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12.02.2025 11:09 AM
Jerome Powell Fails to Impress Markets
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The wave analysis of the 4-hour SPX chart remains ambiguous. On the daily chart, a global five-wave structure is evident, extending beyond even the smallest zoom scale of the trading terminal. In simple terms, U.S. stock indices have been rising for a very long time. But as we know, trends eventually reverse.

Currently, Wave 5 within Wave 5 is still forming. The S&P 500 (#SPX) has attempted three times to break the 6,093 level, which coincides with the 200.0% Fibonacci extension of Wave 4. A correction or a series of corrective waves is likely soon. The U.S. stock market appears overheated, and more experts are warning of a potential "bubble."

A completed a-b-c-d-e corrective structure is visible. The trend from January 13 appeared to form a new five-wave impulse, with Waves 1 and 2 completed. However, Monday's decline disrupted this structure, making it unclear and unreliable. The daily chart structure is more reliable and should be prioritized. Wave analysis must be clear and straightforward—complex structures are harder to trade profitably.

The #SPX remains near record highs, with investors unwilling to sell major U.S. stocks. The uptrend started nearly two years ago, fueled by slowing U.S. inflation and expectations of Fed rate cuts. The rate-cut narrative has been in play for months. The stock market has already factored in Fed easing expectations. Further stock gains may be limited, as the Fed is still hesitant to cut rates aggressively.

Fed Chair Jerome Powell testified before the Senate in a semi-annual hearing. His prepared remarks were published last week, but Monday's session focused on Q&A from senators.

Key messages from Powell are the following. Monetary policy is far less restrictive than before. The U.S. economy remains strong, allowing the Fed to delay rate cuts. A rapid or aggressive rate cut could hinder disinflation. A slow or minimal rate cut could weaken economic activity and employment. The Fed bases rate decisions on all incoming data. Inflation remains elevated, meaning the Fed is not ready to shift to a more dovish stance anytime soon. If the economy remains strong, restrictive policy will stay in place longer. The Fed will only resume rate cuts if the labor market weakens sharply or inflation declines significantly faster than expected.

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General conclusions

Based on #SPX analysis, the index appears to be in the final stages of its uptrend. Short-term trading should be guided by the 6,093 level and Trump's trade policies. Trump's recent trade decisions (tariffs, import restrictions) pose risks to U.S. economic stability. Stock market bubbles continue to inflate, increasing the risk of a significant correction.

The 4-hour chart allows room for three more upward waves. However, the daily chart suggests that the rally is nearing completion. I place more trust in the daily timeframe, which signals a reversal is coming.

A clear five-wave structure is evident on the larger timeframe. Wave 5 appears to be nearing its completion. A prolonged and complex correction is likely on the horizon.

Key Principles of My Wave Analysis:

  1. Wave structures should be simple and clear. Overly complex patterns often lead to misinterpretation and unreliable trades.
  2. If market conditions are unclear, it is best to stay out.
  3. Absolute certainty in market direction is impossible. Always use Stop Loss orders to manage risk effectively.
  4. Wave analysis should be combined with other technical and fundamental tools. Diverse strategies lead to more informed trading decisions.
Chin Zhao,
Analytical expert of InstaForex
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