Finally, FINALLY the markets are going to revert back to true value. As I posted in December "Resuming the March decline Ahead" on December 2nd, I gave at most 3 months until the last bull blowoff ends when I emailed friends. We are close to the 3 month mark, and the downturn has finally started.
Over the last year we have kept the bull running, but I FINALLY think the top is in for a while, potentially years. Why? Because as I posted in "Resuming the March Decline Ahead" President Trump pressed every last easy button to get "the worlds strongest economy" in January 2020 with a 1 trillion a year deficit. There is no easy road ahead, which will not play well with stocks.
The bond market is losing control, now the FED and the US government has to convince the world we won't continue the reckless finance. Its going to be a hard cell.
How do I know I am wrong? Its simple, if the S&P 500 closes a mere 4% higher then I am wrong. We need a closing print above 3,951. If I send this to you, I recommend you dump it all, and on a closing print for a solid week (to avoid a fake new bull), and buy back. If not cash is best. Since bonds rates have gone up, you can buy bonds ASAP and hold watching your bonds rise in value as the bond market reverses.
So how far does this market fall? It of course, like everything in life depends on the actions of countries and institutions. However using history as a guide, and all easy buttons pressed, I think a 50% cut is in our future in the years ahead before a final bottom. Some of the Hedge fund manager I respect target as much as 80%. Although this should happen, I don't think it will. The governments and the FED will do anything to stop that from happening.
Given what I said above, calculate 33% loss as the target. Why? As I posted on January 25th "I am tapping out", the leverage using loans to buy equities is at materially higher all time highs. Quite a bit of this leverage is being used by Millennials who have not experienced a bear market. Many will get squeezed out with margin calls with forced losses, and this will cause a cascade problem.
I am not convinced another 2008 crash is in the cards, but I do think a trend change of new lower lowers in the year ahead is here. One of the reasons NOT for a 2008 crash is the new free money the Democrats will give to people. Many will gamble in the market, and the best way to take that money is to have a long drawn out loss.
I think there will be many reversals in the months ahead, as most will think we are going to resume a bull.
So for short term trading, you can buy into the markets at S&P 500 of:
3700 - around the previous dip level.
3600 - around first Fibonacci level,
3300 - strong resistance due to past market action.
After that its pretty murky, next major level is March 2020 level of 2200. I'd expect a minimum bottom around 1900. We would need a capitulation moment, and going lower than March 2020 would do it.
What about Bitcoin? Unfortunately I think it cannot escape the deflationary downturn. The exception could be once again , the Millennials. At some point, they will give up on the market (SPX 22000 break?) and just buy Bitcoin in disgust for a buy and hold.
Since Bitcoin is a pure wildcard, its harder to say how low it may go. I am looking for a low of 22,000, maybe piercing 20,000 in a day. Thats my level to rebuy.
What tells me I am wrong? A new bitcoin high for more than 1 full day. I will start to get optimistic at Bitcoin over a day at 53K.
When this market route ends, I will be looking to buy into India, Bitcoin, some gold miners, global index funds, emerging market funds, and a little bit of a US ETF (TBD which).
The markets may resume the rally, but we are close to a terminating end with the borrowing and debt.
Good luck!
If you want to learn more, learn about the bond market, although its not in favor, it drives everything in USA as a debtor nation. Here is a good video:
No comments:
Post a Comment