Stock Market Crash Evidence – A Storm Is Brewing

Author – Connor Woods, Senior Market Analyst

Date: August 22nd– August 26th 

Last week, the markets were left slightly confused at the mixed messages traders received from the Federal Reserve. They highlighted the importance of fighting rampaging inflation, but at the same time voiced concern over tightening financial conditions ‘too much’. However, is the evidence that another stock market crash is coming becoming clearer？

Stock Market Crash Evidence

As it stands right now, U.S indices are down at an average of 12% this year. This average was once at 26%, and this is bear market territory.

The economic situation in the world right now is depleting significantly. Inflation is at 40-year highs for the most powerful economies, and stock markets historically react negatively to inflation.

The U.S entered a technical recession along with the UK and others, and experts have warned living standards are falling at a rate not seen before. At the same time, the China property sector is collapsing.

Looking at the charts, the VIX is a great chart to study. Volatility has fallen as the stock market has recovered, which is a classic sign of “FOMO retail”, and systematic buying. This tends to paint a false picture of the true market value. This index is now starting to form a base, and if it starts to tick up could be the start of the sell off.

At the same time the VVIX, which is volatility of the volatility index, is starting to turn up, another sign that something is rumbling.

The S&P500 and the Dow Jones have both tested its 200-day simple moving average. The NASDAQ (the weakest index this year) is starting to turn over without even a retest. A combination of both the fundamental and technical outlook mean that a storm is brewing.

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