If SPX Was a 100 Year Bubble.
Updated
It seems crazy to think it's possible SPX could be near the end of a giant uptrend and start of a big reversal. It seems crazy today but if we took a hypothetical scenario where it did happen and in 20 years time you have to explain what happened to kids, do you think you'd be able to?
If the SPX uptrend made a major turn, explaining how a bubble had formed and then popped in US equities would be trivial after the fact. How the events of 2008, COIVD and inflation affected what the FED did and how these different actions of the FED fuelled and then popped the bubble.
Do you think you'd be able to tell stories about things that characterised a bubble's excesses and expectation levels?
If it happened, it'd all make perfect sense. There'd probably be more bits to add to the story we're yet to know about what causes the break and deterioration but even just with the stuff we know today, most people could explain why there was a bubble and bust in the SPX if one did in fact occur.
"It's a bubble" isn't a good short thesis. A bubble means you're going to be wrong as a short most of the time. SPX could easily double inside the known extremes of previous bubbles. I'm very bearish in the current zone we're in but if the bear patterns fail I'm going to be extremely bullish, because I think it is a bubble. If it's not the top, I can make a lot long before it is.
In this area, there's a huge confluence of sell signals. It's an area to be cautious. There are overall bullish trade plans where SPX is going to remain in a decades long uptrend where it can still drop to under the low of 2020. This would be entirely fair game as a correction inside of Elliot theory.
There are multiple ways to make cases for SPX having completed the classic bubble structure. Going through all the different phases we see in a bubble.
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Here's the thing - mega pops of big uptrends almost never happen. The only two times they've happened in modern history were Nasdaq of 2000 and Japan 1990.
But both of these things were foreshadowed by the same thing ....
Rapid rise in interesting rates, during which markets went parabolic.
Also true of 2007 high.
It's entirely factual to say every major index high in the last 40 years was foreshadowed by the paradoxical event of markets going parabolic during rising interest rates.
I think that's a noteworthy fact. One which tells us it's worth looking for the technical warning signals so we can be prepared if the unlikely should happen.
If the SPX uptrend made a major turn, explaining how a bubble had formed and then popped in US equities would be trivial after the fact. How the events of 2008, COIVD and inflation affected what the FED did and how these different actions of the FED fuelled and then popped the bubble.
Do you think you'd be able to tell stories about things that characterised a bubble's excesses and expectation levels?
If it happened, it'd all make perfect sense. There'd probably be more bits to add to the story we're yet to know about what causes the break and deterioration but even just with the stuff we know today, most people could explain why there was a bubble and bust in the SPX if one did in fact occur.
"It's a bubble" isn't a good short thesis. A bubble means you're going to be wrong as a short most of the time. SPX could easily double inside the known extremes of previous bubbles. I'm very bearish in the current zone we're in but if the bear patterns fail I'm going to be extremely bullish, because I think it is a bubble. If it's not the top, I can make a lot long before it is.
In this area, there's a huge confluence of sell signals. It's an area to be cautious. There are overall bullish trade plans where SPX is going to remain in a decades long uptrend where it can still drop to under the low of 2020. This would be entirely fair game as a correction inside of Elliot theory.
There are multiple ways to make cases for SPX having completed the classic bubble structure. Going through all the different phases we see in a bubble.
--------------------------------------------------------
Here's the thing - mega pops of big uptrends almost never happen. The only two times they've happened in modern history were Nasdaq of 2000 and Japan 1990.
But both of these things were foreshadowed by the same thing ....
Rapid rise in interesting rates, during which markets went parabolic.
Also true of 2007 high.
It's entirely factual to say every major index high in the last 40 years was foreshadowed by the paradoxical event of markets going parabolic during rising interest rates.
I think that's a noteworthy fact. One which tells us it's worth looking for the technical warning signals so we can be prepared if the unlikely should happen.
Note
Any time you discuss macro market risk someone always tells you what you're hoping for. Not everyone bets on what they hope. It's a very bad strategy for markets.
Taking an umbrella with you on a cloudy day would not mean you're hoping for rain, would it?
People can think about things happening without hoping for it.
That's pragmatic.
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