Risk Alert! Broader Market May Pull back; Tech Stocks Overbought?

The White House warns of a potential stock market crash exceeding 45% in the event of a US Debt default.

As the debt crisis continue to brew, the stock market now stays at a high level since Aug. of 2022. There are several dangerous signs of a possible pullback of broader market.

Risk 1: Debt default may cause a 45% market crash?

Analysts warn of more volitility in stock market.

Back in 2011, the two parties in the United States reached a compromise at the last minute to avoid a debt default, leading to the first-ever downgrade of the U.S. Treasuries credit rating by Standard & Poor's.

Some strategists warn that the stock market may experience volatility before June 1, the so-called “X-day.”

Currently, as the deadline approaches, stock market investors do not appear to be panicked, partly because most people believe that Congress will eventually reach an agreement.

Risk 2: Broader market at an unreasonable high level; tech stocks are overbought.

The $S&P 500(.SPX)$ has risen over 9% this year and is currently near its highest level since August 2022. The current valuation of the stock market is relatively high compared to historical levels.

The SPX is consolidating in a range of 4000-4200 points and hard to break the range.

 

The surge of big tech - $Microsoft(MSFT)$ , $Alphabet(GOOG)$ , $Amazon.com(AMZN)$ , $NVIDIA Corp(NVDA)$ and $Meta Platforms, Inc.(META)$ have propelled their relative strength index above 70 in recent days. Such an elevated RSI level is generally considered as overbought territory.

The strong upward momentum in big tech may be coming to an end.

On the other hand, second-tier growth stocks like $Palantir Technologies Inc.(PLTR)$  have started to rally, with gains exceeding normal levels.

 

Risk 3: VIX at a historic low level.

$Cboe Volatility Index(VIX)$ , the volitility index, generally moves back towards its long-term average(13-25) or mean level over time.

VIX rose 2.32% to 18.96 yesterday, indicating growing investor unease.

However, it is still at its lowest level since the end of 2021 despite of the imminent debt default issue. For reference, VIX rose to 30 during bank crisis.

Risk 4: The Sword of Damocles - FOMC minutes tonight

According to CME Group's FedWatch,

there is a 68% chance that the Federal Reserve won’t increase rate at the upcoming meeting.

 

There is an 85% chance of one or more quarter of a percentage point rate cuts by December.

However, Fed officials have different statements.

Dallas Fed President Lorie Logan and Federal Reserve Bank of Cleveland President Loretta Mester suggest that

the economic data has not yet met the requirements to justify maintaining interest rates at their current levels.

Do you think the broader market will pull back soon?

How do you view the current low level of VIX?

How will Debt Crisis end?

Leave your comments and win tiger coins!

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

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  • ZEROHERO
    ·2023-05-24
    TOP
    The market is now experiencing a much lower volume pending the debt crisis saga. This could be the final pullback for any dip buying before bull rally takes over. Debt crisis should be resolved in a week or two causing the market to reverse. In addition, if the Fed decides to announce for a pause anytime soon, the market will begin its power surge up north.
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    • ZEROHEROReplying towubbie
      Stock market likely to plunge 10-15% if there’s a default. Lack of funds to pay public servants like policemen, teachers and our favourite politicians
      2023-05-24
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    • ZEROHEROReplying todimpy
      Market sentiments turn positive and stocks will soar as it acts as 6-9 months leading indicator of the real economy
      2023-05-25
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    • dimpy
      How might the market react if the Fed announces a pause in the near future?
      2023-05-24
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  • Kk66
    ·2023-05-24
    TOP
    Great article. The Nasdaq may close a gap up but a downfall should follow. Take profits while you can and watch the VIX go crazy. This AI bubble is about to burst while the market is complacent.
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    • glowzi
      How can one spot complacency in the market?
      2023-05-24
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    • glitzy
      Is it too late to invest in other industries to diversify my portfolio?
      2023-05-24
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  • nerdbull1669
    ·2023-05-24
    TOP
    The market will experience pullback companies who are raising funds or borrowing would suffer. Hope that the debt ceiling get raised before 01 June 23. We would not want to start 2H in a red note.
    I believe the same thing might happen as what happen in 2011, it is a last minute decision to raise the debt ceiling, but what is the cool down period market can afford?
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    • mizzmo
      How will global events like inflation and trade tensions affect the market in the coming months?
      2023-05-24
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    • twiddly
      Your comparison to 2011 shows your knowledge and experience, thank you for sharing your wisdom with us. 🤓📈
      2023-05-24
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  • Chapman Investment inc
    ·2023-05-24
    TOP
    Kevin Marcathy is just excited to be in the spotlight and spend time at the Whitehouse obtaining as much screen time as he can! meanwhile hes costing everyday people money! I've totally lost all respect for him! Frustrating! hah rant over! ✌️
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    • riffy
      Why does it seem like corruption and greed are rampant in politics? Is there a way to fix it?
      2023-05-24
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    • wimpy
      Can individuals who behave in a self-serving manner ever regain the respect of those they have hurt?
      2023-05-24
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  • icycrystal
    ·2023-05-24
    TOP
    this saga will eventually end. question is, when will it end? I doubt the US govt. will do anything irrational or make any irrational decisions to put the country and its people at risk. if they do, the economy and the country will be in a very bad state. the stock market may swing in an unfavourable direction, but give it time, it will swing back to a favourable direction. invest in good, stable, established companies that have withstood the test of time - stay put, be patient, don't panic and ride out the storm. eventually, clear blue skies can and will be seen. [smile] [smile] [smile]
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    • gleezy
      What steps can the government take to help the economy during this time?
      2023-05-24
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    • fizzzi
      How can individuals maintain a long-term investment strategy and resist the urge to panic sell during market downturns? 💪
      2023-05-24
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  • Kaixiang
    ·2023-05-24
    TOP
    All indices have had a massive rally since start of the year. Given the uncertainty on the looming debt crisis and interest rate decision, likely to see a pull back given that most stocks have rebounded with some hitting 52-week highs. The AI craze has further fueled the rally for some companies associated with AI.
    A healthy pullback is good for longer term investors as it may present an opportunity to load up more or DCA. I am definitely going to be on a lookout for potential bargains [Grin]
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    • snixxx
      It will retrace to at least $30. Nothing that gaps up, goes up. That is 99.9% of the time......I can't imagine NVDA not dropping like a lead balloon from $400. Bullish AI long term for sure.
      2023-05-25
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    • snixxx
      AI is the reason NVDA jumped so much and this company is all about AI. If already high valuation NVDA can jump 30% due to guidance I think we can do better than that with our guidance.
      2023-05-25
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  • highhand
    ·2023-05-24
    TOP
    definitely pull back soon. get ready to buy the dip.
    debt ceiling will be raised and all will be fine.
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    • happygo
      Are there any global events that could affect my portfolio?
      2023-05-24
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    • cutzi
      What are the key indicators of a company's financial health?
      2023-05-24
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  • WonderElephant
    ·2023-05-29
    TOP
    Yes we must always consider the possibility of pull backs whenever stocks are overbought.With every high, there must be a low! Low VIX means investors are complacent! Debt Crisis has been settled!
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  • LMSunshine
    ·2023-05-29
    Comment in post for coins if you haven’t❣️ @AlanTiger @kwk @InvisibleP @miaomiao007 @TigerHulk @HappyRat @Zacv @Alconies @justforcoins @cubinvestor @我i168 @ZeroG @JennyChiang @MGOH
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  • LMSunshine
    ·2023-05-29
    Comment in post for coins if you haven’t❣️ @Kingcat @Jo_Tan @RedpillBluep @Furore @breAkdaWn @boardy @Soyabean89 @ngph @KYHBKO @Lionel8383 @Downton @SanWangtikup @Setia100 @th0mastan @LesterTan @IAS @HSTew @Kerrisdale @PhilipChow @alylady @moliya @maricel @Sonoma @LuckyPiggie @Doge2theMoon @equitygenius @StayHome @SGboy @Sandyboy @Stayclose @DMTrader @BettyT @Bunta @tigjun21 @JohnL @jace0777 @DoreamonGo @TTrade @VonCat @boonk @Trevelyan @jgaldon @fxaw @Kok @Agxm @Dodonan @BubTigger @Decromer @OddEyeCircle @StarAce @zerolih @WuDi @Asphen @MasterStonker @MoneyCub @MiniAce @StayCalm @ee244c @Huangyulee @tarotsgirl @Lord_Kuberan @ShengSoon @jllwang @Shiella @cristine @Gunawanh @WLing @Zash @Snoopymint @GrumpyDino @YTGIRL @VivianChua @MSJYJ @YJ13 @Bons @bernardtayet @Kindryl @angyenyen @KBWSG @JazzyTizzy @icycrystal @Alupigus @tigernoob @MojoStellar @BillionaireN @aiyoh79 @Moolele @mster @intheloop @drandy @eeth @Zack44 @Cyberguard @kaite @BlueDragon @Tonyoh @AlfonsoDex @InvisibleTig
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  • LMSunshine
    ·2023-05-29
    Debt Crisis will resolve as 🇺🇸 cannot afford a major setback now.The 🐂-ish force has come from AI stocks, it’s hard to predict whether the tech rally can continue.Extreme low level of VIX has been indicative of a market pullback in the history so it’ll be important for 🐯🐯🐯 to watch for sell-offs.THX loads @Tiger_comments for this Great Update and Discussion.Comment in post for coins if you haven’t❣️@SR050321 @CYKuan @HelenJanet @rL @Universe宇宙 @Jadenkho @melson @Mrzorro @GoodLife99 @SPOT_ON @Kaixiang @BenjiFuji @RDPD富爸穷爸 @SirBahamut @b1uesky @MHh @PJoo @Pepermintpat @RiciaYang @jat @Omega88 @爱上投资学 @Zeniv @Elon2 @Yonhuat @Joker_Smile @grizzlylee @FrankieRed @spkek @snoopy123 @psk @pekss @amroui @Ericdao @StickyRice @StarLuck @Shyon @Success88 @kungpao @CL Wong @Derrick 1234 @MeowKitty @Thonyaunn @紫南 @Zarkness @Ah_Meng @Ratt @Tigress02 @Viv22 @aunteenat @Cory2 @airui @0QH @Cris0 @Brocco @AhGong @deal2deal @nickname168 @Ccl2 @Lcc73 @HLPA @WanEH @markele @pipiso @hlw8888 @Huiz84
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  • Shyon
    ·2023-05-25
    TOP
    I think the market will have a big pullback if the debt crisis cnt be solved or comes to an agreement eventually. However, I think US will definitely try all means to avoid this from happening as the impact qi be monstrous! How do you think? @melson @LMSunshine @Universe宇宙 @GoodLife99 @Aqa @rL @koolgal
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  • Tigress02
    ·2023-05-25
    TOP
    Do you think the broader market will pull back soon?
    It doesn't matter to long-term investors. Because history strongly suggests that a recovery will happen at some point. We just simply don't know when.


    What Does the VIX Tell Us?
    The Cboe Volatility Index (VIX) signals the level of fear or stress in the stock market. The higher the VIX, the greater the level of fear and uncertainty in the market.


    When the VIX is low, volatility is low. When the VIX is high volatility is high, which is usually accompanied by market fear. Buying when the VIX is high and selling when it is low is a strategy, but one that needs to be considered against other factors and indicators.


    How can a country get out of debt trap?
    The five ways out of the Debt Trap are (1) let the economy grow the country out of the trap, (2) default and repudiate the debt, (3) print money to pay for it, (4) raise taxes and/or reduce expenses ...
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  • 我认为股市会有回调,以目前国会两党的谈判进展来看,根本不像双方代表承诺的那么乐观,因为双方只是谈成了容易谈妥的部分,一些不容易让步的部分根本没有下文,所以交易员买入vix对冲也是合理的。
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  • Bons
    ·2023-05-25
    TOP
    even thought the article shows many data from various perspectives, I do believe that the debt crisis would over like usual. it will finished in the raise of the debt limit and maybe we will see one last pull from the market as it marked by the low level of VIX.
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  • JohnL
    ·2023-05-25
    TOP
    The vix is low only because traders are assuming the deal will fall in place. However, given the upcoming election, it is fair to say this tug of war may stretch till the end before the 2 parties come to senses. Brace the ride fellas, if vix shoots up, take the opportunity to sell options.
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  • 散修2706
    ·2023-05-24
    TOP
    其实都在玩空城计的游戏,心里都有底线的。
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    • ZEROHERO
      趁机捞一笔吧
      2023-05-25
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  • Bunifa Latif
    ·2023-05-25
    TOP
    I think it will rebound soon as the people are playing a game of chicken. It is likely to end with concessions on both ends where there will be budget cuts.
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  • Optionspuppy
    ·2023-05-25
    TOP
    $NVIDIA Corp(NVDA)$ is rising due to beating future earnings estimates whole market saved my this tech stock although our yellen talks crap hahaha
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  • Khikho
    ·2023-05-24
    TOP
    💆🏼‍♂️那就买个Put保护一下吧,[财迷]
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    • ZEROHERO
      恭喜你了
      2023-05-25
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