The Curse of September: Evergrande Fiasco, S&P 500 Divergence, Bitcoin Slump
September has historically been the worst month of the year in terms of stocks generating returns. And there is a positive correlation between the stock market and crypto, meaning Bitcoin and other cryptocurrencies are likely to replicate a similar crash if there were to be one. The first half of this month hasn’t been so bad overall, but things are looking grim since this past weekend. The question is: will we see continued sell-offs and the self-fulfilling prophecy of the red September?
It’s a bloody day today and it all starts with Evergrande, one of China’s largest property developers that has now become the world’s most indebted property developer. It has roughly $300 billion in liabilities and is unable to meet its fiscal obligations, meaning its lenders—some of China’s largest banks—will come under pressure and possibly go bankrupt one after the other.
Back in 2008, Lehman Brothers was the catalyst for America’s financial crisis. Is Evergrande the Chinese Lehman Brothers? Maybe there will be a government bailout in some form. If otherwise, cascading bankruptcies is certainly possible and it will have a devastating impact on global markets. I feel like we’re seeing the beginning of that today and will remain risk-off for now.
Its impact is evident in S&P 500, too. We’re now out of the long-term channel that we’ve been in since the COVID crash. And I believe the current fear in the market is threefold: Evergrande, September being September, and the upcoming Fed tapering. That’s why the ongoing drop is looking like more than just “a healthy pullback.” Some analysts are saying it could add up to a 20% drop. I don’t think this correction will be that severe but I guess we’ll first have to see how the rest of this week plays out.
The same goes for crypto, especially Bitcoin since the market tends to follow what it does. The dead cat bounce scenario that I shared last week is still in play. Wicks are acceptable, but if we put a daily close below the major support zone at $40~42K, it’s bad news and we’ll be seeing at least a few more months of macro bearishness. And just FYI, if we break $30K, it’s game over and we’ll have to wait much longer until the next bull market.
However, if the bulls can hold the line and end September with Bitcoin above it, October and the rest of this year will be glorious. Like S&P 500, it’s too early to tell, so let’s watch the markets more closely this week and see how well we can recover from the ongoing correction. I’ll be sharing timely updates on Twitter. Cheers.