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21.03.2025 10:21 AM
Federal Reserve throws lifebuoy to stock market

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The wave structure on the 24-hour chart for #SPX is fairly clear. The first and most important point is the large-scale five-wave structure, which is so wide that it barely fits in the platform screen even at the smallest scale. In simpler terms, US stock indices have been in a long-term uptrend. But as we know, trends eventually reverse.

At this point, wave 5 of 5 appears to be complete, with the instrument making four failed attempts to break above 6,093, which corresponds to a 200.0% Fibonacci extension from wave 4. In my view, a corrective wave sequence is now unfolding. The US stock market is overheated, and more experts are warning of a "bubble."

On the 4-hour chart, we see a completed complex corrective structure a-b-c-d-e, followed by an upward a-b-c pattern. This suggests that a new downward structure is now in progress, and its first wave closely resembles an impulse.

Hence, I expect an upward wave 2 or b, after which the decline is likely to resume. My current outlook is based on the daily wave count, which implies a prolonged downward movement for the S&P 500.

The Federal Reserve calms market panic, but risks remain

As I previously warned, #SPX has started forming corrective wave b, which could lift the index as high as 5,825—50.0% Fibonacci retracement of wave a. This suggests that while the US stock market may rise in the short term, it will likely be a corrective bounce before the next leg down. Of course, wave structures can evolve in many ways—the retracement could just as easily be 38.2% or even 76.4%, but we do have a baseline scenario for now.

At this week's FOMC meeting, it became clear that only the markets are panicking about Trump's tariffs—not the Federal Reserve. The Fed didn't see any significant negative changes in the economy. The regulator expects inflation to accelerate and GDP growth to lose momentum. Hence, monetary policy will likely be eased slowly, just as previously expected.

However, let me remind you that the market has already priced in the Fed's dovish stance. What matters now is the real state of the US economy and its outlook, which remains cautiously negative. Still, the Fed managed to calm the markets somewhat, though we can't ignore the obvious— the US economy is slowing down. Probably not as fast as markets fear, but slowing nonetheless. Therefore, my wave scenario remains valid.

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Final thoughts

Based on the current wave analysis of #SPX, I conclude that the instrument has completed its upward trend phase. In the current environment, I recommend watching 6,125 and Trump's economic policies. His actions—trade wars, tariffs, and import restrictions—pose risks to the stability of the US economy and corporate earnings, making a new downtrend increasingly likely.

The "bubble" in US stock markets appears fully inflated. The 4-hour chart allows for one more upward wave, followed by a bearish move. The 24-hour chart confirms the start of a larger downtrend. On the higher timeframe, the wave picture is even clearer: a clean five-wave structure, with another five-wave pattern inside the fifth wave—a classic indicator that we may be nearing the end. This all points to a lengthy and complex correction, which may have already begun.

Key principles of my analysis:

  • Wave structures should be simple and clear. Complex patterns are difficult to trade and often change.
  • If you are uncertain about the market trend, it's better to stay out.
  • There is no 100% certainty in price direction. Always use Stop Loss orders to protect your positions.
  • Wave analysis can be combined with other analytical methods and trading strategies for a more comprehensive approach.
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