When it comes to the stock market, I am a follower and believer in history. After years of research, we’ve found that some aspects of US stock performance are fairly transparent, and the resulting technical signals are generally reliable. There were many warning signals at the start of 2022 that we were facing short- and medium-term problems. I wrote and spoke about them during his first six months of 2022. But many of my signals changed in his mid-June and bottomed out in June 2022. The risk of staying short was too great, but the reward for risk on the long side has improved significantly. The investor who returned to the stock market last summer was rewarded handsomely with the S&P 500 rising 13% from its lows.
I was criticized for calling out before the bear market started, and then for suggesting that the bear market ended long before anyone else suggested. It takes thick skin to defy the masses, but I simply call what I see. The lesson here is to keep StockCharts.com turned on and tune out all outside noise!
Federal Reserve and Inflation
On Wednesday, the Fed admitted it had won the battle against inflation. Fed funds rates will probably rise another 25 basis points, but beyond that I think the Fed will be even more dovish. Interest rates I think he will drop in the second half of 2023, and if the January jobs report is any indication, it could very well be a very soft landing. Growth with falling interest rates is nirvana for stocks. By 2022, two-quarters will have negative GDP and higher interest rates. This is what the S&P 500 has priced in during his 27% cyclical bear market decline. NASDAQ he fell nearly 40%. It was all seared.
Bear markets: cyclical vs. secular
Many people have, and still do. worldly A bear market, a long-term bear market. The problem is that we can’t call it a long-term bear market until it’s confirmed. Since 1950, there have been three long bear markets. 3!!!! If you count on your hands, you still have two fingers left. Put another way, they don’t happen too often, but the world’s Peter Schiff can’t spew nonsense given too much airtime on CNBC. please think about it. Why would CNBC repeatedly miss the biggest bull market in history and continue to respond to someone calling the market wrong year after year? It’s embarrassing if you ask me.
big picture
Anyone who has attended one of my Market Outlook webinars knows that I start with a big picture of the S&P 500 100 year chart. Here’s what it looks like now.
Honestly, how can we look at this chart and keep US equities continuously bearish? Short-term bearish periods can occur, especially after big rally like 2020 and 2021. This is a cyclical bear market that requires patience. Swing trading strategies no longer pay off and you can lose a lot of money quickly, so you need to be aware of these periods before they happen. I told them that the situation has changed and they need to realize that swing trading will no longer work. You should move to cash or be more aggressive on the short side. In early February, I hosted a webinar “Anatomy of a cyclical bear market” to help members understand what they are facing. If you’re going to simply stick with what’s going well, you can’t beat Cathie Wood, who over the past few years has managed ARK’s funds. She didn’t adjust to the cyclical bear market in front of her, and her investors paid a ridiculously high price. should have avoided it.
But let’s go back to the chart above. I use it in perspective. And “perspective” is his word for 2023, replacing “patience” for 2022. This big picture will help us navigate markets like 2022. But patience must be exercised during chaos. During a prolonged bear market, his PPO monthly will be clearly negative. His PPO monthly remains positive and it looks like he’s starting to recover, so that’s yet to come. Also, the monthly RSI is well below 40 during a prolonged bear market. The monthly RSI has already bottomed out above 40 and is back in the 50s. We need technical confirmation of a long-term bear market, but we haven’t seen any.
road of the future
I’ve seen some really great rallies. January was his ninth-highest January in the S&P 500 since 1950 and one of his strongest months on record. This is not perfect science, and certainly not a guarantee, but there is plenty of history to suggest that the odds of a strong year will increase significantly. Too bullish at the end of 2021, just after the S&P 500 posted its biggest 22-month rise since his 1930s. Sentiment was desperately needed to be bearish, but it can only happen in one direction. It’s a long bear market where everyone turns from ecstasy to despair. It took all the YouTube experts (ironically) who unanimously believe that it’s impossible to see the bottom of the market and that our only way out is to go lower. It’s the type of mentality that marks the bottom.
Luckily, after months of pain and suffering, we got where we needed to go and a bottom has formed. It’s the seventh of (6 out of 11 if you only look at cyclical bear markets). Many investors don’t recognize the end of the bear market and thus miss out on the huge market rally that usually follows. Below is a table of 11 cyclical bear markets since 1950 showing profits over the next 6 months, 1 year, 2 years and 5 years.
Look at the one-year return after the cyclical bear market ends. His worst one-year return was him at 29.59%. Applying the worst returns to the October 2022 low, the S&P 500 is expected to hit 4525 by October 2023. Applying a one-year average return of 42.50%, the S&P 500 is 4975. Suddenly, all-time highs don’t seem that far away.
Unfortunately, this is the type of survey on EarningsBeats.com that CNBC and other media could make if they were really interested in providing valuable educational content to their audience. But it’s all about the strong dollar. Education is secondary to profit. Their concern is to scare viewers with ad dollars and ridiculously bearish headlines, and the sooner anyone realizes that, the sooner they’ll walk away and focus on what really matters. can.
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Happy trading!
Tom
Tom Bowley is Chief Market Strategist at EarningsBeats.com. EarningsBeats.com is a research and educational platform for both investment professionals and individual investors. Tom produces Comprehensive Daily He Market Reports (DMRs) to keep EB.com members informed when the stock market is open each day. Tom has been providing his technical expertise at StockCharts.com since 2006 and combines his unique set of skills to approach the US stock market with a basic background in public accounting. I have a ground too.learn more