SPX | How much is today's damage? | Are we in a recession?

已更新

Alternate title: We are filled to the brim.

Revelation day. Today, August inflation numbers were revealed to us. Fear struck investors, because high inflation would cause higher rates, thus recession. Immediately, a sell-off began in SPX and other indices, the majority of which lasted mere minutes.

But this is not entirely correct. The cause of today's pain was because of dollar. A high inflation and a hawkish FED, will push dollar value higher because of increased rates. Also remember that SPX, DJI and other indices are measured in dollars. Therefore an increased denominator (dollar) will decrease the value of the index. To overcome this issue we have to pull dollar out of the equation.

But how will we do that?

First let's take a look at today's events. The day hasn't ended at the time of writing this idea, but it is irrelevant.

SPX and DXY revealed their true nature. They are moving in completely opposite directions.
And it makes sense. Many of you here are traders. And if you are trading SPX you have two, very liquid, tools to work.
You have dollars on the one hand, and stocks on the other hand. Maybe you trade futures, options or other contracts, but I will simplify by calling them stocks. Because I don't know the scientifically correct word to use.

Therefore SPX and DXY are items you hold on your two hands. They are the contents of the two pockets you have. What you do is trade between your two pockets. So it makes sense that when one grows the other falls.
Of course long-term there is growth to the economy, so this assumption works for small timescales.

I will go "against the law" and use this ratio to make conclusions for longer terms, beyond intraday. So let's zoom out.
From now we will use a new equity, DXY*SPX. This is one way of making calculations of two things moving in opposite directions.

First let's look at today. At the time of writing, SPX is at a 3.15% drop. DXY*SPX though is dropping in a more manageable 1.54%. So maybe things are not as bad as they seem. Sure if you traded maybe you had a bad time, but the "damage" is smaller.

Let's zoom at the recent period of the past few months, on the weekly chart.

A very peculiar chart appears. It turns out that the pair dropped by a mere 6% since it's absolute top of January 2022.
While SPX on its own dropped by more than 16%. This doesn't look like we are much of a recession just yet. Curiously, in August we tested the peak for a second time. It's like we are filled to the brim. A clear horizontal ceiling exists, and we are still below it, inside an expanding triangle or something like that. You can perform some technical analysis and explain in the comment section what this could be.

Now compare with 2000 and 2008. I drew some trendlines to get a rough sense of where we are.

Maybe the recession is not happening, or it is happening in a very controlled manner. Maybe the true pain is not felt and the worst is yet to come, like NoOneWhoIsSomeone, whom I admire would say.

Take a look at this chart which I obsess about.

Again, filled to the brim. And curiously, we got full before 2019. And we repeatedly tried to break a horizontal ceiling. Which is not obvious if you look at DJI on its own. And the same ceiling we reached in 2019 was the exact same which we couldn't get past in 2007. Repeatedly tried but failed. Again filled to the brim.

I will try to put more things into equation. Perhaps comparing with PPIACO, USOIL and mixing in M2SL in DXY*SPX. Or you may post your own ideas regarding what I talked about.

Tread lightly, for this is hallowed ground.
-Father Grigori

註釋

Adding PPIACO to the equation:

Adding M2SL to the equation:

註釋

This alternate chart shows something mixed.
This is an alternative to the one posted above.

註釋

The peaking phenomenon, the expanding triangle that is forming, is nearly identical to the AAPL stock. SPX*DXY is the same shape as AAPL, apple not multiplied by DXY.