After breaking through the 4,000 level, the rise in the main US index accelerated. What should traders expect in the short and medium term (with a horizon to the end of this year). Let’s sort it out together.
As usual, before the 4,000 level, there were many traders talking about an imminent reversal, an inflated bubble and the collapse of the US stock market. And we remind our subscribers that individual traders have been waiting for a crash since 2009. Back then they expected a double bottom after the mortgage crisis of 2008-2009. That bottom never materialized.
In 2010, everyone was waiting for a new crisis, after problems started in the Emirates. Further there was a popular idea to short the index from the levels of 1600 and 1700, etc. And the index continues to rise.
Passive investors are slowly making a fortune. And the armageddonians keep losing money. When will it all end? Maybe very soon. Or maybe it will last another 10 years with each new crisis being flooded with new Central Bank money.
Traders must remember the most important thing. The trend is our friend. And that the American market is always rising. Yes, there are drawdowns and even very strong corrections. But they are always followed by new highs. So the easiest strategy is to buy the index on drawdowns. Until the market reverses completely. As a reminder, many have been waiting for such a reversal for 12 years.
What levels might we see this year?
The 4500 level is easily attainable from a TA perspective. Indeed, it is less than 10% away, which is even less than the annual average volatility of the index. Could the move go higher and reach the 5000 level on a Christmas rally?
That is also possible. Three conditions have to coincide:
1. Yields on 10-year US Treasuries will not exceed current levels
2. The pandemic will come to its logical conclusion in the US as a result of vaccination by the end of the summer
3. The VIX volatility index will continue to decline, giving investors the opportunity to leverage even more
11.00 EU retail sales for February
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