US30: What's next?
If you are part of the community, you definitely capitalized on the short position we took on US30 at the peak of the retest at 35876. From a technical perspective, we can see a beautiful ascending formation that was broken, got retested, and further continuation to the downside is expected.
My first target will be the 33700 area. Breaking below this zone will push the price towards retesting the beginning of the ascending formation at around 30000 which is also the 38.2% Fibonacci Retracement level.
From a fundamental perspective, it is very clear by now that the U.S. equity market is weaker than ever. The Fed still hasn't even stopped QE and managed to burst the bubble only by talking about tightening monetary policy. Imagine what could happen when they start raising rates to 0.5% or 1% which was considered a loose monetary policy back in 2002 to stimulate the economy after the Dotcom bubble burst, but now is considered tight policy in order to fight a 7.5% YoY CPI? Eventually, the Fed will be forced to raise rates, and raising rates when the economy is weak will lead to stagflation.
In order for the Fed to really fight inflation, only positive real interest rates can do the job. Anything below 8% interest rates won't matter as nominal interest rates could go up but real interest rates might keep going down with inflation continuing its way up towards records high!
Last but not least, 6 months ago if you recall, I said that in 2022 the gap between the CPI (what consumers are paying) and the PPI (what producers are paying) will tighten when businesses finally realize that inflation is not "transitory" and that if anything is "transitory" is this gap between the CPI and the PPI, and this is exactly what happened! Netflix, Amazon, Starbucks, McDonald's, etc... all of them started raising prices because of rising costs which will end up affecting negatively their earnings in the long run, thus reporting lower than expected earnings will push markets for further downside.
My first target will be the 33700 area. Breaking below this zone will push the price towards retesting the beginning of the ascending formation at around 30000 which is also the 38.2% Fibonacci Retracement level.
From a fundamental perspective, it is very clear by now that the U.S. equity market is weaker than ever. The Fed still hasn't even stopped QE and managed to burst the bubble only by talking about tightening monetary policy. Imagine what could happen when they start raising rates to 0.5% or 1% which was considered a loose monetary policy back in 2002 to stimulate the economy after the Dotcom bubble burst, but now is considered tight policy in order to fight a 7.5% YoY CPI? Eventually, the Fed will be forced to raise rates, and raising rates when the economy is weak will lead to stagflation.
In order for the Fed to really fight inflation, only positive real interest rates can do the job. Anything below 8% interest rates won't matter as nominal interest rates could go up but real interest rates might keep going down with inflation continuing its way up towards records high!
Last but not least, 6 months ago if you recall, I said that in 2022 the gap between the CPI (what consumers are paying) and the PPI (what producers are paying) will tighten when businesses finally realize that inflation is not "transitory" and that if anything is "transitory" is this gap between the CPI and the PPI, and this is exactly what happened! Netflix, Amazon, Starbucks, McDonald's, etc... all of them started raising prices because of rising costs which will end up affecting negatively their earnings in the long run, thus reporting lower than expected earnings will push markets for further downside.
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