I’ve been berarish for a long time now on US markets and slowly but surely they are unwinding.
My thesis has been, while the Federal Reserve has been curating the markets the trend is your friend. However when the trend ends, we are in for a bad time.
This is what I proffered in July 21
And this is what happened next:
So to me the only question is where is the bottom?
So first things first. Do you see a bubble?
I do.
So where is the bottom then. The answer is, if the bubble busts the levels are much lower.
These levels are obvious:
But wait, to have a crash it has to be allowed, or impossible to avoid. It is certainly possible to avoid because liquidity from the Fed at all sorts of elevated rates can still create a carry trade into equities.
So what is the big picture?
To rebalance the global economy after Covid and its massive deficit spending inflation must get Debt/GDP back into kilter.
This means inflation must be maintained for a few years and crashing the market with have the opposite effect and create even a deflationary cycle or worst still yet more bail outs with newly minted paper threatening to create a new cycle of boom, bust and even higher inflation.
So in the Dotcom crash while the Nasdaq was left to go to hell in a hand basket the Dow was kept in a range.
Another way of asking what is up next is, ‘where is the Fed Put,’
I reakon its between 340 and 360 on the SPY, call it 3500 on the S&P 500 Index itself.
Of course with the conflict in Ukraine everything is in play, but for now it is not helping the indexes stay aloft and the basic trend is now broken so the struggle is on for the extremely highly priced US markets to stay aloft.