SPX500 programmed to have a correction.My analysis is straightforward. On the weekly timeframe, there is a significant bearish divergence on the RSI, indicating that the market is moving in the wrong direction relative to fundamentals. This divergence has been present for six months, so one might assume there’s no reason for a change.
The market is in a bubble, but it needs a catalyst to wake up. While I appreciate some of Trump's policies, certain aspects of his approach could crash the market.
- Imposing tariffs on most imports might seem like a good idea. Trump aims to make the U.S. a producer of goods rather than an importer. However, the U.S. has lost much of its manufacturing base, engineering expertise, and know-how. China now dominates these areas, making this policy difficult to implement within the short span of a four-year term.
Instead, tariffs on all imports would raise prices, worsening inflation. The market's prolonged rise has been largely driven by the Fed's efforts to control inflation. Higher inflation would force the Fed to raise interest rates, spooking the market. Another risk is a potential disagreement between the government and the Fed over policies, which would create uncertainty.
I believe that increased inflation, higher prices, and tariffs will ultimately undermine trust in U.S. monetary policies, leading to the opposite of the intended effect. The USD could weaken, and more countries may move away from dollarization (regardless of tariffs, as Trump cannot dictate other nations' monetary policies).
The market would likely react negatively, and the bearish divergence would play out, potentially causing a crash lasting at least a year, similar to what happened in January 2022.
I hope I’m wrong, but this scenario has a high probability of occurring.
