The S&P 500 (ETF:SPY)
If you were not clear about how directly the impact of the Fed’s expansion of the money supply affects the S&P 500, (analyzed here using the ETF:SPY) this daily chart will fix that.
The market is levitating into what appears to be a “blow off top”, as it becomes absurdly overbought.
But don’t fall into the trap…Expecting this stimulated market to act “normally” is like expecting somebody who has consumed multiple energy drinks with dinner to be sleepy at 9pm.
Both will “crash” only after the drugs of stimulation leave their system.
Because this insatiable demand is being caused by inflation fears and the desperate need for institutions to place the gobs of money that have been injected into the system, it doesn’t behave according to historical tendencies. I’ve always laughed at folks who say “this time it is different”, but I have to swallow my discomfort and join their ranks at this time. We have never seen this kind of central bank management of our economy so the forces ARE truly different this time.
As long as dramatic increases to the money supply keep being created, we will see these inorganic “melt ups”.
That being said, my instruments are showing that the buying is real and started to erode slightly as we went into the end of last week. I would expect that this bearish pressure is the result of simple profit taking and don’t have a high odds forecast for the S&P moving forward.
I am however NOT afraid to miss calling this top, as the levels of bullish momentum that have shown themselves indicate that the top will need quite some time to process before any sustainable correction can form.
If Monday is a weak one, the odds are high that a retest of the highs will come at some point and THEN I’ll have a more reliable indication whether or not a breakout or a reversal is likely to occur.
I continue to sit aside and just focus on day-trades in the S&P while I manage open positions.