What Recession?! Stocks Could Soar For Years to Come! (ES)
Hi friends! Welcome to this update analysis on the S&P 500, via the weekly Emini futures contract! Let's get to it!
Recession, recession, recession. All I ever hear about right now is "recession." While there are definitely some economic headwinds right now (trade tensions, yield curve inversions, over levered corporate debt, international economic problems) I wouldn't underestimate President Trump and the Federal Reserve's ability to stimulate the market. They could cut taxes, cut interest rates, create programs that incentivise business loans, they could ramp up industrial improvements... there are a lot of options that the government has to stimulate the economy. Admittedly, their ability to cut rates is less than it was in 2008, when the Federal funds rate was at 5.25%, and the Fed has some $3.7 trillion in bad mortgage backed securities and treasuries remaining on it's balance sheet. Also, the market is about three times higher. So, that also has an impact on their ability to stimulate. What we really need to understand, is that the Fed printed over $5 TRILLION during their QE programs. Much of that money still resides in regional bank reserves, waiting to be lent out. So, there is a very real possibility that the QE stimulus that the market received after 2008, is still very vibrant and effective, and it may be that way for years to come. That was more money creation than anything seen in modern society. So, we don't really know how long the effect will last. The Fed is still looking for it's inflation target, for Pete's sake. Therefore, any additional stimulus may not even be needed right now.
Looking here at a weekly chart of the S&P, you can see that it looks healthy as ever. In fact, I don't see any sign of an economic slowdown on this chart. It is literally rising from the lower left corner, to the upper right corner. Folks, we are in the greatest bull market in the history of the world, and there is evidence on this chart that the party could be far from over.
As you can see, in 2011, price held the 200 week MA (in purple,) for several weeks. The final hold is shown with the purple circle. Then, price rallied above the 50 week MA (in orange,) and then held the 50 MA (green circle,) then held it again (green circle.) From there, we can see that a massive rally ensued, which lasted about three YEARS until the market started to run into some trouble. The first retest of the 50 week MA (yellow circle) was the warning sign that the top of that move was coming. From there, the S&P fell back down to the 200 week MA and completed the exact same pattern. It held the 200 week MA, then printed two holds of the 50 week MA, then it entered a multi year bull run that showed signs of trouble at the first test of the 50 week MA.
So, where are we now? Well, price fell back down to the 200 week MA, rallied above the 50 week MA, and printed two distinct holds on the 50 week just as it did two times before. So, we have a very clear pattern here, showing us that the S&P is still in a very solid bull market. We can easily use this information to our advantage. If the S&P breaks out to new all time highs (which it is really close to doing) that is a buy signal that indicates we could see a similar multi year bull run. However, if price fails to make new highs, and breaks down below the 50 week MA, that would be a deviation from this pattern, which would be a technical display of weakness. This is a very clear way to assess the forward path of the stock market. Personally, until I see a clear deviation from this pattern, I have to believe that this bull market still has legs.
#PoopLovesYou
I'm The Master of The Charts, The Professor, The Legend, The King, and I go by the name of Magic! Au revoir.
***This information is not a recommendation to buy or sell. It is to be used for educational purposes only.***
-JD-
Recession, recession, recession. All I ever hear about right now is "recession." While there are definitely some economic headwinds right now (trade tensions, yield curve inversions, over levered corporate debt, international economic problems) I wouldn't underestimate President Trump and the Federal Reserve's ability to stimulate the market. They could cut taxes, cut interest rates, create programs that incentivise business loans, they could ramp up industrial improvements... there are a lot of options that the government has to stimulate the economy. Admittedly, their ability to cut rates is less than it was in 2008, when the Federal funds rate was at 5.25%, and the Fed has some $3.7 trillion in bad mortgage backed securities and treasuries remaining on it's balance sheet. Also, the market is about three times higher. So, that also has an impact on their ability to stimulate. What we really need to understand, is that the Fed printed over $5 TRILLION during their QE programs. Much of that money still resides in regional bank reserves, waiting to be lent out. So, there is a very real possibility that the QE stimulus that the market received after 2008, is still very vibrant and effective, and it may be that way for years to come. That was more money creation than anything seen in modern society. So, we don't really know how long the effect will last. The Fed is still looking for it's inflation target, for Pete's sake. Therefore, any additional stimulus may not even be needed right now.
Looking here at a weekly chart of the S&P, you can see that it looks healthy as ever. In fact, I don't see any sign of an economic slowdown on this chart. It is literally rising from the lower left corner, to the upper right corner. Folks, we are in the greatest bull market in the history of the world, and there is evidence on this chart that the party could be far from over.
As you can see, in 2011, price held the 200 week MA (in purple,) for several weeks. The final hold is shown with the purple circle. Then, price rallied above the 50 week MA (in orange,) and then held the 50 MA (green circle,) then held it again (green circle.) From there, we can see that a massive rally ensued, which lasted about three YEARS until the market started to run into some trouble. The first retest of the 50 week MA (yellow circle) was the warning sign that the top of that move was coming. From there, the S&P fell back down to the 200 week MA and completed the exact same pattern. It held the 200 week MA, then printed two holds of the 50 week MA, then it entered a multi year bull run that showed signs of trouble at the first test of the 50 week MA.
So, where are we now? Well, price fell back down to the 200 week MA, rallied above the 50 week MA, and printed two distinct holds on the 50 week just as it did two times before. So, we have a very clear pattern here, showing us that the S&P is still in a very solid bull market. We can easily use this information to our advantage. If the S&P breaks out to new all time highs (which it is really close to doing) that is a buy signal that indicates we could see a similar multi year bull run. However, if price fails to make new highs, and breaks down below the 50 week MA, that would be a deviation from this pattern, which would be a technical display of weakness. This is a very clear way to assess the forward path of the stock market. Personally, until I see a clear deviation from this pattern, I have to believe that this bull market still has legs.
#PoopLovesYou
I'm The Master of The Charts, The Professor, The Legend, The King, and I go by the name of Magic! Au revoir.
***This information is not a recommendation to buy or sell. It is to be used for educational purposes only.***
-JD-
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