The S&P 500 Paradox

2020년 6월 10일

Judging the above S&P 500 Index weekly chart from a technical perspective the following can be taken into account:

* the graph is beginning to print out a possible head and shoulders patern that could materialize into a meltdown to its neckline (highlighted in red) – 2100$ range and even lower afterwards;
* the 50 and 200 Moving Averages (the light and dark blue lines) can hardly be considered support or resistance levels for that matter. They have been pierced threw like butter in Feb-March due
to the pandemic outburst and lock-downs. Also the S&P skyrocketed past them starting April, gaining 47% in value, recovering 94% since its March decline and currently sitting at about 200$
away
from the all time high.
* the RSI (velvet trend-line below the graph) is beginning to shift to the overbought segment suggesting a future sell-off;
* In my opinion, unfortunately, the "V" shape recovery everybody is hoping for may be out of reach. On the other hand, a W shape graph followed by an "U" shape one seems more plausible –
similar to what happened to the market during the Great Depression, or in the late 60's among the Hong Kong flu.

From a fundamental standpoint, what is now happening in the market is unprecedented and damn right abnormal.

It's no longer a question of if, but rather when and how hard will the correction be?

Several countries already fell into recession: Japan, Germany, France, Spain, Italy and the list could go on. This begs the question as to why the US stock market keeps on going up, when the economy is clearly going down? The answer in my opinion is that there are no longer investments going on, but speculations/gamblin (reference to the fact that sports gambling are still on hold) and everybody keeps an eye out for the FED – the only player keeping the game on.
FED's strategy appears to be simple: keep pumping dollars in the economy threw diverse stimulus packages, keeping the rates down, and encouraging consumption.
The problem FED is facing is that not all the money go into consumption. The huge amount of printed $ make their value go down, bank deposits and REPO are unprofitable, making investors re-shift their attention to high yelds markets – ETFS, real estate, commodities. This rises the price of assets, creating inflation => recession.

Also factoring in:

* the highest rates of unemployemnet since WW2;
* riots upon riots worldwide;
* banks entering hedge mode;
* Warren Buffet liqudating positions on the market and staying at the comfort of cash, being "fearful when everybody else is greedy"

makes us think that a really big storm is headed our way. We can only hope and pray it's not going to steer us to wreck.