SPX in a Rising Expanding Wedge
Bearish Idea: The market seems to be inside a rising expanding wedge. I anticipate that the week starting on 07/15/2019, SPX will continue to rise and eventually reach the upper trend line. This is estimated to be about 3040-3050. The market may contain some heavy resistance and reverse from there. If the wedge terminates in that area, then the expected drop could be swift along with a sharp increase in volatility. The short term target would be about 2875, which is where the wedge started. Look carefully at the put/call ratio. It has increased sharply recently, possibly due to hedging. The daily RSI is at about 71. Moreover, the Federal Reserve continues to destroy the money in circulation. I suggest you visit their website and look at the balance sheet of all their assets. It's about 3.8T now. At the top of their holdings at one point, they had 4.5T. So that's 700B destroyed and removed out of circulation. This is what we call a financial draw down from society/governments. The FED has mentioned they will discontinue this activity by September 2019, but who knows if what they say will hold true. Less money in circulation generally leads to higher interest rates as appetite for borrowing increases and people are willing to pay higher rates to continue their business activities. How will this scenario happen? Most likely if the FED keeps rates on hold or performs a surprise rate hike.
Bullish Idea: If SPX rips through the upper trend line in a blowout fashion, then the market could go parabolic and reach the 3300s-3400s area in a short span of time (possibly 2-3 months). This is what we call a melt up, burning shorts severely. Daily RSI in this situation would likely exceed 80. How will this scenario happen? An overly optimistic/speculative behaviour type of market along with an expected rate cut from the FED. This may bring us back to easy monetary policies and continued inflation. More money printing will just inflate the prices of the market even further. In this scenario, just about everything gets inflated: wages, real estate, land, homes, food, goods/services, precious metals, cryptocurrencies, etc. However, it's possible that a rate cut may signal that something is wrong with the economy and that the bull cycle is over. Often times the market will react in an opposite manner to what is expected due to forward looking conditions. The common saying goes, "Buy the rumour (or speculation), sell the news."
Bullish Idea: If SPX rips through the upper trend line in a blowout fashion, then the market could go parabolic and reach the 3300s-3400s area in a short span of time (possibly 2-3 months). This is what we call a melt up, burning shorts severely. Daily RSI in this situation would likely exceed 80. How will this scenario happen? An overly optimistic/speculative behaviour type of market along with an expected rate cut from the FED. This may bring us back to easy monetary policies and continued inflation. More money printing will just inflate the prices of the market even further. In this scenario, just about everything gets inflated: wages, real estate, land, homes, food, goods/services, precious metals, cryptocurrencies, etc. However, it's possible that a rate cut may signal that something is wrong with the economy and that the bull cycle is over. Often times the market will react in an opposite manner to what is expected due to forward looking conditions. The common saying goes, "Buy the rumour (or speculation), sell the news."
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