S&P 500 Bear Market Analysis

The first warning signs that a market peak is near are now showing themselves.

On a Fundamental level, we have:

  • Rising interest rates (which precede a tightening in speNDING and Corporate profits, and make other assets more attractive).
    An inverse yield curve (proportional to interest rates).
    A ballooning balance sheet (Central banks have been buying equities since the 2008 crisis).

On a Technical level (Monthly Chart) we have:

One of the longest trends in the S&P 500 history
Current Trend is twice the length of the previous record.
No price consolidation for almost two years.
Just had the biggest correction since 2011, markets immediately bounced back.
Price action is a significant distance away from Moving Averages


Taking a more thoughtful look at the market, we can also make the following observations:

If we look at the history of the SPY over the last 25 years, we can see that it has been cyclical.
We can make the observations that market corrections were occurring more frequently and more violently, until this current trend.
The market has shrugged off almost all global political news in the last year, with volatility being almost non-existent.
In the last ten years, more money has flowed into passive investments than ever before.
Overwhelming optimism is present across the board, which makes the contrarian view (a bear market), more likely.

I predict a pullback to $210 (75% probability), which would be in line with previous moves and established support/resistance lines. As the effect of passive investment and a bloated balance sheet are unknown, we will look for a break of this line of support and a testing of $180 (50% probability). If we were to predict a truly worst case scenario, we could see a touch of $160 (25% probability), which would a 40% downside. Should this occur, this would be the greatest money making opportunity of this generation, and the subsequent bull market which would be based on blockchain technology and therefore universal trust in all participants of all markets would be the longest in history.

In the coming weeks, we will do more analysis on the major markets at a monthly level before moving down into the weekly level when we get closer to the capitulation.

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