US stocks recorded the longest weekly decline in 10 years! Two sets of trading volume "signals" reveal the future market of the S & P 500 index for you

Two factors put pressure on US stocks to fall into a technical bear market

The S & P 500 index has recorded a decline in the past six weeks, the longest consecutive decline in the past 10 years, with a cumulative decline of 20% from the historical high of 4808 points set on January 3, 2022, declaring a technical bear market.

Meanwhile, the Dow Jones Industrial Average fell for seven consecutive weeks; The NASDAQ index fell for six weeks, and the US stock market has evaporated nearly $10trillion in the past four months.

Last Thursday (May 12), the PPI index of the United States in April rose 11% year-on-year, 10.7% higher than expected; In April, CPI rose by 8.3% year-on-year, the highest level since 1981. High inflation forced the Federal Reserve to tighten policy at a faster pace (the Fed has raised interest rates by 25 basis points and 50 basis points at its meetings in March and may respectively), and the rise in interest rates ended the low-cost capital environment, which eventually led investors to sell their stocks, and funds poured into the bond market to avoid risks, pushing the yield of US bonds down.

On the other hand, investors may have ignored the problem of liquidity shortage. In the may interest rate resolution, the Federal Reserve announced that it would shrink its table at a pace of $47.5 billion per month from June 1, and gradually increase the upper limit of the reduction to $95billion per month in the next three months (US $60billion in treasury bonds and US $35billion in mortgage-backed securities).

Although the scale reduction was not as expected by the market, compared with the 2017 round of scale reduction, this scale reduction has the characteristics of "larger scale and faster speed".

In fact, the scale reduction refers to the recovery through the base currency of the US dollar, which will undoubtedly have an impact on the liquidity of the US dollar. If the assets were reduced by 5% to 30% last time (currently accounting for 36% of GDP in 2021), the scale of the scale reduction will reach US $1.3 trillion.

To make matters worse, the market is worried that the scale reduction will have a serious impact on the overseas US dollar market. Because the US dollar is a common currency, banks and financial institutions including Europe and China can derive more US dollars from US dollar deposits - creating a credit currency.

One thing we can be sure of is that if we consider the overseas US dollar market, the US Federal Reserve's scale reduction will significantly reduce the global US dollar liquidity, and then impact the financial markets. The market continued to rush for dollars, pushing the dollar higher. The final result may force the Federal Reserve to postpone the pace of tightening, as it did in 2017 (raising interest rates - giving a plan to shrink the table - starting to shrink the table and postponing interest rate hikes - raising interest rates again).

Two sets of trading volume "signals" reveal the future S & P 500 index for you

Although the outlook of US stocks in the second half of 2022 is not optimistic, we can still make a certain judgment on the behavior of the main players and the overall direction of the future market of US stocks through the observation of trading volume.

In fact, as early as May 9, the author has reminded the NASDAQ 1100 index: on the whole, the US stock market is expected to officially start a rebound of at least one week last week.

In terms of the actual trend, we saw that the US stock market rebounded at the bottom last week, and there were also some signals worthy of our attention in terms of trading volume.

In fact, the S & P 500 index also released the same short-term bottom signal in terms of trading volume. The weekly chart of the S & P 500 shows that at the beginning of the six consecutive weeks of decline, the price fell while the trading volume rose, indicating that the market's willingness to sell is still gradually increasing. However, in the last two weeks, we can clearly see that although the trading volume is still slightly increasing, the decline is gradually narrowing, indicating that market differences have emerged, It suggests that the short-term decline of the S & P 500 index is expected to end.

The daily chart of the S & P 500 index also shows some signals that attract investors' attention. The S & P 500 index in the yellow circle in the figure shows further damage and decline, but the trading volume has not been effectively released, which means that there may be limited room for further downside in the future. In conclusion, we may see the possibility of the S & P 500 Index Price Stabilizing 4000 points again and rebounding in the construction stage.