The Second Great Depression Scenario for SPX, XAG and XAU
"Too Terrible to Contemplate" would be the byline of this post if I wasn't struck by the fascination of contemplating if this was a Second Great Depression where would by target be? Either for my short position or when would I finally go long again?
Data on the SPX was pretty sparce in the olden days as there was a lot of math and charting to be done by hand. To help make that visible I have the 1 EMA on the chart. It does not provide OHLC candles but it is better than nothing.
You can break this down into multiple stages but I am going to keep this simple.
Blue phase
First level of long term consolidation in the uptrend. Once this is complete price action squirted up and it creates a point of contact on the trend line.
Grey Phase
Second level of consolidation and a bounce at the trendline. There was a series of lower lows that I see as creating a red trend line that was ultimately the target of the panic selling of the Great Depression. In Prior to the GD the price acton tested the resistance of the blue phase and confirmed it as support three times before ending in a parabolic move to the upside. A set up to the Second Great Depression does not have price action testing previous resistance as support and it also does not terminate in a parabolic move. There are a series of lower lows that create another red trend line that could be a target for panic selling in the Second Great Depression.
Purple Phase
Bulls get an absolute fonging. Like Jesus cleansing the temple mount of merchants fonging. In the Great Depression the black trend line did temporary act as support as price action stalled but eventually the black line failed and price action dipped over 40%. The red trendline comes into play and the S&P surges when it finds it as support ... to a lower high and dump once more. It is not until price action find support on the 600 month EMA that price action has a foundation to start setting relatively higher highs.
Senario Casting
Somehow despite the yield curve inversion, repo market drama, disease and quarantine, and over-indebtedness of the world price action finds support on the black trend line & 400 month EMA and continues upward on is merry way. Perhaps even parabolically! (I consider that the least likely scenario). This scenario also includes the S&P becoming range bound and somehow moving sideways for 5 years before hitting the black trend line and going up again.
Price action replays the Second Great Depression like it does the first. The black trend line is broken and it isn't until the red trendline comes into play that it makes sense to go long in equities and Wall Street. There may be plenty of main street opportunities and all that, but Wall Street still has its head where the sun don't shine. (at this point I think this is my highest probability scenario)
Somehow price action finds support somewhere between the black and red trendline. Perhaps on the 1000 EMA or SMA (not shown). It is easy to imagine all of the tradingview posts, all the twits, youtubers and talking heads on TV talking about the 1000M SMA/EMA and the support to be found thereon. This does not sound unlike or unreasonable especially if price action is near $1,000 and the 1000M MA.
Silver and Gold
Now for the silverrbos and the goldchads. Many experienced traders are expecting some selling of paper gold and silver as traders get margin called on their equities positions and have to sell what they can (not what they want) while they hold on their way to liquidation. And these experienced traders are happy to hold through the dip and accumulate more physical precious metals at better prices.
But at a certain point people are going to have to sell their physical precious metals if this gets really bad. The paper losses are one thing, that can be managed. But what happens when a lot of the older generation dies, unfortunately from corona-virus or natural causes, and their inheritors dump the precious metals because they don't appreciate them, or because the selling of paper gold and silver is driving down the spot price? The price of gold was down from 1929 to 1931 and flat from 1929 to 1932
Year
1929 $20.63
1930 $20.65
1931 $17.06
1932 $20.69
>thebalance.com/gold-price-history-3305646
Silver likewise was kicked in the balls and went from near $8 to sub $5.
>macrotrends.net/1470/historical-silver-prices-100-year-chart
Closing Remarks
I do this for free. I am not a financial adviser or a Certified Market Technician. This tv Idea is grand in scope and if you like it just give it a like and if you reference it cite me. If I am right there is a lot of money to be made to the downside so long as you don't FOMO into a short squeeze and a lot of money to be lost if you hold. If I am wrong then meh, this wasn't financial advise anyway. As i said, I do this for free without any credentials.
Please see some of the linked post for a wider macro view before you make your conclusions.
Data on the SPX was pretty sparce in the olden days as there was a lot of math and charting to be done by hand. To help make that visible I have the 1 EMA on the chart. It does not provide OHLC candles but it is better than nothing.
You can break this down into multiple stages but I am going to keep this simple.
Blue phase
First level of long term consolidation in the uptrend. Once this is complete price action squirted up and it creates a point of contact on the trend line.
Grey Phase
Second level of consolidation and a bounce at the trendline. There was a series of lower lows that I see as creating a red trend line that was ultimately the target of the panic selling of the Great Depression. In Prior to the GD the price acton tested the resistance of the blue phase and confirmed it as support three times before ending in a parabolic move to the upside. A set up to the Second Great Depression does not have price action testing previous resistance as support and it also does not terminate in a parabolic move. There are a series of lower lows that create another red trend line that could be a target for panic selling in the Second Great Depression.
Purple Phase
Bulls get an absolute fonging. Like Jesus cleansing the temple mount of merchants fonging. In the Great Depression the black trend line did temporary act as support as price action stalled but eventually the black line failed and price action dipped over 40%. The red trendline comes into play and the S&P surges when it finds it as support ... to a lower high and dump once more. It is not until price action find support on the 600 month EMA that price action has a foundation to start setting relatively higher highs.
Senario Casting
Somehow despite the yield curve inversion, repo market drama, disease and quarantine, and over-indebtedness of the world price action finds support on the black trend line & 400 month EMA and continues upward on is merry way. Perhaps even parabolically! (I consider that the least likely scenario). This scenario also includes the S&P becoming range bound and somehow moving sideways for 5 years before hitting the black trend line and going up again.
Price action replays the Second Great Depression like it does the first. The black trend line is broken and it isn't until the red trendline comes into play that it makes sense to go long in equities and Wall Street. There may be plenty of main street opportunities and all that, but Wall Street still has its head where the sun don't shine. (at this point I think this is my highest probability scenario)
Somehow price action finds support somewhere between the black and red trendline. Perhaps on the 1000 EMA or SMA (not shown). It is easy to imagine all of the tradingview posts, all the twits, youtubers and talking heads on TV talking about the 1000M SMA/EMA and the support to be found thereon. This does not sound unlike or unreasonable especially if price action is near $1,000 and the 1000M MA.
Silver and Gold
Now for the silverrbos and the goldchads. Many experienced traders are expecting some selling of paper gold and silver as traders get margin called on their equities positions and have to sell what they can (not what they want) while they hold on their way to liquidation. And these experienced traders are happy to hold through the dip and accumulate more physical precious metals at better prices.
But at a certain point people are going to have to sell their physical precious metals if this gets really bad. The paper losses are one thing, that can be managed. But what happens when a lot of the older generation dies, unfortunately from corona-virus or natural causes, and their inheritors dump the precious metals because they don't appreciate them, or because the selling of paper gold and silver is driving down the spot price? The price of gold was down from 1929 to 1931 and flat from 1929 to 1932
Year
1929 $20.63
1930 $20.65
1931 $17.06
1932 $20.69
>thebalance.com/gold-price-history-3305646
Silver likewise was kicked in the balls and went from near $8 to sub $5.
>macrotrends.net/1470/historical-silver-prices-100-year-chart
Closing Remarks
I do this for free. I am not a financial adviser or a Certified Market Technician. This tv Idea is grand in scope and if you like it just give it a like and if you reference it cite me. If I am right there is a lot of money to be made to the downside so long as you don't FOMO into a short squeeze and a lot of money to be lost if you hold. If I am wrong then meh, this wasn't financial advise anyway. As i said, I do this for free without any credentials.
Please see some of the linked post for a wider macro view before you make your conclusions.
Related publications
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