 Hey everyone, this is Dan, S&P reached its peak about 3 weeks ago, it then drifted down for a couple of weeks and recovered a little in the last few days. Unfortunately, it dropped back down by more than 2% today. NASDAQ has dropped 6% from its peak, even worse than S&P. Many people are blaming the current market problem on Evergrande. What is really happening with Evergrande? Will the collapse of Evergrande bring down the US market? How about the container shortage? What other problems are out there? How can we protect our investments if the market does crash? I will answer these questions in the next few minutes. This is going to be a big video with a lot of information, that's why I'm providing this table of contents. I will first look at the SPY and QQQ chart, and look at Google Trends and the Schiller PE Ratio to see how close we are to an actual market crash. And then we'll talk about the issues in China, including Evergrande, the high-non airlines bankruptcy and restructuring process, China's new restrictions on the market and the electricity shortage in China. And then we'll compare the HangSan Index with the S&P Index and the DAX Index for 2015. And then we'll look at what the Chinese government did in 2015 to try to turn around the market, and we'll look at what happened today. And then we'll touch on briefly the world container shortage. We'll look at the 10-year Treasury Rate, the Fed Asset Buying, and overnight reverse repo. And then I'll discuss how the market might recover, and I'll talk about my investment strategies. Let's look at the chart. This is the SPY ETF representing the movement of the S&P Index. As we can see here, it peaked out around September 4th at 454, and then it drifted down for the next 10 days or so, hit the bottom here on September 20th, and then it recovered pretty much for the next 4 or 5 days, but then today it went through a big drop of a little bit more than 2%. Definitely that's not a good sign. If you look at RSI, it was fairly high here, but not extremely high. Nevertheless, the market started to turn downwards. DMI is bearish ever since about 10-12 days ago, same with MACD indicator. This is the only chart for SPY, definitely very bearish since yesterday. RSI hit a high value here about 3 days ago and started to go down. DMI is bearish since yesterday, and MACD is bearish yesterday and today. QQQ, representing the movement of the NASDAQ 100. Similarly, it reached the peak of 382 on September 6th and started to drift downwards for about 10 days. Then it staged a small recovery, but it dropped with this big red candle today. Overall it's 6% from its peak, even worse than S&P, which is 5% from its peak. RSI reached an overboard situation here on 9-6, that's when it started to drift downward. DMI bearish, MACD bearish on a daily chart. On the hourly chart for QQQ, definitely also very bearish just like the SPY for the last couple of days. RSI showed an overboard signal here and also actually here and then DMI bearish since yesterday, MACD also bearish since yesterday. Let's look at Google Trend. The blue line here is the bullish indicator I used, which is the trend for the search phrase best stocks to buy. And the red line here is the bearish indicator, which is the search phrase market crash. In the last 7 days, the bearish indicator has been running higher than the bullish indicator. That means it's a bearish sign. And in the past day, definitely the red line is still above the blue line. So what does all that mean? If you look at the blue line and the red line during the pandemic crash from February to March of 2020, we can see the peak here for the red line and then another bigger peak here march for the red line. These are the corresponding dips in the S&P index in 2020. From the correlation between these two charts, we can see that Google Trends is indeed a good indicator for the market sentiments. Actually it's a leading indicator. That's why I've been monitoring Google Trends. And then if you compare 2020 to today where the red line is comparing to the blue line, it's almost the same situation like in February of 2020 when the pandemic crash was just started here. At this point, it was about to be down 5-6% and eventually S&P dipped 35% before it recovered. Of course, in the next few days, the market might recover and then the red line might go down, but if the red line continues to go up, we better watch out. And that's why I've been spending so much time monitoring the broad market instead of focusing on the individual stocks. Because if the water level is rising, all boats will be lifted. Now we're seeing the reverse, the water level is falling. And I won't be buying a lot more long positions until I see the broad market recover. Let's look at this very important indicator called a SHILLA PE ratio. It's defined by the stock price divided by the 10-year average earnings of all the companies listed in S&P 500. If you look at the SHILLA PE ratio, the higher the ratio, the more likely it is we are going to be confronting with the market correction. So today we're at 37.57. Actually we are in the worst situation than before the year 2020 market crash. And definitely worse than before the 1929 market crash. The only point in history that was worse than today was right before the 2000.com crash. That means the market now is very inflated. Although this ratio has been flashing the warning sign pretty much for the last 2-3 years. So you might say we're just crying wolf but nevertheless it's still important to keep this ratio in mind to understand how inflated the stock market has already been already. For short term indicators, I will definitely look at Google Trends, the RSI indicator as well as DMI and MACD indicators. If you like what you've seen so far, I'd like to encourage you to click the like, subscribe and notification button so that you'll be notified when I publish my next video. It'll also encourage me to make more videos like this in the future. Thank you very much. Let's continue. What's happening in China? Recently the Chinese government announced three red lines in order to curb the over-leveraging in the real estate market. The three red lines are the requirements for the real estate companies. The liability-to-asset ratio should be less than 70%, number two. The net-garing ratio, which is defined by total debt divided by total shareholders' equity, should be less than 100% and the cash-to-short-term debt ratio should be more than one. And if a developer fails to meet one, two, or three of the three red lines, then the regulator will flag them. Evergrande, one of the biggest registered developers in China, violated all three red lines. And subsequently, Evergrande got into financial troubles. This is the stock price of Evergrande. As you can see, since January, it has dropped by more than 83%. Definitely it's not a good sign. Actually, most people say Evergrande is definitely heading into bankruptcy and the question is how messy is it going to get. This is a summary of Evergrande. As of 2020, they reported $79 billion of revenues that's translated into U.S. dollars and they had $9.9 billion of net income. Also they have $147 billion of assets. On the surface, it looked pretty good until everything started to unravel. As of today, they have more than $300 billion of liabilities, which they have problem repaying. Compared to Lehman Brothers, before its collapse in 2008, Lehman Brothers owed $600 billion. Definitely twice the amount of what Evergrande owes. But if you look at Bear Stearns, which was really the first diameter to fall in 2008, Bear Stearns owed $384 billion before it collapsed. And Evergrande is definitely in the same league as Bear Stearns, that's why it's so alarming. As of September 24th, Evergrande was not able to make interest payments to its global bound holders. The situation seems to be getting worse and worse of Evergrande. It looks like some kind of bankruptcy is inevitable. The question is how messy is it going to get. Here is a similar situation in China. A company by the name of Hainan Airlines, HNA Group, recently also went into financial troubles. Here's a summary of what happened with Hainan. It was founded in 1989 and it currently has 221 aircrafts, it's quite a big airline. But it also owns other properties and companies. At its peak, Hainan bought 9.9% of Deutsche Bank and 26.1% of Hilton worldwide holdings. That's the parent company of the famous Hilton hotels. As of today, they pretty much sold off all these foreign holdings. Electrally, some of the Hainan officers and shareholders embezzled nearly $10 billion from the company. It was announced on January 19 that HNA had entered into bankruptcy restructuring with about $90 billion in debt, only about one-third of the debt of Evergrande. Nevertheless, there's still a lot of money. It was reported that HNA will be broken into 4 components and one important piece is the airlines. Looks like the government is determined to keep the airlines running. But all the equity held by its old shareholders will be wiped out. Therefore, Evergrande will most likely follow the same path. And then after that announcement, on September 27, it was reported that HNA Group will receive strategic investment of $38 billion yuan or $5.88 billion US dollars after its restructuring, which will keep some of its operations including the airlines in business. And then on September 24, the chairman of HNA, Mr. Cheng Fang, was arrested by the Chinese police, probably related to the embezzlement charges. There are other headline issues happening in China. Most recently, it was reported that there's a power crunch in China. Factories, including those supplying Apple and Tesla, have gotten their electricity turned off because of the latest government control measures. Another report saying that 16 of the 31 provinces in China are under some kind of electricity restriction because of Beijing's emission reduction targets and because of the rising price of coal. Definitely that's not a good sign. The energy shortage will further impact China's stock market, which already has been depressed since January. We'll look at that chart later. In addition, the Chinese governments are cracking down on a few issues related to social problems. What are they? They are definitely the real estate developers. That's what triggered Evergrande's problems. And then they've been adding restrictions on e-commerce, including Alibaba, Tencent and End Financial. They have imposed more restrictions on internet gaming, right hailing, as related to DD, which is the equivalent of the Uber operation in China. Person-to-person lending, which the government didn't like what's going on with person-to-person lending on the internet. And that industry pretty much has been wiped out in the last six, seven months. And then, of course, a reduction of power consumption and carbon footprint, which led to the electricity shutdown in the various provinces. The famous 2015 market drop was generally attributed to what happened in China. This is a description from Wikipedia about the 2015 and 2016 stock market sell-off. It says the stock market sell-off was because of the Chinese market turbulence and because of slowing growth in the GTP of China, which rippled into the rest of the world. In addition, there were other problems in the world, for example, the fall in petroleum prices, the Greek debt default in June of 2015, definitely that had a very severe impact on the rest of the world, and the end of quantitative easing in the United States. In October of 2014, a sharp rise in bond yields in early 2016, and finally Brexit. How do all these compare to what's happening today? We'll talk more about that in the next few minutes. Let's look at what happened in 2015. The candlestick chart here is a hand-send index representing the well-being of the Chinese stock market. And then the purple line here is a DAX index representing the European market and the blue line here is the SPY representing the US market. As we can see, the hand-send index dropped first in May of 2015. The drop of DAX followed that and lag for about two months, and then the US index also lagged by about two months, actually a little bit more than two months. And then during the second leg of the drop for the hand-send index, the DAX and the S&P lagged behind by about one month. So there's a time delay effect there. Overall, hand-send dropped 30%, and DAX dropped about two-thirds of that, about 20%, and S&P dropped at least 10 to 12% before they recovered. Let's look at today. Hand-send already dropped 18% from its peak in June, and now we see the DAX and SPY. They followed the hand-send about two months later. We might be seeing a repeat of this year if the situation doesn't improve quickly in China. What did the Chinese government do in 2015 to try and stabilize the market? First, the Chinese government provided funding and liquidity to stay on banks, and they prohibited actually stock sales by major shareholders. They also restricted short-selling and eventually the government started buying stocks to shore up the major companies. So what's happening today? As of September 28th, it was reported that the central bank already started to inject liquidity into the market, similar to what they did in 2015. Let's hope the Chinese government will do more to stabilize your markets. What else is happening in the world to aggravate the market? Well, there is currently a container shortage. According to Healer Brand, which is a major forwarding company, the containers are piled up in cargo ports and onboard vessels and on trans-pacific lines. Why? Because of the pandemic, which hits North America and the rest of the world. And China recover from the pandemic sooner than the rest of the world. And that's why when the containers are sent, for example, to North America, they come in, but they don't easily come out. And that's why there's a 40% imbalance of containers. That means for every 100 containers that arrive in North America, only 40 of them have been returned and 60 of them have been kept in North America. And that's why there's a container shortage. And you might say, well, don't we just build more containers? But that takes time. It'll take months before more containers can be built to alleviate a shortage. There's an article saying that an all-time high of 56 cargo ships are stuck waiting off the California coast. The container shortage and the transportation problems will most likely make the bear market even worse if they don't improve in the near future. And that's why we've got to be careful. This is the chart listing the freight rate for containers. As you can see, since July of last year, the price has gone up one in eight times. Big jump. Let's look at the 10-year Treasury yield. The 10-year Treasury yield index has shown that in the last 12 months, it has gone up 130%. Definitely, we are seeing that increasing. Remember the Wikipedia summary of what caused the 2015-2016 market drop? One of the items was the increase in bound yields. And if the 10-year Treasury yield and the other Treasury rates continue to go up, it will certainly cause the bound yields to go up. That will be a very bearish driving force for the market. Let's look at Federal Reserve Bank asset buying. The Federal Reserve Bank has been buying asset at a steady pace of $120 billion a month, which is called QE, Quantitative Easing. A lot of people said that the reason why the stock market has been so bullish in the last few years is because of the very accommodative QE policies. And if you look at this chart, indeed, the Federal Reserve Bank has been injecting a lot of money in the market. But most recently, there's something called the overnight reverse repo. It has reached the magnitude of $1.3 trillion a night. Reverse repo is basically the reverse of asset buying. With the overnight reverse repo operation, the Federal Reserve Bank is allowing the banks to buy treasuries from the Fed on an overnight basis. And currently, it's at $1.3 trillion a day. And compared to last month, it increased by $200 billion. So on the one hand, the Fed is injecting $120 billion into the market. On the other hand, it's taking away $200 billion in the market during the last month. In other words, the Fed in the last month has taken more money out of the market than it put in. And maybe that's why the market has been flattening and actually going down. If you look at what happened in the last few days, the reverse repo operation has decreased. Maybe that's how the Federal Reserve Bank is trying to avoid a major market crash. I would definitely be monitoring this chart very carefully. How might the market recover? First, the appropriate government actions from China will help a lot. For example, they can continue to increase liquidity of the bank to prevent a complete freeze up of the financial system. And they can ease up on regulations and restrictions. They can bail out Evergrande and other large troubled companies, although that's not likely. Looking at high non-aligned restructuring, the government will be involved somewhat to try to engineer orderly the solution of these troubled companies, including Evergrande. And the government might even buy stocks to shore up the market, like what they did in 2015. Or they can restrict selling of stocks by large shareholders, like what they did in 2015. And the US Federal Reserve Bank can do a lot to help shore up the US market. Number one, the Fed Chairman, Jerome Power, can make accommodating remarks, including the remarks he made last week to the FOMC press conference. And indeed, the remarks he made was very soothing to the market. And that's why the market went up. The two, three days after Jerome Power made his remark. And they can delay the tapering of QE, which has been widely anticipated in the last two, three months. And they didn't delay the interest rate increase. Although, as we can see, the 10-year treasury rate has been gradually creeping up already. The faster the treasury rates go up, the more damaging it is to the market. Or they could decrease the overnight reverse repo to keep more money in the market, keep more liquidity in the market. And I'll definitely be monitoring any news items or indicators related to any of these items in the near future. What are my strategies? First of all, I've been selling shares to locking profits or to cut losses. I sold some shares of BNTX, ASML, RCL, Royal Caribbean, and T-Triple-Q. And I bought some SQQQ shares to hedge my long positions. And I'll sell even more long positions if the market continues to deteriorate. I will continue to monitor the SPY 50-day and 100-day simple moving averages, as well as the 200-day simple moving average, and any other key support and resistance levels for both SPY and QQQ. I will hold on to stocks with good fundamentals, such as Tom and Sammy Conductor, Google, and ASML. And I've been keeping some shares of recovery stocks, including Royal Caribbean, the Jets ETF, and LUV Southwest Airlines. And I've been keeping shares of Moderna and BioNTech for the long term, because I'm bullish on these vaccine stocks. And I'll continue to monitor the technical indicators, including RSI, DMI, and MAC, for signs of recovery. When I buy or sell shares, and when I see any major news development, I will communicate with my subscribers by way of my Twitter account. For example, on September 20th, I tweeted that I sold NVIDIA share that I bought on August 12 at 4.6% gain to lock my profit. And then on September 27, I tweeted that I sold more BNTX and QQQ share. And I mentioned that Evergrande will most likely be divided and absorbed into other companies. And I said I would publish an update video on Evergrande in the next couple of days, which is this video. My Twitter account is DanMarketL. I'd like to encourage you to subscribe to my Twitter account. Again, I'd like to encourage you to click the like, subscribe, and notification button. As usual, I very much welcome your comments, questions, and suggestions. I'd like to remind you that I'm not a financial advisor. I share my stock trading strategies and analyses for educational purposes only. If you want to buy or sell shares, you should make your own decisions. And you should definitely sell with your financial advisors before you do so. This wraps up my video for now. I will chat with you again in the next few days. In the meanwhile, I'd like to wish you the very best of luck with your financial investments.