A few observations to discuss today. Lets start off with my view on the year-end market moves. Then, we’ll move into some thoughts on timing a move back into commodities, and finally – the big picture.
Play the bump, then make the dump
Here’s the stockcharts seasonal month-by-month play since 2010. Note that Decembers are up 75% of the time, which puts it as a pretty average performer:
Not so fast, Poindexter…
Now I want you to look at what I have circled on the EquityClock seasonal SPX chart. Notice how the first part of December is typically soft. The meat of that positive move in December happens in the last half of the month. This carries on into the first week of January…Santa Clause rally. According to EquityClock “The positivity that is normal of the month of December, overall, is not typically realized until the back half of the month with the S&P 500 Index rising by 1.50%, on average, during the last sixteen days of the month.”
Note how, after that first positive bit in January, markets are kinda “iffy”….if not outright lousy. Well, 54% of the time they are lousy. In fact, January shares the bed with August and September as the three ugly siblings for market performance. February can also be volatile.
Conclusion: Play the bump, then make the dump on the Santa jump. Hey, I should trademark this little ditty!
An early Xmas gift to my readers
Speaking of Santa…Back in August, Craig and I published a research report with exclusive access to VT Update Newsletter subscribers. If you don’t already get the ValueTrend Update newsletter: click here to subscribe.
The report provides an historic review of 100 years on the US stock markets. We explore the potential patterns that may be playing out over the coming years. These patterns include the potential for a consolidating market pattern in the near term. The report contains Keith’s long termed technical views, and Craig’s fundamental observations. We discuss potential investment strategies surrounding those observations. I thought it would be a good offering of holiday cheer to readers who were not subscribers in August to have access to the report. View the research paper here
Stan Druckenmiller says — “Once inflation gets above 6% and is there for more than a few quarters, you need Fed funds at or near inflation to kill it.”
Right now Fed funds are at 4%. CPI recently came in at 7.7%.
Question: Fed rate is not high enough to kill inflation. Recession is in the cards. Will the Fed push the rates high enough to push the recession into extremes? Or will they just settle for a higher CPI than their 2% objective? I’ll take door number 2, Monty!
Another point: Labor becomes HIGHLY empowered with elevated inflation – you may have noticed the recent rail strikes in the USA, and the Amazon strikes during the holiday shopping season. According to BearTraps – “One of the factors that drives inflation sustainability is the power of labor, secular change during a high inflation regime. A) union membership grows b) inflation drives far more bargaining power for labor c) right now labor is a circular, self-fueling inflation driver nationally.
Conclusion: I’m bullish hard assets for the coming years! See my long termed chart of the long termed inflation/commodity cycle in my last two blogs.
Timing the move back to commodities
Assuming you follow the blog regularly – and listened – since 2020 you’ve been into hard assets at cheap prices, then profitably out at higher prices. More on WHY you need to learn to trade like this later.
So…When is it time to move back in?
Watch for copper to break out. Its a leading indicator. The consolidation and recent failed attempt to break out are intriguing…We took a very small position in a metal producer recently, but won’t be piling in until wee see a true breakout in copper, and the producers.
Also keep your eyes on crude oil. Yes, OPEC/ Saudi recently agreed to open the taps. But…if oil gets too low…
According to RBC research –“We believe that the group will likely opt for a deeper OPEC cut (500 kb/d to 1 mb/d) if Brent is poised to break through $80/bbl and all signs point to a de minimis Russian supply disruption in December. The producer group could indeed stick to the current production agreement if prices rebound and a serious sanctions-driven Russian outage appears in the immediate offing.”
My technical view: WTIC has broken support. At $78, its broken that $80 point that Saudi is supposedly looking at. Meanwhile, Biden needs to restock the Strategic Petroleum Reserves he took down for political points pre-mid terms. The coming weeks will be telling.
Keep your eyes on gold. We’ve got a position in the metal, and hung on when it briefly broke long termed support, given our view on the USD. Our rules dictate that we need to sell upon a 3 week string below $1680 support–so it was antsy as the price moved below, then up through, then below again. Yikes! Glad we held having seen a rebound after a 2-week move below support (whew!). Its been rebounding with vigor. Just goes to show you why you need rules.
Upside for gold may approach the $2000/oz range if the momentum builds. A breakout through that level would be very bullish, but first things first. Its another way to watch for the hard asset trade I keep talking about. Rising gold typically means falling USD, and entrenched inflation. Heads-up!
The future ain’t what it used to be
Late 2021 and early 2022 I warned readers of this blog that there was a high potential for a bear market. On April 7th of this year, I issued an official “High Risk Alert” blog warning signaling “SELL”. The signal proved correct. My Online Course describes the methodology behind that system – more on that later.
After my alert, markets entered into a bear. ValueTrend was prepared, and we have been profiting in this volatile environment. Our Equity Platform earned positive returns this year. Were you as well prepared?
So….what’s next for the markets? Well, for starters…
Read the above report — my Xmas gift to you.
Then take another look at this chart (shown last week). The chart illustrates the rhythmic cycles of stock / commodity relative performance. You will probably come to a realization when you look at this chart: The future ain’t what it used to be.
Stocks, after more than a decade of massive outperformance (since 2010), look like they have begun a new cycle of underperformance.
Marty, whatever you do, don’t buy stocks in 2022!
Investing is easier for individual investors, and most Investment Advisors, during bull markets. Like we’ve been in for over a decade. But… the future may not be what it used to be. I strongly believe that the coming decade will require an entirely different methodology than currently used by the average individual investor & Advisor. Macro market positioning, active sector and global trading strategies, and commodity rotations will, IMO, prevail.
If you feel your portfolio management strategy, or your Advisors’ strategy is not as prepared as you’d like, here are two pathways to change that reality:
- Contact ValueTrend: We’ll explain how we can manage your money as profitably, prudently, and conservatively as we do for ValueTrend clients in ANY market. Contact us here.
- Acquire the knowledge needed: Valid only to December 4th, I am offering a 30% discount on my Online Course – available here. Participants tell me that it’s the most valuable thing they have ever done towards maximizing their investment success. Code valid only until Monday: blogreader30