Global financial markets were already hobbled by the original COVID-19 virus – struggling to regain their economic foundation after many months of the unprecedented central bank, government and humanitarian efforts to move us towards recovery. Now, the Omicron strain of the COVID virus has potentially toppled the apple cart, while global inflationary and economic concerns are peaking. What's next?
Why Traders Need To Consider Future Risks
This recent article caught my attention as I caught up on today's morning events (Source: Yahoo! (NASDAQ:AABA) Finance). It highlights the incredible inflationary trends occurring because of disrupted supply channels related to the original COVID-19 disruption. Could you imaging what would happen if a new virus strain prompted further lockdowns and labor/supply disruptions for another 12+ months – or longer?
The massive amounts of stimulus and money printing that has taken place over the last 4+ years by global central banks may be acting as an anchor for growth and starting to weigh down global markets. Easy money policies lead individuals and corporations to borrow more and more capital expecting growing returns from sales. What happens when we start to see a mild economic slowdown take place, possibly complicated by inflationary price trends and consumers that pull away from making big purchases?
That exact type of scenario is playing out in China right now, and it is relatively easy to see that excessive debt and lack of economic growth lead to a disastrous outcome (Source: Yahoo! News). When you add extreme inflation into that mix, the equation becomes even more volatile.
Why Is Stock Market Falling Again?
The answer is pretty clear, I think. Traders and investors around the globe continue to fear the worst for the new Omnicron COVID strain, and for good reasons.
- They don't see the current vaccines working on it – yet.
- Various countries are talking about lockdowns again.
- Unemployment could spike.
- Inflation could spike out of control if lockdowns happen.
- The stock market could collapse.
- Housing could collapse.
- Certain global central banks and governments could collapse.
- And many more.
Custom Index Show Price Weakness Has Already Started
This Weekly Smart Cash Index, which tracks global market trends more efficiently, shows a decidedly bearish price trend has been in place since February/March 2021. On the right edge of the chart, the recent price weakness is about to break below the $177 level – breaking downwards and attempting to reach new price lows.
This downward pressure on global markets shows how the U.S. markets are acting in an opposite trend (trending higher right now), while global markets have experienced an extended price decline over the past 8+ months. If the Omicron virus strain prompts new lockdowns and/or supply and labor disruptions, we may see a significant collapse in foreign markets over the next 6 to 12+ months. Possibly taking place while inflation spikes higher – leading to a bigger problem for economies struggling to recover.
This Weekly Custom Volatility Index highlights a very interesting divergence between price trending and the RSI trends. While the Volatility Index was pushing higher and higher over the past 6+ months, RSI shifted into a downtrend – suggesting the momentum of the U.S. stock market uptrend was weakening dramatically.
Now, with Omicron here, the U.S. markets could break downward – pushing the Custom Volatility Index back below 6.0 or 7.0 and possibly falling to extreme lows near 1.0 or 2.0 for an extended period.
