Have you ever wondered why the sandwich that you pay $10 for now was just $7 five years ago?

This chart scares me. And it should scare you too. It shows the national debt as a percentage of the Gross Domestic Product. In 1975 it was 33%. Now it’s over 100%. This is scary because it will eventually cause massive inflation. This is a result of the government creating new money because it is not able to cover its costs.

Let’s talk about how this works. If the Government prints money it causes inflation because when there is more money chasing the same amount of goods in an economy, prices will inevitably rise.

For example, if there is just $10 in an economy and just one product then the product will cost $10. If the government prints another $10 there is now $20 in the economy so that same product will now cost $20. That is how inflation happens.

If the USA was a company we would have declared bankruptcy decades ago. Eventually, something is going give and it wont be pretty.


Testing $260 again...but this time it different...

S&P 500  – The SPYs are testing support around the very important $260 level.  This is where the lows from February through May, October, and again in the first week of December.  There is an important difference this time however.  During the prior times they were oversold and now they are not.  When markets are overbought or oversold when testing important resistance or support they tend to revert and that is what happened before.  When markets get to important levels and consolidate they tend to break through and those dynamics are currently occurring. If it breaks there will probably be a meaningful selloff because there are no clearly defined levels of support between current levels and the $240 level. 

Here is why I expect a short-term bounce or consolidation before the SPX heads lower.

If you read my Blog, and my guess is that you do because if you didn’t you wouldn’t be reading this, you know that I think the equity markets may be setting up for a big move lower. This is because the SPYs are testing the very important $260 support level. This level has been where the lows have been for the past year. My guess is that this level will break this time around because interest rates are going higher now. I think that this will happen over the next few weeks or months.

However, I expect some kind of short-term rally or consolidation because the market is oversold, It is important to watch how the XLFs act over the next few days. They are testing important support around the $25 level. This level was significant support recently and it was important resistance last year. It is also important psychologically When they rallied off of this level at the end of October it is one of the main reasons why I was able to identify the bottom that was occurring. I will be watching this action closely because I think that it will give insight into the future direction of the broader markets,

The first chart is a two year view and the second chart is a two month view.

Are the Chickens coming home to roost?

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On Monday morning I discussed how the SPYs would probably hit resistance around $280 and find support around $270. Mondays high was $280, and the close on Tuesday was at $270. Yeah…I know….I was right once again…blah blah blah…yay me.

But now things aren’t as clear. Bottoms are always harder to identify than tops, On Tuesday I closed out the short position I entered on Monday and I am now I the sidelines. The market is oversold and there will probably some short-term support around $270 but the levels aren’t clear enough for me to take a position.

If we rally, once again I will look for resistance around $280. However, the more important level to watch is $260. This is where the recent lows were. There is support around this level because it is where the lows were earlier this year. If this level breaks to the downside, I think that it probably means that we will be going into a serious Bear market. My guess is that this is will happen, because interest rates have been artificially low for too long and now the ‘chickens are coming home to roost.’