Decisive Market Future Next Week

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Interestingly, at the backdrop of all negative global economic prognosis, most US market indexes have arrived at or near historical heights at the market close on Friday (Chart A). There is an important observation for the market trend next week. There can be two scenarios; the US market may break above historical height or drop back down again.

Chart A ~ DOW composite index, a good represent of US market has come to a decisive moment, the next move will be significant for market’s future direction.

Two Possible Movements

If the first scenario happens, it means the US’s economy is not in any way near to recession. The long-time old bull is still strong and healthy. It will run for a certain length of the period making many market abstinences very disappointed and angry. If the second scenario happens, it does not mean the US economy is confronted with danger. Because it will possibly drawback and create another attempt to break up resistance. It will be called a triple top break up phenomenon.

However, if the market drops back down next week, there will be another less likely formation that the US index is moving sideways creating a market-topping and a reversal from bull to bear is possibly at hand. 

Looking at the Shanghai Composite Index (Chart B), a reversal market trend to become a global bear will be very much unlikely. Because the biggest bet or causation for the global economic slowdown is the trade war fight between the US and China. With the latest increase in the tariff rate implemented by Trump against China, China market did not perform as bad as expected. It probably shows that China’s economy has learned to be immune to the trade war threat initiated by the US.  China might have found its way of economic dealing.

Chart B – Even though China was attacked by Trump’s Trade War threat, but the performance of Shanghai Composite Index seems immune.

Investment Recommendation

A simple recommendation for traders and investors, though I do not see an immediate threat to the US economy, I would still advocate a conservative strategy in time like this. Because no one can predict the market with accuracy. Anything can happen the next day in market height time like this. 

It would be possibly a good time to take profit and minimize equity exposure especially true when your investment has seen profiting. Take a portion of the profit is nothing harmful but does not leave the market totally as just yet. Remaining minimum exposure will enable you to have a part if the US market breaks up above resistance and creates new historical height eventually.

Happy investing!

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The view and opinion expressed are personal views of the author and are subject to change based on market and other conditions.  This write up does not constitute sole advice for investment decision. Investors are advised to do further reading and research to conclude individual decision.

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