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).
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!