US Market: About to crash or everything is going "good"?
Hello traders!
Hope y'all had a good week. In this post I want to talk a little about the nature of the economic recovery that we have seen in one of the largest equity markets in the world: the USA stock exchange.
Unless you've been living under a rock, isolated and without contact with the outside, you are probably aware about the overall outlook on how the pandemic has impacted different countries. In the U.S there were strong market crashes at the beginning of the year, multiple sessions with market halts, companies going bankrupt and others, mainly on the tech side, significantly increasing their value, among other things.
As the months went by and as optimism about an accelerated economic recovery began to reach the markets, we saw how they started rising again, to the point of reaching all-time highs. However, there are certain things that we cannot ignore when evaluating the character of this rise. On the fundamental side, we have certain aspects that we must consider:
There has been much talk that this recovery is nothing more than a result of the stimulus packages delivered by the US government, since many people have used the money to start their trading journey, leading to demand for shares and consequently pushing the price up. This is tied to the gigantic amount of new dollars in circulation, which is intended to combat deflation. (In short, it's when no one spends money because they expect prices to fall, and it can be much more devastating than inflation).
The problem is that, despite all these efforts, inflation continues not to rise and the US government has been left without many alternatives to achieve its goal of 2% per year inflation rate. Since interest rates are already at 0%, the only bullet they have regarding monetary policies is lowering the rates to the negative field.
From a technical analysis point of view, there are certain patterns and clues (circled on the chart) that volume leaves us. If we pay attention, we can see that we have repeatedly seen a significant increase in volume around the areas where the market has made a correction, while the bullish rallies have not been accompanied by a especially high volume. This may suggest, in summary, that when the market makes a correction, there are many more interested in selling than buyers who want to join when the market rises. This in itself is not enough to conclude that we are facing another market downturn, but it is definitely something to consider when analyzing the character of the upward momentum in recent months, especially when contrasting it with the reality that exists in many places, since it does not it exactly reflects a healthy economy that supports rising markets, and while Main Street and Wall Street are different creatures, it's important to consider both.
There you have it folks! Remember that with or without a global economic crisis, we must always plan each trade we make and trade our plan.
I hope this post is useful for you! Leave in the comments what you think about it.
Hope y'all had a good week. In this post I want to talk a little about the nature of the economic recovery that we have seen in one of the largest equity markets in the world: the USA stock exchange.
Unless you've been living under a rock, isolated and without contact with the outside, you are probably aware about the overall outlook on how the pandemic has impacted different countries. In the U.S there were strong market crashes at the beginning of the year, multiple sessions with market halts, companies going bankrupt and others, mainly on the tech side, significantly increasing their value, among other things.
As the months went by and as optimism about an accelerated economic recovery began to reach the markets, we saw how they started rising again, to the point of reaching all-time highs. However, there are certain things that we cannot ignore when evaluating the character of this rise. On the fundamental side, we have certain aspects that we must consider:
- Stimulus packages
- The (literally) trillionaire dollar print
- Interest rates at 0
There has been much talk that this recovery is nothing more than a result of the stimulus packages delivered by the US government, since many people have used the money to start their trading journey, leading to demand for shares and consequently pushing the price up. This is tied to the gigantic amount of new dollars in circulation, which is intended to combat deflation. (In short, it's when no one spends money because they expect prices to fall, and it can be much more devastating than inflation).
The problem is that, despite all these efforts, inflation continues not to rise and the US government has been left without many alternatives to achieve its goal of 2% per year inflation rate. Since interest rates are already at 0%, the only bullet they have regarding monetary policies is lowering the rates to the negative field.
From a technical analysis point of view, there are certain patterns and clues (circled on the chart) that volume leaves us. If we pay attention, we can see that we have repeatedly seen a significant increase in volume around the areas where the market has made a correction, while the bullish rallies have not been accompanied by a especially high volume. This may suggest, in summary, that when the market makes a correction, there are many more interested in selling than buyers who want to join when the market rises. This in itself is not enough to conclude that we are facing another market downturn, but it is definitely something to consider when analyzing the character of the upward momentum in recent months, especially when contrasting it with the reality that exists in many places, since it does not it exactly reflects a healthy economy that supports rising markets, and while Main Street and Wall Street are different creatures, it's important to consider both.
There you have it folks! Remember that with or without a global economic crisis, we must always plan each trade we make and trade our plan.
I hope this post is useful for you! Leave in the comments what you think about it.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.