Chart of the day - We've talked about divergences, usually regarding RSI or MACD and price. But this chart shows the true divergence. It's between FED liquidity and SPX. Notice what happens when SPX gets significantly over the level of liquidity in the system (when liquidity is decreasing). It doesn't crash immediately. But only two results are possible.
1. Liquidity in injected and SPX falls as liquidity rises until they cross and then SPX resumes upward (this comes with a massive devaluation of currency and re-inflation. So if you see that happen, you better buy that dip with everything you've got because the price of everything would become 2x or more within a couple years).
2. Liquidity continues to drain from these elevated levels and SPX eventually falls until they can cross again at much much lower levels (this would be a long bear market with no FED liquidity injection. Dollar would rise and everything valued in dollars would fall, some more than others based on the value of their productivity and relative demand within society).
In the first case, we would see SPX 5000 area again and that would be the bottom. In the second case, you're going back to asset values and liquidity levels pre-Covid. A longer bear market would take them to pre-2008.
Option 2 hasn't been experienced in this country since the 1970's and 1980's, and that was on a MUCH smaller scale to the massive level of liquidity in the system now compared to then.