19 October 2017 (9:12 AM EDT)
Finally, it looks like we are going to see a correction in U.S. markets today, which has been long overdue.
As we have been writing previously, global stock markets have been ignoring the current rally in U.S. markets and have been trading on local cues. We have also discussed lower European futures in our previous post and European markets are now trading with big losses following those earlier negative numbers due to regional worries.
U.S. stock futures are also highly negative today. Futures of Dow Jones are down by nearly -100 points, S&P and Nasdaq futures are also showing similar deep cuts, indicating a big gap down opening in U.S. markets today.
U.S. markets are showing such highly negative numbers for the first time after almost two month’s strong uptrend.
Why this sudden downturn in U.S. stocks?
Because the U.S. Treasury Secretary Steven Mnuchin has given the same warning which we have been writing all along- that, stock markets could crash if tax reforms do not materialize!
We have been expressing our concerns about this “hope rally” in U.S. markets and have been warning that all hope rallies usually have a disastrous end. A statement like that from the Treasury Secretary is nothing less than a warning to markets to cut down their expectations and come down to realistic levels. It also could be a ground preparation to end stock markets’ expectations and get them ready for the inevitable disappointment of having to tax reforms. We have seen this kind of “preparation” from the Fed whenever the central bank is about to change its policy.
So, now we just have to watch how low U.S. markets will go after the opening bell and a very low opening levels. If major indexes start making lower highs and lower lows, that would indicate a trend reversal. However, if major indexes bounce back from any support level, then it will indicate a sideways trading pattern.
Watch carefully how the trend unfolds, then trade accordingly.
Good luck, enjoy the session!