Everyone by now knows the general economic conditions we are in and they are not great. By any measure, these are the worst conditions we have seen in most of our lifetime. Between the chaotic Covid 2-year episode, Roaring Inflation, and the Russia/Ukraine War, we are seeing factors mount up at an unprecedented level.
If we simply compare the 2020 Boom VS Now:
(2020 Boom)~SPX already corrected 35%~Low inflation~Growing Economy~FED cut Rates to 0%~FED QE~10 FED Term Sheets~Commodity Abundance~No Wars~No Sanctions~No Pandemic
(Now)~SPX corrected only 14%~HIGH Inflation~Slowing Economy~FED Raising Rates (Potentially 8 Hikes)~FED QT~No FED Term Sheets~Commodity Scarcity~Russia/Ukraine War~Sanctions~Pandemic (With China just off a complete lockdown).
First, focusing on the chart above, I have started each left side of the box to match each first candle breakout (deviation from trend) and the right side of the previous three boxes to match the first signs of reversal. Each of the last 5 deviations (3 shown in the chart and 2 more since 1980) have been the first signs of risk ahead.
Now, something I'm going to focus on is the psychological environment this takes on investors. As these conditions have gotten worse, the markets are always forward-looking. During each CPI print or FOMC meeting, most are anticipating a peak in bearish conditions. Watching and waiting for CPI to peak and this promised "Blow off the top" scenario. This is exactly why after each meeting or data release thus far has resulted in a bounce.
This is on the minds of EVERY forward-thinking investor. If you don't think so, go around and ask a bit. Check out various perspectives from all spectrums and you will see while some paths may vary, there is a central theme everyone waits for in each cycle, and it's the beloved blow off the top.
Well, let's consider it for a moment. At what point can we expect this immense wave of euphoria? Where exactly are we currently?
Let's start with the SPX: (An in-depth post with many examples to show). We can see that while there has been correcting thus far, we are still very much off of the mean and not near any long-term support.
Now let's consider the NASDAQ: (An in-depth post with very detailed information). We can see a very similar picture that shows us just how far off the mean it still is and not near any long-term support. Notice how far we are from the 200MA.
This is an updated view; (Just a screenshot)
Okay but what about the Divergence on the DXY? Well, let's consider this as well:
As you can see since its Bullish break in 2015, it has been ranging ever since. Basically, every move from DXY since May 2021 has been very bullish. Break out of a Rising Wedge, followed by a break out of a clear Bull Flag. It can easily bounce off the retest of breakout.
Moving on to arguably the most important data point here is the US10Y-US02Y yield inversion that occurred on April 1st, 2022. This alone has signaled 6 recessions since 1970.
First, let's acknowledge how fast yields have tightened in comparison to every other cycle since 1990. (This post shows many other examples for perspective).
Now let's consider the actual yield Inversion and what it may signal.
Here is my first analysis on the initial inversion:
And then a second one for an update on the situation: (Notice how far the yield is from the 200MA)
This is a screenshot from the post giving you past comparisons on what STEEPENING yields lead to after an inversion takes place (2000,2008).
If you've made it this far, I completely understand how much all of that was to take in. This is the price one must pay to ensure all perspectives are being considered and to stay well informed in this chaotic market. Anyone can have their preferred scenario going forward but the signals are all there for us to see. So many just don't take the time to find them.
If you've found this in-depth analysis helpful, informative or you disagree, please feel free to express opinions down below. I would like to start a healthy conversation about all of the above, open to all perspectives.
Most of all thank you for making it this far, hopefully, it will prove worth it in the future.
If we simply compare the 2020 Boom VS Now:
(2020 Boom)~SPX already corrected 35%~Low inflation~Growing Economy~FED cut Rates to 0%~FED QE~10 FED Term Sheets~Commodity Abundance~No Wars~No Sanctions~No Pandemic
(Now)~SPX corrected only 14%~HIGH Inflation~Slowing Economy~FED Raising Rates (Potentially 8 Hikes)~FED QT~No FED Term Sheets~Commodity Scarcity~Russia/Ukraine War~Sanctions~Pandemic (With China just off a complete lockdown).
First, focusing on the chart above, I have started each left side of the box to match each first candle breakout (deviation from trend) and the right side of the previous three boxes to match the first signs of reversal. Each of the last 5 deviations (3 shown in the chart and 2 more since 1980) have been the first signs of risk ahead.
Now, something I'm going to focus on is the psychological environment this takes on investors. As these conditions have gotten worse, the markets are always forward-looking. During each CPI print or FOMC meeting, most are anticipating a peak in bearish conditions. Watching and waiting for CPI to peak and this promised "Blow off the top" scenario. This is exactly why after each meeting or data release thus far has resulted in a bounce.
This is on the minds of EVERY forward-thinking investor. If you don't think so, go around and ask a bit. Check out various perspectives from all spectrums and you will see while some paths may vary, there is a central theme everyone waits for in each cycle, and it's the beloved blow off the top.
Well, let's consider it for a moment. At what point can we expect this immense wave of euphoria? Where exactly are we currently?
Let's start with the SPX: (An in-depth post with many examples to show). We can see that while there has been correcting thus far, we are still very much off of the mean and not near any long-term support.
Now let's consider the NASDAQ: (An in-depth post with very detailed information). We can see a very similar picture that shows us just how far off the mean it still is and not near any long-term support. Notice how far we are from the 200MA.
Okay but what about the Divergence on the DXY? Well, let's consider this as well:
Moving on to arguably the most important data point here is the US10Y-US02Y yield inversion that occurred on April 1st, 2022. This alone has signaled 6 recessions since 1970.
First, let's acknowledge how fast yields have tightened in comparison to every other cycle since 1990. (This post shows many other examples for perspective).
Now let's consider the actual yield Inversion and what it may signal.
Here is my first analysis on the initial inversion:
And then a second one for an update on the situation: (Notice how far the yield is from the 200MA)
This is a screenshot from the post giving you past comparisons on what STEEPENING yields lead to after an inversion takes place (2000,2008).
If you've made it this far, I completely understand how much all of that was to take in. This is the price one must pay to ensure all perspectives are being considered and to stay well informed in this chaotic market. Anyone can have their preferred scenario going forward but the signals are all there for us to see. So many just don't take the time to find them.
If you've found this in-depth analysis helpful, informative or you disagree, please feel free to express opinions down below. I would like to start a healthy conversation about all of the above, open to all perspectives.
Most of all thank you for making it this far, hopefully, it will prove worth it in the future.
