Ep 176: Recession is Near, Facebook Stock, Trade War, Fed Raises Rates

March 22nd, 2018

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We're going to cover a handful of economic news

  • We're going to take a look at Facebook
  • We'll look at the federal interest rates - the yield curve and
  • Talk a little bit about China
  • Overall the economic factors that are moving the markets

I'll also share with you my insights on:

  • The technicals - the charts of what's going on underneath the surface,
  • Why I think there could be some major trouble ahead for the stock market
  • I'll give you a few quick bullet points of why this is my thought process - obviously, it's not going to be a thesis, but I'll share with you my thoughts and ideas and areas of concern.

Let's take a look here at Facebook

Facebook's a big mover over this last week. It had some scandals that were in the spotlight. There's been a data breach, data problems and misuse of data. Consequently, this stock is selling off in a big way over the last few days.

But there are still people that say that this is a buying stock. And I again agree it is a buying stock but at the right price. What is that price?

We'll take a look at Facebook's charts. I'll give you the longer-term picture in perspective.

The faster you have a growth; certain things have to happen for you to move at that speed.

Now what happened with Facebook is a little bit later through this period, we accelerated that movement. That movement started to accelerate in this significant way.

So, when we now look at that angle has become much steeper. Nearly double. If you look at percentage terms, twice the speed, which means you're set up to be cooking and flying high. This was a little subtle problem, but when all things said and done for the year, it was doing quite well. But now, you can see eventually things caught up to the company.

Now that we've broken this level right there at that price point - which in this case will be about 173/170. You can also of course note the bearish volume picking up right there recently which also is causing a little bit of trouble for the stock.

If we get back to a reasonable level - which is this yellow line, I'd say that's about a 50-degree angle. We come back into this price level here and bounce then I think we should be okay.

But if you're trying to sustain the second level - this acceleration level, you know it's going to be very difficult to keep it on its path that way.

If you need the stock to be bullish, you got to stay in this line. If you're okay with it breaking down and you want to even monster pull back, then well you can pull back beyond the 150 with volume. If that continues to grow and fear continues to grow, then that can quickly happen. If this one goes along with other companies and they all start going together well, that can create more problems.

That's kind of the first main thing that I wanted to cover.

Also, when Steve Wynn started selling part of his shares

He's selling about 1/3 I believe. When we look at that company over the long term, you can see between 2009 and 2015 ABCD pattern. We had a quite a bit of sell-off from 2014 to 2016, good digestion periods in between, and then finally breaking up past that hundred and ten hundred twenty dollar level to where it got into back into around 200 level.

200 was a little bit stretched, in my opinion, for the speed for 2017. Again, look at that angle, how fast that is. I would say a better angle would be something along the lines of this. If you take a point all the way in the back over here and draw it, that's a much safer angle.

Anyways, when we look at these angles right here, we were accelerated quite a bit, and we're struggling, so a little pause is expected.

We're looking at the daily. So if you're looking at the daily chart, somewhere around, 160 could be an excellent support level but right now that stock is struggling at 190/200.

You have some resistance because you had a massive pop a little too far accelerated, sell back, again a secondary pop, and now it's pulling back still.

That's where the stock could find some shorter-term support. If you're looking for a long-term overall path, looking at the angle you could say 150 is where it should be. So if it pulls back a little bit, you're still kind of in that range. But this depends on the overall market and how that plays out,

My next point is the Federal Reserve and interest rates

They raised rates. They talked about saying they are going to grow three times this year, probably at least, and they may raise four. They didn't say four right away, so the market was pretty happy about that.

If you look on the intraday on the market where was it yesterday, it had a lot of movement right there.

First, people were delighted because they thought well it's not going to be four it's going to be only three, so the market was up like 20/30 points. And then, all of a sudden, you get this massive pullback because then they started talking.

Now, this market didn't digest it very well. Because then, also coming in, when we look at this next day today, we were down 35/55/50 points. At the open, we're down about 20. But then this continued to accelerate.

This also is in line with Trump talking about imposing more trade problems with China

The markets worried about retaliation from China. This is the whole big premise of why they have things like the TPP so that one country is not too big. You have a lot of countries, smaller countries.

That's what the Europeans did. They have the EU where they joined forces together where now you have the Euro instead of just one kind of currency for every different country. Now they can negotiate trade and have a little bit of stronger power. So instead of a hundred different nations trying to settle trade, you have one region or area. Five to seven regions is a lot better than a hundred because then the more prominent companies for countries can take advantage of the smaller countries.

Ultimately, I think those things like the TPP work out well in concept between the deals and country to country. They may not work out as well on paperwork, but the idea is the right approach.

When we look at imposing additional tariffs on Chinese goods, in the end just like we mentioned this with the steel and aluminum, it just will get passed back to the consumer. It is because China is going to go ahead and impose on their tariffs and rates and those kinds of things.

We get a lot of things from China. Americans would not have the lifestyle that they have unless they got their goods from China. We're mainly using the labor force from China, from all the cheap labor that they have over there. We're ending up buying all these Goods, and half the time you don't even know where the stuff is made. You think it's made somewhere in a proper factory, but it's made in China.

Or they might even have secondary factories, where they make it in let's say a sweatshop. That sweatshop in China moves it over to another Chinese factory that's a little bit more legitimate. And then that ships it to the US.

So now, all of a sudden, you get it from a secondary company from China - which may not be as bad as a sweatshop, but it's they're buying it from all these other areas. It just creates problems for us in the long run if you're looking for cheaper goods, economically, because a lot of your products and goods are still coming from China.

If you're looking for quality of life, looking at from the digital technology, all these things will be raised higher at prices. Not to mention then tariffs will be imposed on other things.

Just be aware that these types of things are never suitable for growing an economy. The way that you grow things is to add value, just like with the business.

Look at the yield curve here and where it starts talking about recessions

Initially, when I spoke about the election, I assumed that having a Republican and house, not to be biased, but just the way that the markets move will more than likely lead to a recession.

Here are my quick points

We had a very accelerated market. When we look at the overall market of the SP, this goes along the lines with Obama as well. We've had a very accelerated market. Since Trump took office, this curve started to come up even steeper like a rocket ship because of tax cuts to the corporations and all these things. But then, we began to get this further acceleration right there. Started to create some problems.

With a low VIX that we've had over the last six/eight years, the yield curve starting to flatten a bit.

Then, we have all the debt that America has that continually is growing not paying it off. China doesn't want to buy our debt.

You have rising interest rates. So many factors are starting to contribute to higher and higher degrees in the potential of a recession.

Just understand that you're starting to reach some stretched levels. The further you stretch something, the more likely it's going to pop.

Author: Jorge Diaz

I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

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