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22.01.2025 08:45 AM
Stock Indices Are Not Rising Because of Trump
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The wave analysis of the 4-hour chart for #SPX is somewhat unclear, and I recommend examining it alongside the wave analysis on the 24-hour chart (see image below). The first noticeable feature on the 24-hour chart is the global five-wave structure, which is so extensive that it doesn't fit within the terminal window, even at the smallest scale. In simpler terms, U.S. stock indexes have been rising for a prolonged period. As we know, trends do change. Currently, we are still in the construction of wave 5 within wave 5. Recently, the instrument failed to break through the 6093 mark, which corresponds to 200.0% on the Fibonacci scale, but this did not result in a significant pullback from the highs that were achieved.

By switching to the 4-hour chart (as shown in the image above), we can see a completed five-wave structure followed by a complex corrective pattern. It's important to note that wave structures should be clear and obvious to avoid ambiguity. The more complicated the wave structure, the more challenging it becomes to trade profitably. If the recent decline is interpreted as a "bullish flag," the S&P 500 index could continue its upward movement, with nearest targets set at 6124 and 6221.

The Stock Market Fears Trump but Ignores Him

The S&P 500 index rose by 41 points on Tuesday. While I wouldn't classify this as a strong growth, the index has been growing exactly like this for the past two years—incrementally, almost daily. Based on this trend, I believe that Trump neither contributed to nor will support American companies. In other words, the U.S. stock market began its upward trajectory before Trump's presidency, and its performance largely relies on the Federal Reserve's monetary policy. Certainly, some decisions made by Trump could negatively affect investors' willingness to invest in U.S. companies. However, so far, he has not made any significant economic decisions; his focus has been on issues like immigration, the World Health Organization, NATO, and ending global conflicts. At 78 years old, Trump seems determined to leave a lasting legacy and be remembered as a leader who makes a difference. As a result, there's nothing particularly concerning for American investors and companies at this time.

Under Trump's administration, there is a possibility that major stock indices could experience a prolonged correction. This potential outcome is supported by wave analysis and the expectation that the Fed's monetary easing will be minimal over the next year. The last wave of growth in the S&P 500 occurred when the market anticipated a shift in FOMC policy. Although the easing began last September, the index has continued to climb. Given this context, I have reservations about sustained growth, even if there is a breakout from the "bullish flag."

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General Conclusions

Based on my analysis of the S&P 500 (#SPX), I conclude that the index continues to build on its upward trend. There are no convincing signs that this trend is nearing completion. The wave analysis from recent months has been complex and ambiguous. I recommend paying attention to the "bullish flag" pattern and considering the impact of Trump's policies. If his initiatives are less beneficial for American companies—such as trade wars, tariffs, import duties, and retaliatory tariffs against the U.S.—it could increase the likelihood of a new downward trend segment.

On a higher scale, the wave structure is much clearer, showing a distinct five-wave pattern with a further five-wave structure within the fifth wave. This fifth wave may be nearing its end, potentially signaling the onset of a prolonged and complex correction, which might have already begun.

Key Principles of My Analysis

  1. Wave structures should be simple and clear. Complex structures are challenging to trade and often subject to change.
  2. If market conditions are unclear, it is better to stay out.
  3. There is never 100% certainty in market direction. Always use Stop Loss orders.
  4. Wave analysis can and should be combined with other analytical methods and trading strategies.
Chin Zhao,
Analytical expert of InstaForex
© 2007-2025
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