Lower High, and probably a Lower Low.The market is showing signs of weakening. After the previous high didn't take out the highest high it made on January 22, the momentum started to weaken. The volume is going through a bearish cycle and the VIX is starting to show signs of waking up. The interest rates haven't receded and there are signs of an economy slowdown with upticks in the unemployment and the reduction of the inflation.
The oil market went high, but along with oil production cuts, which means the oil cartels are trying to keep the prices high not by increasing demand, but by reducing supply. This means the economy is reaching the point where more oil is not needed, it's peaking its recovery cycle.
All these ingredients signal we're reaching a level where the overall economy has peaked. It must slow down to allow the inflation to go down, and the so called soft landing would mean the unemployment would not be harsh while the Fed reaches its economic goals. However that is not a guarantee, let's remember we went through a flood of cash after the pandemic, which was what triggered the worst inflation in decades.
Previous bubbles have been because of different reasons, too much debt to enter the raising market, too much interest in tulips, too much promissory e-commerce, the real estate bubble, ... and the story repeats itself, just with different actors. I would call this one the cash bubble, and it is far from over.
Let's remember the printed bills are endorsed by faith, by the believe that they are worth something and the fact that the only one who can legally print them is the government. But they're worthless by themselves. They are not Money, they are tokens that represent money, the money is produced after the productivity of the economy, how many people are in the workforce, how productive the companies are, how efficient the distribution networks are, and the fact that there are transactions going on in the economy, but if there are more tokens (printed bills) than economic activity their value is reduced, and prices are higher (inflation), until the economy catches up with the amount of currency in the market.
My forecast here is that if the Federal Reserve senses a slowdown in inflation, then they will start pivoting the interest rates, at which point they will keep them like that for a while to see how the overall economy reacts, trying to curve the inflation, while keeping the economy moving, until it reaches levels that show signs of stalling, like higher unemployment and reduction of GDP. A reduction of interest rates will start to make the institutional capitals to exit the market to bet on a big bearish market, and while the media will be ignoring these signs, the institutions will be dumping assets until it's so evident that the market panics.
Once the market has been slaughtered, while a lot of chickens run headless on the street, and there are signs of capitulation, it'll be when the big institution will start accumulating assets at a discount and with a lower interest rate, just like it has always happened before, and the cycle will repeat. This time, pretty much like the way it happened on 2009 and 2020, with a large amount of cash to be allocated in financial assets.
"Patterns repeat because human nature hasn't changed for thousands of years."
~ Jesse Livermore.
“The investor who says, 'This time is different,' when in fact it's virtually a repeat of an earlier situation, has uttered among the four most costly words in the annals of investing.”
~ John Templeton.
"Buy when there's blood in the streets, even if the blood is your own."
~Baron Rothschild.
