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Evergrande and inflation are scaring the markets

The Evergrande case is not being mentioned as frequently in the media as a few weeks ago, however, this does not mean that its impact is over. Quite the contrary. In China, the domino effect is slowly gaining up momentum and other large companies are experiencing their fair share of problems as well.

Before we move on to the chart analysis, I would like to comment on two things. The first one being inflation, which has risen by more than 5% year on year. Such numbers are reported by the USA but also, for example, by the Slovak Republic. Price increase and potential bubbles can be now witnessed almost in every sector with the most notorious being the real estate sector which has been in a bubble for several years now. But other sectors such as commodities (electricity, oil, wood, and natural gas) are growing too. There is a high scarcity of computer chips and stocks and indices are at their record levels too. This is the outcome of a large “money printing” by FED which happened roughly a year ago.

The second thing I want to mention is the Evergrand case. Despite the low media coverage, the problems surrounding this Chinese gigant are worsening. The company is unable to pay interests and difficulties are starting to arise also for other bigger companies. So far, however, this problem has not yet crossed China’s borders. Be that as it may, this can ultimately impact the whole world.

S&P500

When we look at this notoriously famous index, we see that it has fallen under the trend, lightly touched the first support, but so far we certainly cannot say that the bull market should continue. The situation is not very positive and problems highly outweigh solutions. As long as the S & P500 is below the trend and until it creates at least a higher minimum and a higher maximum, we can still talk about a correction. No one knows how big this correction will be. The above-mentioned events can play a certain role as well. Overall, I think that we have interesting times ahead of us and that something big is going to happen soon. For that, we need to be careful.

SP on a 1D chart Figure 1: Stock index S&P 500 on a daily chart

Jakub is a crypto trader and founder of Trader 2.0 project, which helps hundreds of traders from central Europe to understand cryptocurrency trading and its challenges. Jakub not o...

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