Play the bump, then make the dump

November 30, 20228 Comments

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

 

Inflation

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:

  1. 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.
  2. 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

8 Comments

  • Hi Keith, a question for you regarding your online course – I purchased your books Sideways and Smart Money, Dumb Money, which I enjoyed and found very helpful. Does the material in your Online Course cover more ground than in the two books?

    Reply
    • Mark–the course covers VASTLY more than the books. Especially in the money management setup. I literally outline how ValueTrend – and other professional money management —operations–aka the rules surrounding how we professionally manage a platform like ours. Also covered are psychology and a step-by-step process as one starts looking for ideas. My sector rotation then deep dive stock part is particularly valuable. True, I do outline something like that in my last 2 books, but the course is much, much more detailed and quite frankly, more useful. I designed the course to be my magnum opus, you might say, of my work.

      Reply
  • I’m a fan of Druckenmiller’s common sense, rational approach. He said inflation wasn’t transitory as central banks and policy makers claimed, and he was right. I’ve even heard politicos claiming this isn’t ‘real’ inflation because gold isn’t (wasn’t) going up. I wish my grocery bill agreed with those claims! Druckenmiller also seems to think US markets are zero sum for the next decade because of the record fiscal spending largesse pulling forward so much growth from the future. Maybe governments ‘have’ to spend less due to higher rates, the flipping of Congress, credit spreads, or activity in the bond market this year – and maybe reduced government spending will be a drag on the economy. Regardless of the short-term outcomes, I don’t know how anyone can justify these historic increases in sovereign debt.

    Some peeps seem to think silver will outperform gold over the next year because it fell further/faster than gold, but gold has traditionally been a good inflation hedge (as you’ve pointed out). Would you consider doing a chart and technical comparison of SLV/GLD in an upcoming blog or video? Thanks!

    Reply
      • Awesome! MMT has been tried in many times/places around the world and outcomes have ranged from disastrous to deadly (in the case of Venezuela and Sri Lanka), but that doesn’t seem to deter governments from trying ‘their’ version of MMT. Outcomes in NA have been no different than previous outcomes – high inflation and many more people flocking to food banks.

        Reply
  • Hi Keith, regarding your Gold trade, how do you count the number weeks below support?

    You said “…having seen a rebound after a 2-week move below support” but, when I look at the chart I see 4 weeks below support: Week of Oct 10, 17, 24 and even week of Oct 31 was still below support.
    So you should have sold your position Friday Oct 28th, no?
    Thanks for your help.

    Reply
    • Francisco–thanks for the question:
      DOWN: weekly bars of Sept 16, 23, 30 Gold was below $1680 support
      UP: Weekly bar of Oct 10 above 1680
      DOWN: Oct 14, 21, 28
      UP: Nov 11 (to pretty much exactly 1680), then up from there…

      I like to wait for the full 3 bars then move in the following week, but saw prices move – eg week of Oct 10 then again Nov. 11 weeks
      Truthfully–it was a close call, and there was a bit of experience and intuition that had me exercise just a little more patience. I will admit that patience for holding into the 4th week in both cases was based on a strong conviction based on momentum studies etc. that the USD was so overbought that it made sense gold would find support. But, had the 4th week in those cases not redeemed the price, I would have been forced to move.
      It was a close call and admittedly a harder play than many but it worked out.

      Reply
      • I see… Thanks for your answer.
        I got caught many times with this 3-bar sell rule (and I’m sure not the only one on this blog…) where I want to follow the rule and I sell my position just to see it rallying it back up the subsequent weeks. So then next time it happens, I decide to be more patient and hold on to my position just to see the price to continue going down. I end up with a bigger loss. It’s frustrating 😉

        Reply

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