The Bull Case: Weimar 2.0?

Throughout the course of history, governments that use fiat currency have overspent and eventually gotten themselves into dire situations with debt.  Their response has never been to correct their errors and return to fiscal discipline, it has instead universally been to attempt to inflate their way out of trouble.  

I bring this up because I've been trying to give honest consideration to some version of an actual bull case, and one version of that case involves completely ignoring the economic fundamentals and instead focusing on the Fed firing up the QE presses again anytime they feel they need to.  We already know the Fed has been providing a ton of "back door" liquidity to the banking system, which likely staved off a broader collapse nearly a year ago when SVB (et al) failed.  

So maybe they can keep kicking this can even farther down the road than any of us want to imagine.  We can see on the chart below that the Fed has managed to trim about $1.2 trillion off their public balance sheet, so far with minimal visible damage to the market, though, granted, this is a drop in the bucket vs. what's been added.  But maybe this chart ends up looking like a staircase before it's all said and done:  A trillion off here, then 4 trillion back on there, and so on.

If that, and/or similar things, were to happen, then they could inflate the market higher longer than seems reasonable.  Though the long-term costs would be devastating to the American public, the short-term option of "not during my term in office!" has historically been too tempting to avoid.

I discussed this possibility on the forum more than a year ago, but I guess deep-down I keep hoping for a return to something approximating an actual free market, whether the Fed/government does so voluntarily or has their hand forced by circumstance.  But maybe that hope is still premature and this game needs longer to play out.

I think that's the bull case.

Because the market has already priced in the "soft-landing" outcome and is now further banking on no recession, even though one might say those hopes are also premature, since recessions typically don't show up until 7-16 quarters after the first rate-hike -- and we're just barely at the lowest end of that timing range now.

Chart-wise, I drew up another longer-term chart illustrating one bull option that I'd only discussed verbally in prior updates:

And futures are indicating that SPX was indeed a b-wave high:

I'm about out of time for today.  Trade safe.

SPX and NYA Updates

SPX has been rejected again by the very long term resistance line we've been watching for months:

This comes on the heels of reaching "enough waves up" for a reversal if it wants (i.e.- not enough in the charts to say with any certainty, but enough in the charts to open it up as an option):

If SPX does choose to continue lower, one possible target/inflection zone will be a bit south of 4687, but bears should also be careful around the 4730-40 zone (plus or minus, no exact targets for that zone), as that's another area that could act as an inflection for a smaller expanded flat.

Finally, NYA has continued lower since reaching its inflection zone back in December:

In conclusion, not a lot to add to the past few updates.  As noted previously, bears do finally have some opportunities again, but it's still up to them to make the most of those and not immediately let bulls back in the driver's seat.  Trade safe.

SPX Update

Last update discussed the possibility that the high at 4793 was a b-wave, and SPX has since resolved that question in the affirmative.  I've added some new discussion of zones to watch to that short-term SPX chart:

Bigger picture, SPX is still contending with the very-long-term resistance line that we've been watching and discussing for the past half a year:

In conclusion, the complex flat discussed on the first chart might be one way for bears to get some near-term action and for bulls to stretch this into a larger fourth wave while they try to build momentum to clear the VLT trend line above.  Of course, if that complex flat were to occur, then it would also open the book to more bearish options -- but first things first, and let's see how all this resolves.  Trade safe.

SPX Update

At this point, there isn't a lot to say in follow up to Monday's update, but I did include a chart discussion regarding the near-term:

Not much to add beyond that, for now.  Trade safe.

SPX, NYA, COMPQ, INDU: Shock the Monkey

Since capturing its June "bull count" target, SPX has remained in a near-term downtrend.  Let's look at a few charts.

This jives with the very long term trend line that we've been watching since July:

COMPQ has also stalled at its inflection zone:

As has NYA:

For bears, the one monkey in the works is probably INDU:

In conclusion, multiple markets have reached and reacted to their inflection zones, so score one for inflection zones, if nothing else.  It's too early to say if these reactions will be short-lived or will turn into a full-on resumption of the bear market, but that possibility is at least on the table (and fun to consider, since I suspect it would catch almost everyone by surprise).  Even the more bullish case could see a meaningful correction develop, though there are no concrete targets for such a move yet.  Trade safe.

SPX Update: New Year, New Options

I said I'd "likely return on the 3rd," so here I am -- though I still have relatives in town for a few more days and have weird "drive us to the airport" hours to contend with on Friday/Saturday, so the next update after this will be on Monday.

Despite my holiday break, the market has moved surprisingly little in absolute terms since last update, so we're just going to look at one chart today, because it's probably the most relevant chart going right now:

In conclusion, SPX has captured its old June "bull count" target, which does open up options from here.  It's a bit early to say whether bears will actually capitalize on those options yet or not, but at least they finally have some again.  

I wish everyone a safe and prosperous New Year.  Trade safe.

End of the Year Update: Counting Chickens

SPX is flirting with the all-time high and its first "bull count" target from June:

Bulls (and bears) have seemingly all decided that a new all-time high is a given, and maybe it is, but as the old expression goes:  "Don't count your chickens before the cows come home to roost."  

SPX is again facing the same resistance zone that knocked it down the last time bulls were expecting a new all-time high -- i.e.- the old red trendline.   (Bears have forgotten that many bulls lost a bunch of money buying too early during the last decline and getting stopped out, before buying again and getting stopped out again (when that rally turned out to only be the 4th wave of C) -- before finally being rewarded by being too scared to pull the trigger at the actual bottom and therefore missing most of the big rally, before closing their longs way too early and missing the rest of the rally since then.  That's the thing:  The grass isn't greener, it's just that everything always seems so darn easy until you have actual money on the line and your emotions are fully invested.)

COMPQ is also now into the general ZONE (it's a zone, not an exact level) of the old "or (2)" bear inflection:

NYA suggests there may still be a bit more upside, but I do have to note (and did, on the chart) that the first inflection zone for the C wave has been reached.  (You know, just in case those chickens don't hatch.)

So, we'll see how it goes here.  Maybe bulls will blow right through these resistance/inflection zones as well.  Maybe there's just so much liquidity floating around (from where God only knows) that the market simply can't go down.  But I'm just sayin', those chickens haven't actually hatched yet, so let's see if the cows come home to roost, because a penny saved is worth two in the bush.  

***

And with that, as per usual, I bid my adieu for the year.  I have relatives on-island until (I think, keep meaning to double-check) January 5, so I'm going to try to make the most of my time with family this year, because, for one thing, we're running out of Christmases where we have any kids at all at home.  Our oldest already flew the coop, and our next oldest is getting close.  We really only have one kid left who's still a "kid" (technically he's a teenager, but this is probably the last year where he's still more childlike than not).  

You know, when I had my first, I remember SO MANY older couples saying, "Treasure it, they grow up so fast!"  And -- especially when it's your first and the kid is still an infant and keeping you up all night and just generally demanding every bit of your free time and energy to the point that you're convinced the whole experience must be some kind of punishment -- you think, "Yeah, right, they grow up fast.  Man, I HOPE so."  Because at that point, you'd really just like to get a full night's sleep again, for crying out loud, and you're still kind of in the mindset you were in when you were childless, and this new gig seems like nothing but sacrifice.  Which it is.  (Eventually you realize it's one of the most rewarding sacrifices you can make in this life, but you don't realize that two weeks in.  Or at least, I didn't.)

And then you blink, and they're off to college.  

And you can't believe how much time has passed and how quickly it did.  And you find yourself nostalgic and a bit wistful for so many things that you feel like you didn't savor enough when they were happening.  

You other parents know what I mean.

Anyway, I'll likely return with the updates on January 3, unless there's still nothing interesting to say about this market, in which case I may just enjoy another few days of family time.  But probably on January 3.  

As is tradition for the final update before Christmas, here's the link to a non-market-related piece I penned almost exactly a decade ago (Can't believe it was a decade ago already.  "They grow up so fast!"), titled:  

A Christmas Story - Reflections on What Matters

Merry Christmas to all my readers -- or Happy Holidays, if that's your thing instead.  Trade -- and be -- safe this holiday.  I wish you all the best for the New Year.