My gut, and history, are telling me some things about this market

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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12 Comments

  • Keith, just LOVE your blog, your an inspiration to me teaching financial literacy to others.

    That out of the way, are you basically saying “generally sell the rips” going forward here and either go into safe assets (does Bonds count?) or cash. From what you say, it might be quite the bear market for the summer and fall.

    Need to talk to your team soon to invest me thinks as my personal advisor doesn’t hold much water in technical analysis sadly.

    Reply
    • Thanks Mike- and I love doing what I do. 32 years and enjoying my job more than ever. Contact us when you want to have a conversation – always enjoy jamming with a fellow TA enthusiast. And yes, cash (not so much bonds) is king. I should mention that we just sold a bit more equity but instead of cash we moved it into gold bullion ETF (we hold 2 gold/silver producer stocks). We’re 11-12% gold now, and adding to it –that in our opinion is another place to hide beyond cash. It may take a while, but recession = weak $ = good for gold. Technical profile on gold good insofar as comparative strength vs the market, and the fact that gold has held support with no cracks.

      Reply
      • Looking at gold I started buying in 2 weeks ago. The price of gold seems to be holding but the stocks seem to be tanking today. Hopefully it is a short term blip. Energy stocks are tanking as well even with oil over $100. Must be a lot of panic selling.

        Reply
  • In reviewing gold last night I believe gold is going down. Is there something I am missing?

    Reply
    • Gold bullion has been on a gentle slope uptrend since early 2021. Big swings, but still an uptrend. Currently toying with trendline. To me this is looking like a potentially good place to leg in for a swing trade. Did you sign up for my online course? I cover this strategy on it. Gold equities are somewhat different–up and down like a toilet seat with less trend. Nonetheless, they are testing support that has held for a similar timeframe.

      Reply
      • I feel like Dave to…
        Gold had a great breakout of a triangle in late Feb but could not hold the break and went back down to old 1785 support… Volume is lower since the break out… Silver broke it’s 22 support and is definitely in downtrend. I feel that gold lost its mojo of the old time. When market crashes now, we see the USD going up instead. When inflation kicks in, we see commodities going up (except gold). When interest rate goes up, we see gold going down. And in a bull market we see bitcoin taking the lead… Hey, I guess gold will always have a place in investors heart 🙂 It’s been there forever. Hope to see it going up from here. I have a few gold trades underwater 😉 Thanks for doing this blog. It’s great to read you and all your fans!

        Reply
  • TA, gold, energy, lower lows, short covering = cake.
    But the rants are the sugary icing.
    Bring it on Keith.

    Reply
  • Just curious to compare your bullish bullion view due to increasing recession risk vs not holding bonds.

    I’ve been eyeing long bonds for a
    potential nice return and decent yield.

    That is, to leg in as rates slow/inflation begins to decline.

    Wouldn’t holding bonds be a diversify for a recession risk the same way gold is?

    Reply
    • Actually Lance, you are correct. I noted to another reader to buy cash and “not bonds”–but the fact is, they look reasonably well set up for a move. Long term? Probably not until the talk gets to recession will they move into a bull. For now, they do look like they are oversold and a decent risk/reward. Trade as a move. Then when the Fed/BOC finally spills their guts, go longer termed.

      Reply
      • “Spills their guts”, meaning, likely stopping hikes and preparing to cut.?

        Reply
        • I mean that they finally admit they were wrong again – first about inflation being transient, next about a recession. When they admit it (spill their guts) then we are in for a bond bull market. For the time being, possibly s/t pop.

          Reply

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