession.
Let me explain why the S&P will fall...
The manufacturing sector is now in a recession
With the continuing US-China trade war, we are now seeing major economic and manufacturing problems arise in the US.
As I mentioned in a previous article
, the ISM Manufacturing PMI has come in below the 50 level mark for two months in a row.
And as measured by the Federal Reserve, with the output shrinking over two consecutive quarters this year, the US manufacturing sector is now in a recession.
And according to the index drawn from purchasing managers, September’s drop-in manufacturing was the steepest since 2009, with production, inventories and new orders all dropping.
The “domino effect” for America’s next recession
The problem with the manufacturing recession, is that it will, create a domino effect which will, lead to other sectors falling.
Take this year’s rail road sector for example…
The drop in carloads for large US railroads increased to 5.5% in the third quarter. Shipments are down with coal, grain, chemicals, consumer goods, and autos.
This makes it the biggest drop in three years, according to the weekly reports from the Association of American Railroads.
And with the US-China trade war making shippers more anxious and cautious with their freight orders – this will continue to add to the cargo crumble.
And so, we’ve confirmed that a recession in one sector can lead to a recession in another. But more importantly, when it comes to America I like to measure its performance based on its biggest stock market with over 500 US companies listed. I’m talking about the S&P 500.
Here’s why I foresee a 20% crash for the S&P 500
Looking at the weekly chart of the S&P500, you can see the price has been making higher highs since January 2018.
However, the RSI indicator hasn’t…
The RSI or Relative Strength Index is a popular indicator used for when you buy or sell trades.
All you need to know is the RSI measures the speed and change of market price movements.
And if you can compare the movement in the share price versus the movement on the RSI, you’ll be able to ‘probability’ predict which way the market will go.
For this article, there is one signal on the RSI that is showing major downside to come for the S&P500.
I’m talking about the Negative Divergence that has formed.
The negative divergence is when the price of the market moves up, while the RSI falls simultaneously. This means, the momentum to the upside is slowing down and we can expect the market to drop to its next strong floor level (support level). In this case, the next target for the S&P500 is set to fall to 2,400.
And so, looking at the chart above we can conclude three things for today’s chart analysis…
The market price of the S&P 500 has been moving up.
The RSI has been falling (hence a negative divergence).
The next strong floor level (support level) is at 2,400.
This means we can expect a 20% drop on the S&P 500 in the next couple of months, which we can profit from.
Analyst, Pick Pocket Trader
A Message From The Publisher, FSPInvest.co.za