S&P 10 year trend, a case for 3800 upside, 600 downsideI use the S&P versus DOW and Nasdaq in order to cast a broader net across more assets however, the other markets seem to echo similar despite having choice selection of underlying assets. For the last 10 years since the recession pounded the markets, we have maintained a clear ascending channel exhibiting strong support and resistance trend lines.
The trend line held to mid-channel nicely through 2017. The USG gave corporations a $500B USD a year tax break at the beginning of 2018 and the markets rallied but still fell well short of top of channel. As we saw bolstered earnings quickly dissipate over the year, the S&P came back to its comfort zone, mid-channel until the 4th quarter when trade wars escalated and markets struggled (breaching support at levels not seen since the recession).
In an effort to prevent the stock markets from turning, the feds started printing money (QE) & reduced the prime interest rate 3 times this year(2019). These are tools we had last relied on heavily during the height of the recession. With each rate cut, we see a small and repeatedly diminishing wave up. It appears as though, despite all the fuel the government is feeding the market, it just doesn't seem to be enough.
There have been a lot of false alarms for a trade deal between the worlds two largest economies but once its inked, it has a high probability of fueling the fire. There is a great chance that an America/China trade deal along with significant reductions in global tariffs could catapult the S&P to 3800 for 25% gains from today's value (along with global markets). It looks like the US has to make a trade deal with China soon to prevent the markets from souring on us.
In the event a trade deal isn't inked soon, it seems like the bears may take over and who knows how far the markets will retrace - 40%(S&P@1800), 50%(S&P@1500), 60%(S&P@1200)? How about this, scary (possible not probable), definite possibility >>> We may be seeing an overall downtrend forming, indicated with a light grey line at the bottom of the chart. If this a hard trendline forming, we could see S&P spiral out of control down to 500-600 before it finds support.
Disclaimer: I am currently holding S&P ETF options and see a great opportunity to straddle here.
