How Low Can We Go?

by JDH on September 24, 2022

The markets are going lower.  I can foresee no circumstance where, while in a recession, the Fed raises interest rates, and the markets go up.  That’s not how it works.

Yes, we could have a short-term bounce.  That is inevitable.  We will likely have one this week.

But in the medium to longer term, there is no place to go but down.

How low?

The first line of resistance on the SPX would be the pre-pandemic highs in March 2020 of just under 3,400.

That’s only about 7% lower than where we are now, so that’s almost a lock.  Below that?  Who knows?  The next minor resistance level is around 3,200, and then below that it’s the April 2020 lows around 2,200.

The SPX is down over 24% year to date.

Gold is down 10.5% year to date, so gold has performed relatively well.  I suspect gold will continue to hold it’s value better than stocks, but it doesn’t like you’ll be getting rich off gold anytime soon.

And then we have our favourite crypto:


Year to date Bitcoin is down around 60%.  It’s not pretty.

If you want a positive spin on it, Bitcoin is now worth what it was worth in December 2020.  It’s not a decade-long collapse (Bitcoin is only 13 years old), but we have lost two years of price appreciation.

How low can Bitcoin go?  $12,000 appears to be the next target, around the previous highs of June 2029 and the summer of 2020.  Below that, $4,000 is in play.

I have no idea if it will get there, but here’s what I do think:

In the next three to five years we will see Bitcoin at $100,000.

Not tomorrow.

Not this year.

But institutional adoption is happening, and if you look at on-chain analytics a majority of coins have not moved in the last year.  There may be no new buying, an obviously there is some selling, but Bitcoin has crashed a few times before, and eventually recovers to new highs.

Interest rates will increase again in October.

Unemployment is rising.

The recession, which is obvious in the real world, will eventually be confirmed by economists.

And then, and only then, can the Fed pivot.  (A year too late, but that’s how it goes).

Then, and only then, the buying will resume.

So for now, raise cash, sit and wait.