S&P 500 Analysis Has An Epic Fail Incoming While China Expected To Drive 27% Of Global Growth
“An Earth-Shattering Bear Market Is Likely To Ensue” Says Technical Analyst About S&P
According to him, the market is showing the signs of exhaustion here and sees a high probability of a “severe rollover.” A similar movement has been projected when the major collapse happened in December and now, he believes “the market is on the brink of recession.”
“Looking at the daily S&P chart, we can see that the market has now contacted the upside resistance zone (in red.) However, more importantly, we can see that the market is beginning to produce a negative reaction at the top of this newly formed downtrend channel (in blue).”
The fact that S&P market has been in the longest bull market in the history of the US financial system that is 10 years now, it makes sense that the bull market won’t keep on continuing. Hence, a correction is expected to happen but according to the analyst, the bust would be of a massive proportion.
“Although, it's existence and subsequent resilience is purely a result of over five trillion dollars in quantitative easing, which was unprecedented in itself. Regardless, the technical similarities to 2008 are very convincing for the argument that the top is in, and that an earth-shattering bear market is likely to ensue.”
From The Technical & Fundamental Standpoint
In the technical terms, MACD has rolled over bearish and the RSI has reversed from the oversold level. Overall, the strength indicators are turning over as the market struggles. Now, according to Magic, if the market sees a “sharp reversal candle” but on high volume, that will be the confirmation of the sell signals.
As from the fundamental point, the growth of earnings per share has already peaked and on top of that the market is acting “extraordinarily negatively.” Despite the rates being at historic lows, the factors like Brexit issue, problems in France and Italy, over-leveraged corporate debt, economic pressure from trade war and inversion of the yield curve all present a major problem.
“Fed has little adjustment space to jump-start the economy again, despite the fact that the market is dramatically higher than it was in 2008. Furthermore, they already have a heavily inflated balance sheet, well in the trillions. So, they are increasingly powerless, to rescue this market (THAT THEY INFLATED) when it starts to collapse. And what will happen then? Corporations will default on the debts they are over-leveraged against. There will be widespread corporate bankruptcies, and we could be looking at an EPIC debt crisis as a result.”
A fall into recession means bond yields would be in very dangerous territory leading to skyrocketing of the already $22 trillion federal deficit. Though Fed losing control of the rates sounds far fetched the analyst says, “I can assure you that it isn't.”
This may not happen immediately, but the “stage is set.” In the analyst’s opinion this will collapse and if Fed tries to lower rates and start QE4, it would only lead to further inflating the “greatest bubble” of all time.