S&P 500 : Bull run limits & Looming correction !
Lately, there have been a lot of posts casting a doubt over US stock market & its indexes, despite latest inflation and economic reports are painting a different picture.
After seeing one too many of such posts, I have been pondering if there is any truth in them ?
As such, I decided to share one of them, the one that makes most “sense”.
Happy reading.
The future performance of the $S&P 500(.SPX)$ index remains a crucial area of market attention, with some analysts warning that investors should brace for a possible crash.
Certain market participants have suggested that the index may experience further gains before a potential downturn, aligning with projections of an upcoming recession.
In a TradingView post, dated 22 Aug 2024, stock market expert Alan Santana indicated:
A significant downturn in the S&P 500 appears imminent.
US market could be on the brink of the most dramatic crash since 2022, with the recent upward movement being merely a temporary pullback in a broader bearish trend.
Based on technical analysis and market cycle observations, Santana’s assessment suggested that the index is poised to resume its downward trajectory after a brief rally.
He argued that current rally does not indicate an actual bullish reversal but a correction within an ongoing bearish framework. (see below)
Notably, the analysis highlighted the formation of a lower high, often a precursor to a lower low.
This pattern indicates that the recent bounce is merely a pause in a larger downtrend.
SPX key levels to watch
Additionally, with the S&P 500 currently hovering near the 0.236 Fibonacci retracement level, Santana predicted a potential decline towards the 0.618 retracement level, around the 4,320 mark.
The S&P 500 has been moving within a well-defined bearish channel.
The recent pullback has failed to break out of this pattern, reinforcing the likelihood of a continued downtrend.
Overall, the analysis implies that investors should prepare for a (a) steep and (b) swift market correction.
The recent highs could mark the end of the current market cycle’s bullish phase, with a sharp decline expected in the coming weeks.
However, Santana emphasizes that there is still time for investors to prepare.
Bearish strategists warn of a potential stock market crash as the economy shows signs of cooling down.
According to Wall Street’s biggest bear, the stock market does not seem to care about these predictions as the S&P 500 is less than 1% away from hitting record highs.
Actually, there's still plenty to be worried about,
Reliable recession indicators like the Sahm Rule have flashed recently. Click here ! to read about the rule created and named after Claudia Sahm.
The job market is seeing growth decelerate.
Any interest rate cuts from the Fed may not be enough to prevent a downturn — say downbeat forecasters.
Separately, Finbold, economist Henrik Zeberg suggested and reported that the index could reach an all-time high of between 6,100 & 6,300 points before crashing. (see above)
He anticipates that market participants should expect the worst recession since the Great Depression of 1929.
According to Henrik Zeberg:
Impending bear market, will unfold in 2 phases.
A deflationary phase.
Followed by a stagflationary period.
With a mid-way bounce as the Fed intervenes in 2025.
Reiterated his previous call for a “Blow-Off Top” in the markets.
This is where prices surge to unsustainable levels before collapsing.
The markets have not reached this peak yet.
When they do, expects to face ridicule for his predictions of a major top and subsequent crash.
Overall, Zeberg’s revised targets suggest investors may still see significant gains in the short term, especially in equities and cryptocurrencies.
His warning of an impending recession is a cautionary note for those looking to capitalize on the bullish momentum.
My viewpoints : (mine only)
Based on above passage, there is a bit of time for market rally to persists and chart new heights before the incoming tide of recession hits US market.
If the S&P 500 were to hit mentioned new highs (see above), based off Mon, 26 Aug 2024 closing, S&P still have between 483.16 to 683.16 points to gain.
More importantly, it is a “known” fact that US market tended to be in high spirit during US president election years. (see below)
Barring any unforeseen circumstances, it should not be any different on the run up to 2024 US president election in November. Right ?
Other Factors.
Of course, there will be other factors that might affect US market.
Namely :
Economic indicators: Factors like GDP growth, unemployment rates, and inflation can significantly impact market sentiment.
Policy expectations: The policies of the newly elected president and their potential impact on the economy can influence market performance.
Global events: International developments, such as trade wars or geopolitical tensions, can also affect market sentiment.
Market analysis: Consulting with financial experts or analyzing market trends can provide valuable insights into potential future movements.
US National debt. This last factor is not a textbook find but personally I think it will affect which ever elected president and of course the US citizens. It is commonsense that the larger the debt, the more resources will be channeled to service interests incurred; leaving little to no money for social economics.
Make hay while the sun shines. The moment storm clouds gather - Sell, Sell, Sell and Wait to Buy again!
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