SPX500 flirting with a red line, will it stay in bubble area?
Hey folks,
zooming out all the way usually offers some new perspectives. This is a monthly chart of SPX 500 looking on its full history since year 1957, when it was transformed from its predecessor into a more or less current form. I will add some closeup shots so you can see just how nicely the upper line of the channel fits in place. And how it acts as a resistance on the way up, and once the chart secures the place above it, it acts as a support.
As you can see, in 65 years of existence, SPX 500 only left this channel twice. First time during dot.com bubble era which was followed by a 49% decline in SPX500 once it popped (NASDAQ was hit even harder, seeing almost 77% drop), and the second time it's now... More precisely the chart touched the upper line of the channel in July 2021, just a couple of weeks after Michael Burry wrote in his tweet: "People always ask me what is going on in the markets. It is simple. Greatest Speculative Bubble of All Time in All Things. By two orders of magnitude."
Michael Burry correctly predicted (and made money on) the US housing market collapse in 2005. To be fair, he was 2 years to early to the party, as the collapse actually started to unfold only in 2007, but the Market is really good at staying irrational for very long. Mostly longer than you can stay solvent.
Do I want to sound bearish? Not really, at least not yet. Just (in Michael's words), I am looking for value, wherever it can be found. At the end of the 90ties, indexes went through the upper line of the channel as a hot knife through butter. This time it was not so hot. We have about 10% drop behind us. No biggie, just releasing some steam, this is actually healthy for the Market, which looks like it has digested hawkish FED stance from the last Wednesday, forgot about US-Russian tension in Ukraine and is even thinking about moving up, at least for a while. Now I'm just wondering if the monthly candle will manage to get over the red line on Monday (cca 4525) and this way to close January in the "bubble" territory.
Fundamentals point to choppy behavior, and those "chops" could be actually quite hefty. I wouldn't be surprised by 5% up and down moves during next months, which will create fruitful environment for skilled short time traders. Eventually it will lead to a proper correction but those are impossible to time.
That saying, about the Market being able to stay irrational longer than you can stay solvent, comes from times before dozens millions of people downloaded trading apps and all combined invested absurd amount of money into trading system. Retail investors in the US are now supposed to own 12 times more stocks than hedge funds. Some of those investors starting to trade not knowing a difference between a short and a long position (not kidding). So this takes word "irrationality" to a whole new level.
Not a financial advice, just my fantasies.
zooming out all the way usually offers some new perspectives. This is a monthly chart of SPX 500 looking on its full history since year 1957, when it was transformed from its predecessor into a more or less current form. I will add some closeup shots so you can see just how nicely the upper line of the channel fits in place. And how it acts as a resistance on the way up, and once the chart secures the place above it, it acts as a support.
As you can see, in 65 years of existence, SPX 500 only left this channel twice. First time during dot.com bubble era which was followed by a 49% decline in SPX500 once it popped (NASDAQ was hit even harder, seeing almost 77% drop), and the second time it's now... More precisely the chart touched the upper line of the channel in July 2021, just a couple of weeks after Michael Burry wrote in his tweet: "People always ask me what is going on in the markets. It is simple. Greatest Speculative Bubble of All Time in All Things. By two orders of magnitude."
Michael Burry correctly predicted (and made money on) the US housing market collapse in 2005. To be fair, he was 2 years to early to the party, as the collapse actually started to unfold only in 2007, but the Market is really good at staying irrational for very long. Mostly longer than you can stay solvent.
Do I want to sound bearish? Not really, at least not yet. Just (in Michael's words), I am looking for value, wherever it can be found. At the end of the 90ties, indexes went through the upper line of the channel as a hot knife through butter. This time it was not so hot. We have about 10% drop behind us. No biggie, just releasing some steam, this is actually healthy for the Market, which looks like it has digested hawkish FED stance from the last Wednesday, forgot about US-Russian tension in Ukraine and is even thinking about moving up, at least for a while. Now I'm just wondering if the monthly candle will manage to get over the red line on Monday (cca 4525) and this way to close January in the "bubble" territory.
Fundamentals point to choppy behavior, and those "chops" could be actually quite hefty. I wouldn't be surprised by 5% up and down moves during next months, which will create fruitful environment for skilled short time traders. Eventually it will lead to a proper correction but those are impossible to time.
That saying, about the Market being able to stay irrational longer than you can stay solvent, comes from times before dozens millions of people downloaded trading apps and all combined invested absurd amount of money into trading system. Retail investors in the US are now supposed to own 12 times more stocks than hedge funds. Some of those investors starting to trade not knowing a difference between a short and a long position (not kidding). So this takes word "irrationality" to a whole new level.
Not a financial advice, just my fantasies.
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