For years now, North American economies have been mainly consumer driven. That consumption has been fueled by money printing and debt creation. Consumer confidence has been driven nearly entirely by the combination of stock market and housing market performance. This is called the wealth effect. You feel rich when your portfolio is up and your house has doubled. Things are changing: We now have the beginning of a huge negative wealth effect occurring due to the tech stock and crypto implosion. Housing markets, especially in Canada (which were the most inflated) are rapidly cooling with rates moving back up. Recession is now all but certain in NA. Chances are that rates rise until that reality hits home. The economy could cascade down until the BOC and Fed panic. Then, the reverse will happen – and the fools will lower rates and crank up the printing presses yet again. Always one step behind. That said, we are oversold and it seems bearishness is rather popular. See my video on sentiment coming out later this week. My gut says we can have an epic short squeeze / relief rally. But its not just my gut speaking. History is on my side. Today, we will again visit the huge rallies in the SPX that occurred in the early 2001/2 era and the 2008/9 era after the bear markets were well established.
Here’s the chart of the 2000-2002 crash. Note the rallies that I have circled- lower peaks implied the ongoing bear trend. It ended with a classic washout candle (hammer). That bottom – no matter how it looks, is a while away in this bear, methinks.
Here’s the chart of the 2008-2009 crash. Note the rallies. Lower peaks implied an ongoing bear trend, just as they did in 2000-2002 – and today. A classic A-B-C Elliott bear, which ended with a consolidation pattern and neckline breakout.
To reiterate my ongoing message
I believe we have one more meaningful rally, and one final big washout left before the fat lady sings.
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