Its beginning to look a lot like Christmas (not!)

Back in January, I began warning you of the longer termed bearish picture for the markets. One of the things I noted was that the setup was ripe for a bear. I stated on that blog that I would look for a bearish confirmation by the Bear-o-meter compilation before reacting. Then, it happened. In early April, I posted a blog warning of a high risk alert coming from the ValueTrend Bear-o-meter. This was the alert that pushed us to raise further cash. I followed that high-risk alert with a blog noting the prognosis for a bear market had increased substantially. Then – last weekend, I gave you a quick synopsis of my view of the every increasing probability of a bear, and the probability of a neartermed bounce (we got that on Wednesday, it would appear).  Throughout, I have been covering how we have been migrating through the markets – including some strategic ideas for you to watch. I do hope you have been paying attention.

As I mentioned in a previous blog, I post these summaries to keep you informed on my accuracy. I will not be 100% accurate all of the time, but by keeping this blog – I do have a bit of history for you to confirm any faith you might have in my outlook. A number of years ago, the chase producer of BNN TV noted that I was his most accurate Technical Analyst on the show at the time, and I do like to maintain that reputation.

Today, it does indeed appear that the market has decidedly moved into a bear market. The SPX has taken out its last low near 4200. Its last high was around 4600, although the main area of consolidation was closer to 4500 as seen by the price indicator on the chart below. Lower lows, lower highs, below the 200 day (40 week) SMA. That’s a bear market in my books. Rallies that keep us below the last high near 4600 imply a continued downtrend. Now, keep in mind that all it would take is for a rally to take out the last high of 4600. But, if that does not happen, we have to assume the bear is in charge.

If you took my online Technical Analysis Course, you will know that a key factor driving market trends is the Fed. That means when a condition ends -easing to  tightening –  you have a backdrop to reinforce the bear trend. Today, I will present a few charts that might offer insights on how long the bear might last, and what sectors will be hurt the least vs the most.

Below – courtesy Bloomberg – is the sector performances during the past 4 bear markets (although the 2020 bear was more of a flash -crash, not a bear trend). What can be seen here is that consumer staples are the place to focus on:

Here are some Bear market facts going back to the great crash of 1929. As mentioned above, the 2020 “crash” was not so much a bear market, but a flash crash. In the “normal” condition of a trending bear market in which I suspect we are in now, we might see a period of years before the pain is over.

Here’s a finer breakdown of the data compiled above (source: Sentimentrader.com).

Thoughts

Well, my musings since January regarding the potential for a bear market seem to be coming true. We’ve been raising cash and keeping our commodity exposure, as mentioned in my blog last weekend. You can see that our strategy has afforded a very significant outperformance in our Equity Platforms. Beyond a very small pullback in April, our clients are making money while other investors are counting their losses. Here is our updated performance page to the end of April.

One thought I might add is to consider holding some gold, or gold producers. Sometimes, gold can be a go-to in a fearful market. The charts look bullish, and we have been adding to our gold exposure (producers) lately. Of note: gold is not negatively correlated to the market, so its not a hedge. But it is a non-correlated asset. Meaning that it marches to its own drum. This can be a good diversification in a bear market – particularly one that is driven by Fed tightening in an inflationary environment.

Shortly, I will do a new Bear-o-meter reading. You don’t want to miss that! Stay tuned.

The weather appears to be turning in Ontario, so be sure to get out there and enjoy the coming of spring!

 

quote-teal

4 Comments

  • Keith,

    It may be too early to tell, but does your gut tell you this will likely will be the start of a ‘Cyclical’ Bear market (shorter term), or a longer, more significant Secular Bear market?

    Reply
    • Absolutely Steve. I have to pay attention to the charts first and foremost – and they are saying that the market is decidedly in a downtrend. Beyond that, the potential for a continued downtrend and prolonged bear – neartermed rallies expected along the way- is very high. That’s because the market just lost its best friend. The Friendly Fed.
      If you want my “gut” feeling – here it is: Bear market while the Fed tightens. As the market anticipates the tightening to end (say, with one or two rate rises left) then the market will bottom. Remember, markets look forward. That will be time to start re-investing for the long term. Market will rally, and when the Fed is forced to once again ease because of a probable recession, the market will start a new longer termed uptrend. A lot of money can be made by TRADING this market during the bear phase! In-out using momentum oscillators etc. Take my Online TA course–it will show you how!

      Reply
  • Keith , the VIX is reaching highs to certainly confirm the market doesn’t know the direction either up/down but has spoked the average retail investor . Right now I’m sitting on 60 % cash knowing the summer is a period of weakness and the Fed continues to march forward with interest rate hikes .
    When does one make the decision to move to the sidelines with a laddered GIC approach making 4% + guaranteed and sit this dance out for awhile ?

    Newly retired

    d.

    Reply
    • Don – I cannot advise you as you are not our client. However, what I can tell you is that things happen WAY faster these days! This bear may be over and done within in a year, despite statistics. Also, if you look at the part of the blog where I quoted bear market durations, you will not the period of peak-trough is historically no more than 31 months – and tends to average closer to half of that time.

      I am not so sure that, given inflation, being committed to non-cashable GIC ladder out to 5 years (for example) is the right thing for the longer run- although short termed it makes sense to hide in the safe stuff.
      Finally–because things do happen so quickly these days, the market could take a quick reversal and move back above 4600. Recall my statement on my recent Bear-o-meter blog: don’t get thematic about a bear market. Be driven by what the market is doing, not by what it may do! Right now it is bearish. That can change. Do not predict. Just prepare with a plan.

      Reply

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