Kameleon007
In October, I was calling for a bigger bottom and a rally to the 4300+ area. At the time, most of the market was expecting much less, mostly based on the worse-than-expected CPI report published that month. Nevertheless, that news actually ignited a 20% rally from the low and took most market participants by surprise.
If you haven’t learned your lesson about the impact of economic data on the market from this example, it means you will never learn your lesson. And, who didn’t learn the lesson of October 2022 taught me to be crazy when I was looking for a rally from 3500SPX to 4300 before we hit the bottom.
Today we are seen in a completely opposite environment. While many former bears are now turning bullish (besides the usual perpetual bears we all know), it looks like the market has definitely turned bullish. As you can see from the headlines we are seeing throughout the market, many are now embracing the “new bull market”.
CNN: “It’s official. We’re in a bull market”
WSJ: “S&P 500 ushers in a new bull market as Big Tech stocks lift”
Still, most have fought this rally desperately, trying to gauge market direction on valuations, inflation, the Fed, banking issues, and many other places that have eluded them. As one commenter pointed to the general view of the market:
“The logic is impeccable, but yet the market keeps growing and growing and growing…”
And, I’m not even going to get started on those who make the ridiculous claim that “the market is wrong.”
Earnings valuations seem to be one of the biggest factors making people disbelieve the recent rally and see that the market is going wrong. It’s not the market that’s doing it wrong… it’s you. I propose that anyone who is basing their investment thesis on valuations is looking in the wrong place. I strongly urge you to review the historical empirical evidence. I wrote about this in detail in a previous article if you want to delve a little deeper into my approach:
Sentiment Speaks: How to Use Earnings to Dramatically Increase Your Stock Market Returns
And, last week, I tried to explain that the general opinion that we went into a bull market because we rallied 20% from the October low is a superficial and arbitrary view that has no basis in history or fact. Base is not:
Emotion Speaks: ‘4300SPX Not Happening’
However, the headlines of the articles we’ve seen over the past week are exaggerating the concept of this “new bull market”. In fact, this past week’s cover of Barron’s demonstrates what appears to be the new general view of the market:
barons
Nevertheless, for those with an understanding of market sentiment and market history, you may know that when Barron’s comes out with such a bullish cover, it often marks a market topping, because It reflects the general bullish sentiment of the general market.
As I’ve tried to point out over the years, understanding market sentiment as an indicator of market direction is more valuable than all the factors many people focus on. The general factors that most have focused on in the last 9 months have looked in the wrong direction. And I have tried to explain it in as simple terms as possible.
You see, when the market reaches a bearish peak, there’s no one else left to sell because the sellers get tired, and that’s when the market turns in the other direction. This is what happens when we reach the peak of the boom. It is really that simple. The difficult part of the equation is understanding when the market peaks. So, several years ago, I wrote the following series of articles explaining our methodology for how we make that determination:
This Analysis Will Change The Way You Invest Forever – Part 1
This Analysis Will Change the Way You Invest Forever – Part 2
This Analysis Will Change the Way You Invest Forever – Part 3
This Analysis Will Change the Way You Invest Forever – Part 4
This Analysis Will Change the Way You Invest Forever – Part 5
This Analysis Will Change the Way You Invest Forever – Part 6
Having said all this, I would like to issue a stern warning to all those who are beginning to think that the banking issues are over. In my opinion this is the farthest from the truth, as I think we have only hit the tip of the iceberg with the recent issues. This issue will raise its ugly head in the coming years and is likely to be worse than what we experienced in 2007-2009. Therefore, I strongly suggest that you read our public work on this matter to protect yourself before a real tsunami hits. In other words, Noah, while you have the opportunity, it’s time to build your ark:
Secure Banking Research Articles
Meanwhile, while most people thought I was crazy in my expectation of the market rising to 4300+, we are getting there. And, as the market seems to be going up quite a bit, I am starting to get quite cautious.
There is still more room for upside in the market, but I think it is time for everyone to strengthen their risk management. Once this rally is over, I expect a huge drop in the market. And, as I’ve outlined many times before, the nature of that decline will tell me whether we continue higher until the next 4500/4600SPX, or if the market is starting to decline to 2700/2900SPX.
Yes, I know these are largely separate results, but the market has the potential for either solution depending on the nature and structure of the rally to the October low. So, until I see how the market pans out in the coming months, I intend to tighten my risk management so I don’t get caught holding the bag in this rally we may see in the market for the next couple of weeks. Presents with giving excellence. Up to three years.
The support is currently in the 4205-4245SPX area. And, should we see a sustained breakdown of that support, it is an early sign that the market has begun what could be a major decline. We need to analyze the nature of that decline in order to determine the next multi-hundred-point move in the market over the coming year. Should we see a continuation higher in the coming two weeks, I would move to that support level.
So, the main point I’m trying to make this week is that while a lot of people were uber-bearish, I was expecting the market to rally to 4300+. Nevertheless, now that many have started turning bullish, I am now being quite cautious, especially since we have reached our expectation of 4300+ that we set several months ago.
housekeeping matters
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Source: seekingalpha.com
