 Hey everyone, this is Dan. In the last few days, both Standard & Poor and Nasdaq dropped more than 5% from their recent peaks. Are we on a verge of a major market correction? I don't want to mention the word crash, but some other people have been saying that. And what's causing the problems in the market? Also, how do we protect our investments? I will explain all these in the next few minutes. First of all, let's look at how the market has been moving. Since the market reached an all-time high for SPY in the beginning of September at 454, it has already dropped 4.4% out of 11am this morning, September 20th. Actually, as of now, it dropped more like 5% already. If you look at the RSI indicator, actually, when it started dropping, the RSI was not extremely high. Nevertheless, it started to drop because of other outside influences. I'll talk about that in the next couple of minutes. The DMI indicator already flashed a bearish signal about 4-5 days ago, same with the MACD indicator. Definitely, the market is being looking bearish in the last few days. If you look at the hourly chart, that's even worse. Since last Friday, the market has been heading down and down. And that's 11am, and since then, SPY has dipped below 430, reaching the 100-day simple-moving average, which is a very bearish sign. If you look at RSI, it reached a slightly overbought situation here as of last Wednesday, and then it started to drift down. DMI definitely bearish, MACD also bearish. QQQ representing the movement of NASDAQ 100, reaching an all-time high on September 6th at 382, since then it has dropped more than 4.5% as of this morning, September 20th, 2021. RSI did flash an overbought signal here, then it started to drift down, bearish on the DMI and bearish on the MACD. The hourly chart for QQQ definitely very bearish, since last Friday and today is Monday, and the market continued to head down as of this morning. RSI not extremely high here, but it started to turn south, DMI, bearish, MACD, bearish. So how far is this going to go? Are we heading for a major correction or worse yet, a market crash? Let's look at Google Trends. In my last few market crash protection videos, I've been using Google Trends to gauge the sentiment of the market. If you look at the past 7 days, the red line represents the search term market crash, which is the bearish indicator. The blue line represents the search term's best stocks to buy, which is a bullish indicator. As you can see in the last couple days, the bears have outrun the bulls. If you look at just in the last 24 hours, definitely the bearish momentum has been building. Looking back in history, if we look at the 2020 market crash, which is the pandemic crash, we see the red line peak in February and March. And if you look at S&P, those peaks corresponding to the dips here in the S&P chart. And that's why Google Trends is really a good indicator for the market sentiments. Now if you compare today with 2020, the red line is not exactly as high as back in February or March of 2020. So we are not at a verge of a total collapse yet, definitely not. Even back in 2020, it wasn't a total collapse. The market dropped about 30%. At this point, the market dropped only about 5%. But if the red line continues to go up, then we got to watch out. We better go for some protections. I'll talk about that in the next couple of minutes. 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 post the next video. Also, it'll encourage me to make more videos like this in the future. Thank you very much. Let's continue. What's causing all that? I believe one of the major reasons for the bearishness of the market is because what's happening in China. As of January, the Chinese government announced three red lines, which is a policy related to the real estate markets in China. According to this UBS article, the three red line policy amount to force the leveraging of the real estate sector, because the Chinese government considered the risk the developers have been borrowing way too much money. That's why they want to put a restriction on that. The so-called three red lines include number one, liability to asset ratio, number two, net-garing ratio, and number three, cash to short-term debt ratio. So if a developer fails to meet one, two, or all three of the three red lines, then they will be flagged by the government. And of course, if a company or real estate developer is flagged by the company, it'll hurt their abilities to borrow more money, which brings up the story of Evergrande Group, which is one of the biggest real estate developers in China. Soon after the announcement of the three red line policies, see what happened to the stock price of Evergrande, it dropped 80% between January of this year and today. It's rumored that the company might be going bankrupt if there's not a bailout from the Chinese government. If you look at Evergrande, their financial figures, based on their 2020 annual report, they had the revenues of 79 billion US dollars, pretty impressive, and net income of 9.9 billion dollars. So on the surface, they look pretty good. Good net margin, good net income, and they had the asset of 147 billion US dollars. So today, they have a total debt of 300 billion US dollars, but now they are not able to pay up their debt. How bad is it if you compare it to Lehman Brothers back in 2008 before Lehman Brothers collapsed and brought down the US market as well as the rest of the world? Lehman Brothers had a total debt of $600 billion US dollars. Now, definitely Evergrande is not in the same magnitude as Lehman Brothers, only half the size, but if you look at Bear Stearns, which was a company that collapsed, which led to the collapses of the other companies, including Lehman Brothers. You can say that Bear Stearns was the first major domino to fall that brought down the market in 2008. And before Bear Stearns collapsed in 2007, their annual report stated the total debt of $384 billion. Now that looks very close to where Evergrande is today. And that's why, unless something dramatic is done to turn around a situation with Evergrande, that could lead to very serious domino effects and that can bring down the Chinese stock market as well as the stock markets in the rest of the world. How would the stock market in China affect the stock market in the rest of the world? Let's see some charts here. This is the chart showing 2015. When the stock market dropped in China in 2015, it led to the stock market corrections in the US and in Europe. If you look at the chart here, the stock market in China started to drop around May of 2015. And I represent the Chinese market by using the HangSan index, which is the index of the stock traded in Hong Kong. As you can see from the beginning of May until February 2016, HangSan dropped more than 30%. And then you see the corresponding drop with the DAX index, which is a purple line here, and the S&P or SPY ETF representing the S&P index. The drop here with DAX and SPY lagged the HSI drop by about two months here. And then later on when HSI took another drop, there was a time delay of one month before the US and the German index started to drop. So there's definitely a time delay effect there. What's happening today? If you look at 2021, HSI already dropped 22% from its peak since February. SPY and DAX have been doing pretty well, actually, it's been going up by about 11-12%. Between the last steep drop of HangSan, which started around the beginning of July to now, there's been about two months. So we're just starting to see the DAX index and SPY started to drop about seven, eight days ago. Therefore, I think that if the Chinese index continues to go down, it'll cause the US and European indices to go down as well. And that's why this is very, very alarming. So what's really happening in China in addition to Evergrande? According to CNBC report, it says that Chinese government has been cracking down on several industries because they believe that they have been too many social problems, quote unquote. What has the Chinese government been doing? They've been tightening the regulations on real estate developers, which we already talked about as related to Evergrande. And they also tighten up e-commerce and end financial. Also tighten up internet gaming, ride hailing as related to DD. About a year and a half, two years ago, they started to crack down person to person lending. Now that particular industry is pretty much non-existent. That's why you cannot underestimate the determination of the Chinese government when it wants to regulate something. So how did the 2015 market crash in China turn around? Primarily, it was because several things done by the Chinese government. First of all, the government actually banned the sales of stocks by major stakeholders like many banks and investment companies. In the US, that will never happen. The government will not intervene in this manner, but in China, the government can do that and they have done that. And they also restricted short-selling of stocks. And then the third thing that the government did was that the Chinese government started to buy stocks of major companies to short up the stock market. Now how might the market recover now? First of all, if we see these actions from the Chinese government, it will help turn around the market in China which will then in turn help short the market in the US and in Europe. If the Chinese government start having more dovish tone on regulations and restrictions, that will definitely help. They also follow up dovish tone with actions. And if they bail out Evergrande and other large travel companies, or at least some of them, that will definitely help. Stabilize economy, stabilize the stock market. Or if the government starts buying stocks aggressively to short up the market. Or just like 2015, the Chinese government can restrict the selling of stocks by large shareholders. Now there's the Federal Reserve Bank FOMC Committee which is meeting tomorrow, September 21st and the day after September 22nd. There are a few things that FOMC can do to help stabilize the market. First of all, the Fed Chairman Jerome Powell can be making more accommodating remarks during the post FOMC press conference which will happen in the afternoon of September 22nd. And they can delay the tapering of QE which has been talked about a lot in the last two, three months and they can delay the increase of interest rates. All these factors are going to help. Let's hope some of them will happen and I'll definitely be monitoring the news, developments very diligently in the next few days. So what's my crash protection strategy? First of all, I've already sold some highly volatile shares such as BioNTech and Royal Caribbean. I tweeted my subscribers in Twitter about that this morning and I bought some SQQQQ share to hedge my long position. SQQQQ, you might know that it's a inverse ETF that moves opposite to the direction of NASDAQ and actually is a leveraged ETF. It moves at three times the speed of NASDAQ which is a very high risk investment and that's why I don't usually buy that and when I buy it, I only buy a small number of shares. I will sell more long positions if the market continues to deteriorate. So I'll be watching the critical support levels for NASDAQ as well as for S&P. I will monitor the SPY 432 support level which is a 100 day simple moving average. It's a very important support level. Also, if about 20 minutes ago it was breached but now the market might be recovering from that. Let's hope it will recover from that. And I will hold on to the stocks with good fundamentals such as Taiwan Semiconductor, Google or Alphabet and ASML. And I will keep some shares of recovery stock such as Royal Caribbean Jets, ETF and LUV which is Southwest Airlines. That's because the pandemic is winding down and eventually the recovery stocks will go up in value. And I will continue to hold some shares of Moderna and BioNTech, the vaccine stocks. At this point, I'd like to encourage you to also subscribe to my Twitter account which is DanMarketL in addition to subscribing to my YouTube account. I've been tweeting messages to my subscribers and getting some very good input by way of my Twitter account. Again, I'd like to encourage you to click the like, subscribe and notification button. As usual, I will very much appreciate 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 purpose only. If you want to buy or sell shares, you should make your own decisions and you should definitely consult 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.