American markets towards new historical highs or ready for a new bearish lunge?

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As a reference for the American markets, we consider the S & P500 (click here for prices), so we refer to this index below. Its historic highs were marked in mid-February 2020 when prices hit the 3400 area. The pandemic from Covid-19 pushed the index down to a low in the 2200 area, but from that point on we saw a very violent rise that led to an increase of around 50% from the lows. A rather incredible performance if you think about the real state of the economy not only in the United States, but in the world, and the social crisis in the United States.

The question that therefore arises is the following. Will prices continue to shoot upwards driven by the Fed’s accommodative policy or will they face reality and return to falling?

American markets seen by the big managers of Wall Street

The common comment that you hear on Wall Street is the following “We are in the top 10% of the historical relationship between profits and prices for the S & P500 and at the same time we are in the worst 10% of economic situations, probably also in the worst 1%!”

How can we not be nervous with the American indices that are about to update their historical highs?

The problem is that the coronavirus pandemic is different from past economic disasters. After the trauma of the last few months, the economic risks should not be overlooked, but with the surge in the markets they deserve at least to be remembered. Among them: mass unemployment, major corporate bankruptcies, a prolonged economic collapse, civil unrest, the search for a vaccine that takes much longer than people hope for, or is less successful than people hope.

On the other hand, historically most viruses have never had a useful vaccine and most useful vaccines took well over five years to develop and when they were developed they were only partially successful.

In summary: prudence must be the guideline to avoid getting stuck in losing positions.

Graphical and forecast analysis

On the weekly time frame the current trend is bullish supported by the bullish signal generated by the BottomHunter.

At the moment there are no obstacles along the path that leads to the 2nd price target in the 3.335 area. A weekly closing above this level would trigger a new bullish extension with a target in the 3,900 area (3rd natural target). Vice versa, the failure to break this level would constitute a double maximum with all the negative consequences that can be imagined.

Therefore, pay close attention to what will happen at the end of the week in area 3.335.

SP500

SP500: bullish projection in progress on the weekly time frame. The blue line represents the running bisector levels; the red line the levels of The New Law of Vibration. The lower panel shows the BottomHunter signal which when equal to 1 indicates that the minimum, on the considered time frame, has been marked.

deepening

American indices: the month of June should be all on the upside



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