I’m sure that most folks who follow us at Crush The Street already view this as a foregone conclusion. Nevertheless, I think it’s worth reminding ourselves that a market crash is likely inevitable at this point. On Friday, the Dow Jones lost 623 points, denying what was a pensive recovery trek from last week’s 800-point collapse.
Technically, the venerable index looks ugly. When the 800-point collapse occurred, it took the index down to the 200-day moving average. With Friday’s volatile session, the price action is back straddling this support line. The problem is that the 200 DMA has acted as support for downturns throughout this year. Clearly, the bears are hungry, eager for massive profitability.
Of course, with a market crash, they’ll get it. One of the main reasons why financial experts fear a steep correction is that panic generates a stronger emotion than extreme bullishness. Many folks are okay with not participating in an opportunity. However, these same people are not okay with losing money.
Furthermore, with this current bull market being the longest in history, a market crash is historically unavoidable. After all, investor sentiment works in cycles: there’s no such thing as a permanently bullish nor bearish trendline.
But how low can this coming correction take us?
This Next Market Crash Could Set Us Back Years
Logically, the likely negative price target is somewhere below the 22,000-point level. Back in December of last year, the markets collapsed when the U.S. and China failed to secure a trade deal. Yet the benchmark indices rebounded on renewed optimism for negotiations.
Obviously, the biggest concern now is that tensions will remain for years. Both sides have much to lose reputationally on the geopolitical and domestic fronts. And frankly, the Trump administration did not tackle the China problem diplomatically. Given his zero-sum game personality, I’m not surprised that the Chinese responded the way they have.
Whatever the case, the markets may briefly drop below 22,000 points. But that probably won’t be the last of the market crash. Ultimately, I think we’re going to unwind several years of price action. For the intermediate term, I don’t think it’s unreasonable that the Dow Jones could fall to 17,000 to 18,000 levels.
Why there? For one thing, this is where support is the strongest. In many ways, it would be a blessing if that’s where the bleeding would stop. Because if the markets can’t hold this point, we could be seeing anywhere from 13,000 to 14,000 points. And that would have all sorts of ugly implications.