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Sure, I consider we’re in a cyclical bear market. I started discussing bearish alerts again in November and people solely intensified as we neared 12 months finish. You need not see a tornado in your eating room to comprehend a storm is approaching. In my final ChartWatchers article of 2021, I mentioned, “It Could Be A Very Rough Start To 2022” and identified that defensive sectors led that final S&P 500 rally and that is typically a big warning signal, particularly when it is occurring concurrently with different warning indicators.
There was no Monday Morning Quarterbacking right here. That ChartWatchers article was written on December thirty first, whereas the S&P 500 and NASDAQ have been at 4766 and 15645, respectively. Based mostly on the 2 quarterly charts beneath, I might say the warning was somewhat well timed:
S&P 500:
NASDAQ:
Talking of quarterbacking, on December thirty first, it was like what Tom Brady faces within the pocket on third and 10. The inventory market was throwing every thing at us, together with a nook blitz, and we calmly stepped up within the pocket and delivered an ideal strike over the center for a primary down.
The inventory market now has plenty of technical points to take care of, along with the entire “information” that we’ll hear shifting ahead about increased inflation, increased rates of interest, slowing development, (fill within the clean), and so forth. Listed below are 4 predictions that I’ve regarding the bear market that we virtually actually will probably be coping with over the following a number of months:
The Perma-Bears Will Declare Victory And The Subsequent Despair
Come out, come out, wherever you might be! Peter Schiff, are you listening? Is not it about time you declare credit score for calling one other main market prime such as you did in 1929, 1937, 1947, 1968, 1973, 1987, 2000, 2007, and 2020? Oh wait, that is proper. You say the market goes to break down yearly. You are the inventory market’s model of a damaged clock.
In all seriousness, there are those that ALWAYS are unfavourable concerning the inventory market. Then when it drops, they will ACCURATELY say they referred to as the highest. There is no disputing it both. They’ve movies and CNBC appearances to show it. I like that Jeremy Grantham, long-time funding strategist, is now doubling (or is tripling?) down on earlier requires the bursting of a market bubble. The one factor is he now wants the S&P 500 to break down in order that it will probably return to the purpose the place he was first forecasting a collapse. Superior!
That is the fantastic thing about at all times being bearish and calling market tops repeatedly. You possibly can at all times say you referred to as the earlier ones to sound like an absolute knowledgeable on the topic. I do not know the way this interprets into making any cash, however hey, no matter floats your boat!
It is Cyclical, Not Secular
Research historical past. Then ignore CNBC and the tireless episodes of “the sky is falling” over the following 3-6 months. We’re in a secular BULL market. I pointed this out in the course of the Q4 2018 commerce warfare meltdown and once more in the course of the March 2020 pandemic collapse. I will probably be pointing it out all through this cyclical bear market that I count on we’ll should take care of all through 2022, however particularly in the course of the first half of the 12 months. Cyclical bear markets are inclined to final 3-6 months, although just a few have lasted a bit longer.
These of you who comply with me recurrently, whether or not as a member at EarningsBeats.com or as a loyal follower of my blogs and exhibits, know that I’ve a penchant for making bullish inventory market calls. I put on my “perma-bull” sticker like a badge of honor. After I develop bearish, I am uncomfortable and it is price noting, as a result of I am not one to continuously yell “FIRE!” in a crowded theater. Bearish headlines get LOTS of clicks – in all probability 3 to five instances extra clicks than a boring bullish headline. I do not attempt to stir the pot, except the pot actually must be stirred. Proper now, I am stirring like heck! We have got issues and we’re not going to backside within the inventory market till we start to work by means of them.
On Saturday, January eighth, we hosted MarketVision 2022. It was our third annual MarketVision occasion and it was spectacular, as standard. Beneath is a 15-year weekly chart of the S&P 500 and that is what I shared with attendees by way of my outlook for 2022 and the place I believed we’d be heading:
This can be a very simplistic view of a V-shaped backside that happens someday in the course of 2022. There may very well be totally different iterations of this that I am going to proceed to watch all through the primary half of the 12 months, however that is primarily how I see issues unfolding. The Nice Despair 2.0?
Bear in mind Rule #1: Observe what Wall Avenue is doing on the charts with their cash. IGNORE what Wall Avenue is doing on CNBC with their lips.
Gold Will Soar
However not for the explanation the media is telling us. I see gold ($GOLD) shifting to a minimal of $2000 this quarter, and presumably to $2500 later in 2022. The media will scream, “INFLATION!!!!!” Inflation is not going to be the driving pressure behind gold hovering. It in all probability will appear that approach. However have you ever checked out inflation thus far? Finally test, the annual core CPI price had risen from 1.3% one 12 months in the past to five.5% at this time. If GOLD was going to rise as a result of inflation, do you not consider Wall Avenue would have already poured its assets into that asset, hedging in opposition to this era of inflarmageddon? Like I’ve mentioned, the charts DO NOT LIE. This is how Wall Avenue has been repositioning into gold because it prepares for the overwhelming (sarcasm) inflation that lies forward:
Gold, relative to the S&P 500 ($GOLD:$SPX), has been declining all through this era of rising inflation. When gold rises, it will not be as a result of risk of inflation. As a substitute, discover that gold tends to outperform the S&P 500 when everybody will get nervous. There will be loads of nervousness in 2022, that a lot I really feel pretty comfy about. It is the steadily rising concern and nervousness that may drive gold increased – not inflation. As soon as that triangle sample above breaks, search for an enormous surge in gold.
Sentiment WILL Be Reset
Pay attention, the Reddit of us and those who started investing in the course of the pandemic do not know what a bear market seems like. They do not even know what a correction seems like. This lesson is already painful and it is solely going to develop. As a way to generate a serious backside, sentiment should reverse course. The excellent news is that it began this previous week. The dangerous information is that sentiment would not reset itself in a single day. It is a mentality that should be modified over weeks and months. Whereas we have had episodes of concern, as evidenced by periodic surges within the VIX, the state of the market is certainly one of intense bullishness. That’s going to alter and there will be clues offered to inform us when it is getting safer to get again in on the lengthy facet. It will not be when the market rebounds for just a few days. That’ll be newbie hour as merchants, who consider the inventory market can’t presumably go any decrease, will discover out that – sure, it truly can go decrease. When U.S. equities are downtrending and seeing bounces, that is the toughest a part of bear markets, as a result of the sudden energy begins to trick our minds into pondering the worst is behind us. The worst remains to be forward of us, so do not forget that on a bounce.
The excellent news, nevertheless, is that when this cyclical bear market cycle runs its course, we’re going to see an EXPLOSION increased. JUST WAIT. That is what encourages me to stay affected person.
On Monday, January twenty fourth, at 4:30pm ET, I will be internet hosting our Q1 Earnings webinar, the place I will be looking forward to forecast one of the best and worst upcoming earnings reviews. At our Sneak Preview occasion final week, which was free, I identified that Netflix (NFLX) was being tossed out by Wall Avenue forward of its earnings report and that it’s best to tread very evenly as NFLX may ship very dangerous information. After the bell on Thursday, NFLX reported combined quarterly outcomes with revenues falling quick, whereas EPS beat estimates. However the larger challenge was steerage. NFLX lowered each income and EPS steerage and Wall Avenue knew it was coming. That is why NFLX regarded like this on an absolute and relative foundation heading into earnings:
Web shares ($DJUSNS) have been already being pummeled, lengthy earlier than NFLX topped. However have a look at these downtrending traces. The AD line was horrible. NFLX vs. its web friends was terrible. And web was being tossed out by Wall Avenue. What was to love heading into that report? After our presentation final week, and after the NFLX earnings debacle, I acquired an electronic mail from a member. Whereas I haven’t got permission to share the content material of the e-mail, let me simply say this. Our member was ecstatic to have dumped NFLX shares earlier than that 22% drop on Friday primarily based on our Monday webinar. Relative energy is THAT essential.
Technical evaluation is all about managing danger. It helps me decide how a lot danger I am prepared to take. Given every thing occurring available in the market proper now, I am going to sit it out. Money is a place and a darn good one proper now for merchants.
Tomorrow’s 4:30pm ET occasion, “Q1 Earnings”, will spotlight one of the best and worst of the upcoming earnings reviews. However I am including a bonus to this webinar. I will probably be offering the three charts that I will be utilizing to assist me see the 2022 cyclical bear market backside – WAY forward of CNBC and different media shops. You possibly can name market tops earlier than the promoting begins (as I did in that December thirty first ChartWatchers article) and it’s also possible to name market bottoms earlier than the shopping for begins. CLICK HERE to start out your 30-day FREE trial and be a part of me on Monday. I am going to present you just a few Wall Avenue secrets and techniques!
Pleased buying and selling!
Tom
Tom Bowley is the Chief Market Strategist of EarningsBeats.com, an organization offering a analysis and academic platform for each funding professionals and particular person traders. Tom writes a complete Each day Market Report (DMR), offering steerage to EB.com members on daily basis that the inventory market is open. Tom has contributed technical experience right here at StockCharts.com since 2006 and has a elementary background in public accounting as properly, mixing a novel talent set to strategy the U.S. inventory market.
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