TVC:IXIC   NASDAQ Composite Index
Technology has certainly been the market leader throughout the past decade, but I believe the most recent six month price action in the Nasdaq has been due to rotation out of emerging markets and into US tech stocks, namely Microsoft and Amazon. The Federal Reserve continues to take liquidity out of the market which is creating significant price volatility . Although the Nasdaq has produced higher highs, these are unconfirmed by bearish divergences in the RSI , as volume is not supporting the upward movement. I believe we are at the top of the sequence and that thinly lined order books, as a result of decreasing liquidity, will contribute to a rather violent correction. I have placed a short term price target on IXIC of 4850 by Q4 2018.
Comment: Looks like we are seeing Bulkowski's Ending Diagonal forming in the IXIC. We may see a peak around September 10th if this pattern is maintained.

Comments

That is bold. Short term price target is 4850 what is long term target?
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AftabAli biplav32
@biplav32, Long term target (3/4 years): 1730
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biplav32 AftabAli
@AftabAli, Lol you are the most bearish person i know. Not a bearish as Peter Shiff though. What do you think about bitcoin?
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AftabAli biplav32
@biplav32, I actually agree with a lot of Peter Schiff’s views. Namely that the country is in a catch 22: default on soverign debt by raising interest rates significantly, or destroy the dollar by hyperinflating the currency to repay creditors. As far as Bitcoin is concerned, if you look at my previous work, I have called the top of Bitcoin (look for “BTC Bull Trap” I posted Jan 6th). I am still bearish on BTC until it hits $4K.
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@AftabAli, Why should USA repay its creditors ? They have 20000 Billions of debts and they never had the intention to reimbourse it ! They also have the power to print the money.. They can continue to inject massive liquidity in the US Equities with all the cash that has been brought back in the country and US compagnies continue to buy their own shares. The system is totally insane, corrupted and highly political. They cannot afford a sell off even of 15% on the US Equities. You will explain me how they can afford that ?
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AftabAli forexsignals2600
@forexsignals2600, There are two sides of the scale with respect to inflation and interest rates. The Fisher equation explains this: i = p + r, where i = nominal interest rate, p = inflation, and r = real interest rate. As mentioned previously, the government is increasingly running larger deficits, and these need to be financed. The choices are very simple: raise revenues through taxation, print new dollars, or borrow using US treasuries. Raising taxes is unfavorable, so we are left with the two latter choices. By printing money, the supply of dollars increases in the economy, reducing the purchasing power of the dollar and increasing inflation. Borrowing money is also an option, but it requires the borrower to provide a real rate of return to the creditor.

After 2008, the US Fed began the process of QE, which injected trillions of USD into the economy. Typically, inflation lags the capital stimulus, as it takes time for the velocity of money to begin increasing. However, when credit gets squeezed and debits start to rise, the inflation starts to get recognized. As inflation rises, creditors demand higher interest rates to offset the rising inflation. The US govt relies on cheaply borrowed money, and they finance the deficit by rolling over short term treasuries. Now that inflation is rising, the government will pay a higher interest rate when US treasuries mature. Thus, the cost of servicing the national debt is increasing.

As the cost of carry goes up, the debt service will comprise a larger portion of US national GDP. Considering the simple model that GDP = C + I + G + NX, as the debt service begins to rise, then it must be that either consumption, investment, government spending, or net exports must fall. The government is increasing spending and the tariffs on foreign goods is reducing demand for imports, so in my opinion, consumption and/or investment must fall to make room for the increase in debt service. Should consumption and investment slow, this will likely be enough to cause a recession.

The second option is to hyper inflate the currency. We have done this twice before in US history, but I'll list the earliest example because I believe it's the most relevant. Following the revolutionary war, our debt to GDP was estimated to be somewhere in the 80% - 90% range; much of our debt was lent by France to finance war efforts. As the cost of carry increased for the US government, and since they could not raise taxes (for which they just fought a war), and as foreign credit dried, the only option available was to print money to pay down the debt. The result was that the US currency at the time, the Continental, suffered hyperinflation. Thus came about the expression "not worth a continental".


While the exact inflection point is difficult to time, the premise of the argument is still sound: the national debt is not a perpetual cash machine and overconsumption today must be followed by underconsumption tomorrow. Perhaps my timing is off, but there absolutely will come a period in time where the lack of credit in the world market will cause a yield spike and significantly contract the US economy.
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