Yes, I believe we're in a cyclical bear market. I began discussing bearish signals back in November and those only intensified as we neared year end. You don't need to see a twister in your dining room to realize a storm is approaching. In my last ChartWatchers article of 2021, I said, "It Could Be A Very Rough Start To 2022" and pointed out that defensive sectors led that last S&P 500 rally and that's generally a significant warning sign, especially when it's occurring simultaneously with other warning signs.
There was no Monday Morning Quarterbacking here. That ChartWatchers article was written on December 31st, while the S&P 500 and NASDAQ were at 4766 and 15645, respectively. Based on the two quarterly charts below, I'd say the warning was rather timely:
Speaking of quarterbacking, on December 31st, it was like what Tom Brady faces in the pocket on 3rd and 10. The stock market was throwing everything at us, including a corner blitz, and we calmly stepped up in the pocket and delivered a perfect strike over the middle for a first down.
The stock market now has a lot of technical issues to deal with, in addition to all of the "news" that we'll hear moving forward about higher inflation, higher interest rates, slowing growth, (fill in the blank), etc. Here are 4 predictions that I have relating to the bear market that we almost certainly will be dealing with over the next several months:
The Perma-Bears Will Claim Victory And The Next Depression
Come out, come out, wherever you are! Peter Schiff, are you listening? Isn't it about time you claim credit for calling another major market top like you did in 1929, 1937, 1947, 1968, 1973, 1987, 2000, 2007, and 2020? Oh wait, that's right. You say the market is going to collapse every year. You're the stock market's version of a broken clock.
In all seriousness, there are those who ALWAYS are negative about the stock market. Then when it drops, they can ACCURATELY say they called the top. There's no disputing it either. They have videos and CNBC appearances to prove it. I love that Jeremy Grantham, long-time investment strategist, is now doubling (or is tripling?) down on previous calls for the bursting of a market bubble. The only thing is he now needs the S&P 500 to collapse so that it can return to the point where he was first forecasting a collapse. Awesome!
That's the beauty of always being bearish and calling market tops repeatedly. You can always say you called the previous ones to sound like an absolute expert on the subject. I don't know how this translates into making any money, but hey, whatever floats your boat!
It's Cyclical, Not Secular
Study history. Then ignore CNBC and the tireless episodes of "the sky is falling" over the next 3-6 months. We're in a secular BULL market. I pointed this out during the Q4 2018 trade war meltdown and again during the March 2020 pandemic collapse. I will be pointing it out throughout this cyclical bear market that I expect we'll have to deal with throughout 2022, but especially during the first half of the year. Cyclical bear markets tend to last 3-6 months, though a few have lasted a bit longer.
Those of you who follow me regularly, whether as a member at EarningsBeats.com or as a loyal follower of my blogs and shows, know that I have a penchant for making bullish stock market calls. I wear my "perma-bull" sticker like a badge of honor. When I grow bearish, you know I'm uncomfortable and it's worth noting, because I'm not one to constantly yell "FIRE!" in a crowded theater. Bearish headlines get LOTS of clicks - probably 3 to 5 times more clicks than a boring bullish headline. I don't try to stir the pot, unless the pot truly needs to be stirred. Right now, I'm stirring like heck! We've got problems and we're not going to bottom in the stock market until we begin to work through them.
On Saturday, January 8th, we hosted MarketVision 2022. It was our third annual MarketVision event and it was spectacular, as usual. Below is a 15-year weekly chart of the S&P 500 and this is what I shared with attendees in terms of my outlook for 2022 and where I believed we would be heading:
This is a very simplistic view of a V-shaped bottom that occurs sometime in the middle of 2022. There could be different iterations of this that I'll continue to monitor throughout the first half of the year, but this is essentially how I see things unfolding. The Great Depression 2.0?
Remember Rule #1: Follow what Wall Street is doing on the charts with their money. IGNORE what Wall Street is doing on CNBC with their lips.
Gold Will Soar
But not for the reason the media is telling us. I see gold ($GOLD) moving to a minimum of $2000 this quarter, and possibly to $2500 later in 2022. The media will scream, "INFLATION!!!!!" Inflation will not be the driving force behind gold soaring. It probably will seem that way. But have you checked out inflation to date? At last check, the annual core CPI rate had risen from 1.3% one year ago to 5.5% today. If GOLD was going to rise due to inflation, do you not believe Wall Street would have already poured its resources into that asset, hedging against this period of inflarmageddon? Like I've said, the charts DO NOT LIE. Here's how Wall Street has been repositioning into gold as it prepares for the overwhelming (sarcasm) inflation that lies ahead:
Gold, relative to the S&P 500 ($GOLD:$SPX), has been declining throughout this period of rising inflation. When gold rises, it won't be due to the threat of inflation. Instead, notice that gold tends to outperform the S&P 500 when everyone gets nervous. There'll be plenty of nervousness in 2022, that much I feel fairly comfortable about. It's the steadily increasing fear and nervousness that will drive gold higher - not inflation. Once that triangle pattern above breaks, look for a big surge in gold.
Sentiment WILL Be Reset
Listen, the Reddit folks and those that began investing during the pandemic don't know what a bear market looks like. They don't even know what a correction looks like. This lesson is already painful and it's only going to grow. In order to generate a major bottom, sentiment must reverse course. The good news is that it started this past week. The bad news is that sentiment doesn't reset itself overnight. It's a mentality that must be changed over weeks and months. While we've had episodes of fear, as evidenced by periodic surges in the VIX, the state of the market is one of intense bullishness. That is going to change and there'll be clues provided to tell us when it's getting safer to get back in on the long side. It won't be when the market rebounds for a few days. That'll be amateur hour as traders, who believe the stock market cannot possibly go any lower, will find out that - yes, it actually can go lower. When U.S. equities are downtrending and seeing bounces, that's the hardest part of bear markets, because the sudden strength starts to trick our minds into thinking the worst is behind us. The worst is still ahead of us, so remember that on a bounce.
The good news, however, is that once this cyclical bear market cycle runs its course, we are going to see an EXPLOSION higher. JUST WAIT. That's what encourages me to remain patient.
On Monday, January 24th, at 4:30pm ET, I'll be hosting our Q1 Earnings webinar, where I'll be looking ahead to forecast the best and worst upcoming earnings reports. At our Sneak Preview event last week, which was free, I pointed out that Netflix (NFLX) was being tossed out by Wall Street ahead of its earnings report and that you should tread very lightly as NFLX could deliver very bad news. After the bell on Thursday, NFLX reported mixed quarterly results with revenues falling short, while EPS beat estimates. But the bigger issue was guidance. NFLX lowered both revenue and EPS guidance and Wall Street knew it was coming. That's why NFLX looked like this on an absolute and relative basis heading into earnings:
Internet stocks ($DJUSNS) were already being pummeled, long before NFLX topped. But look at those downtrending lines. The AD line was horrible. NFLX vs. its internet peers was awful. And internet was being tossed out by Wall Street. What was to like heading into that report? After our presentation last week, and after the NFLX earnings debacle, I received an email from a member. While I don't have permission to share the content of the email, let me just say this. Our member was ecstatic to have dumped NFLX shares before that 22% drop on Friday based on our Monday webinar. Relative strength is THAT important.
Technical analysis is all about managing risk. It helps me determine how much risk I'm willing to take. Given everything going on in the market right now, I'll sit it out. Cash is a position and a darn good one right now for traders.
Tomorrow's 4:30pm ET event, "Q1 Earnings", will highlight the best and worst of the upcoming earnings reports. But I'm adding a bonus to this webinar. I will be providing the 3 charts that I'll be using to help me see the 2022 cyclical bear market bottom - WAY ahead of CNBC and other media outlets. You can call market tops before the selling begins (as I did in that December 31st ChartWatchers article) and you can also call market bottoms before the buying begins. CLICK HERE to start your 30-day FREE trial and join me on Monday. I'll show you a few Wall Street secrets!