Let's look at the money-supply adjusted S&P. If you're not familiar with money-supply adjusted charts, just know that money supply expansion always fuels the rise in asset prices first. Historically this takes about 6-18 months to play out. Now ask yourself, how long has it been since the 2020 mega-easing policy response of the FED? It seems like those tailwinds are now behind us and fading. In 2020, it sure seemed like we were headed into a bear market, there was a sharp correction down, but at the risk of losing capital, market participants had to resort to obeying the master that is monetary policy, or risk losing capital.
Sorry for all of the lines and arrows here but stick with me for a minute :)
It's important to define what the criteria for a "decline" is in order to know what to expect. I don't believe the coercion in 2020 can be definitively described as a correction/decline for various reasons, but let's try to keep it technical here, in terms of what the chart tells us.
Before a DECLINE, there were a few things that played out together in 2001 and 2008:
1) A declining 100W SMA for 1 year or longer.
2) RSI 14 SMA 14 made a quick break to the 30s/40s area and STAYED there for longer than 6 months.
3) There was a few years of divergence in the RSI 14 SMA 14.
Before a RECOVERY, there were a few things that played out together in 2003 and 2009:
1) Price broke out above the 100W SMA.
2) RSI 14 SMA 14 made a break above 50.
3) Once #1 and #2 took place, the 100W SMA began rising.
The market is still indecisive at the moment. Our criteria of a DECLINE has not been met. At the same time, neither has our criteria for a RECOVERY, because we did not see a DECLINE.
Dip buyers are buying in with all they've got. But is that really enough to prop up a 50 trillion dollar stock market (before you account for derivatives)?
I must admit, it's really hard to be completely bullish or bearish here. I'm tending on the side of bearishness because it means that I have less to lose overall. I'd rather lose less than gain more at this point. The market isn't exactly showing raging bullish potential here with looming rising interest rates. But we haven't seen any definitive bearish signs either. Which means we could be in store for some complex correction action until our "DECLINE" criteria is finally met.
One thing is clear though, there's so many traders willing to buy the dip right now, it's safe to say that most of them have never experienced devastating losses, which is usually a sign of looming losses to come.
Thanks for reading and I hope this gives some perspective on the current risk of the assets market.
Don't forget to hedge your bets!
Sorry for all of the lines and arrows here but stick with me for a minute :)
It's important to define what the criteria for a "decline" is in order to know what to expect. I don't believe the coercion in 2020 can be definitively described as a correction/decline for various reasons, but let's try to keep it technical here, in terms of what the chart tells us.
Before a DECLINE, there were a few things that played out together in 2001 and 2008:
1) A declining 100W SMA for 1 year or longer.
2) RSI 14 SMA 14 made a quick break to the 30s/40s area and STAYED there for longer than 6 months.
3) There was a few years of divergence in the RSI 14 SMA 14.
Before a RECOVERY, there were a few things that played out together in 2003 and 2009:
1) Price broke out above the 100W SMA.
2) RSI 14 SMA 14 made a break above 50.
3) Once #1 and #2 took place, the 100W SMA began rising.
The market is still indecisive at the moment. Our criteria of a DECLINE has not been met. At the same time, neither has our criteria for a RECOVERY, because we did not see a DECLINE.
Dip buyers are buying in with all they've got. But is that really enough to prop up a 50 trillion dollar stock market (before you account for derivatives)?
I must admit, it's really hard to be completely bullish or bearish here. I'm tending on the side of bearishness because it means that I have less to lose overall. I'd rather lose less than gain more at this point. The market isn't exactly showing raging bullish potential here with looming rising interest rates. But we haven't seen any definitive bearish signs either. Which means we could be in store for some complex correction action until our "DECLINE" criteria is finally met.
One thing is clear though, there's so many traders willing to buy the dip right now, it's safe to say that most of them have never experienced devastating losses, which is usually a sign of looming losses to come.
Thanks for reading and I hope this gives some perspective on the current risk of the assets market.
Don't forget to hedge your bets!