Monday, May 17, 2021

SPX Update: The Genie

 "And the past comes back to smack you around,
for all the things you thought you got for free.
For the arrogance to think that you could somehow
defy the laws of gravity.
These are lessons in humility:
Penitence for past offenses.
Ah, consequences... consequences.

You can't get the genie back in the bottle."

-- Don Henley, The Genie

Here's what we know for certain:

We know for certain that we are in the midst of the greatest asset bubble of our lifetimes, and arguably the greatest asset bubble in American history.  The Federal Reserve has accumulated as many "assets" (read: printed as much QE money) in only the last year and a half as it did in the entire 107 years prior to that combined.

If something was to go south now, what bullets do we have left?  We have none that I can see.

Is it so hard to imagine that we're heading for a Supercycle top (and ultimately headed for a Supercycle crash to follow)?  

We know this ends badly, because it can end no other way.  Reread the lyric quoted at the opening; Henley is expressing a universal truth in those lines -- the universal law of cause and effect.  Action/reaction.  Along with the predictable human arrogance to want to believe we can somehow skirt the outcome because "this time is different" and "we will thus become the first humans to bend reality and get away with it!"

The big question is:  Are we there yet?  Have we reached the "consequences" stage -- or can it be forestalled a bit longer?

Can they keep the bubble going?

And I just don't know.  These are truly unprecedented times, with the Fed and the government throwing money around as if they actually want to see it all burn to the ground in the end.  So we're waiting for the market to decide if that moment has begun yet or not.

NYA has reached a backtest:

SPX is back above the long-term red line:

Last update ended with the observation that:

In conclusion, things have gone to plan to this point, but now we're into the inflection zone, and the market can go either way.

And ultimately, there's been no real change to that.  The potential of a b-wave high throws a curveball at the normal expectation of an impulse down begetting another impulse down, because in an expanded flat (the pattern that sports a b-wave high) the impulsive decline ends the correction, instead of beginning it.  This leaves us, at least for the moment, at the mercy of waiting for the market to announce its next move.  Trade safe.

1 comment:

  1. The street will get everything it asked for and more, much more. The inability of inflation forces to take hold in this 40 plus year deflation cycle is about to be tested. Crypto already broke badly. usually the tulip mania asset class gets hits first followed by rest of market. lower dollar and much higher oil demand as prescription for disaster. The FED has decided not to intervene but whether too early or too late the street makes that determination. I expect a crash scenario lasting 3/4 weeks max. It will recharge the mania with little damage.