The news is grim so will shares bounce now?

Shares fell hard last week in an orderly fashion (no panic) into Friday’s low with the Dow losing almost 2,000 pts. As I have been pointing out, the US indexes are in a very strong third waves lower that are nowhere near complete.

But don’t you just love the MSM with their investment advice always offered well after its sell-by date? Just as they have all acknowledged the S&P is now officially in a bear market (20%+ loss off the Jan ATH), this headline from Bloomberg on Wednesday morning: The Bear Market Has Arrived – Here’s how to Move On And Act Now. with strap line:: With the S&P 500 more than 20% off its peak, and tech stocks down even further, your first task is to take a deep breath and assess your risk.

Hah! Taking a deep breath and ‘acting now’ (does this mean selling?) after Amazon is off 40%, Netflix off 70%, even never-sell Apple off 28% is in my humble opinion just a tad tardy. The horse has already bolted out of the stable and is careening down towards the river in the valley for a drink.

Just about all of the MSM I read advise Don’t Panic! (Mr Mainwaring). That is standard stuff when the uber-bullish crowd persist in their Buy the Dip mentality. But that will change when shares are trading much lower.

There have been little signs of panic – the US Mom ‘n Pop retail investors are still buying on balance and are keeping the faith that the horse will just wander back inside the stable on its own.

But I am not surprised by the sense of disbelief in the growing bear market out there. After all, it was only last week on Thursday at 12 noon that stock markets were riding high-ish and bullish expectations were growing just prior to the game-changing US CPI print on Friday. Bear markets take time to register for most investors who have been used to bull markets for years.

But what a difference a few days make! From Thursday 9 June high the Dow has lost an astonishing 3,000+ pts.

Last week, I went over the correct actions to take when trading long expecting new highs. Those bullish hopes were clearly dashed and nimble and flexible traders were able to position correctly following release of the US CPI horror story.

But today’s MSM copy is just a re-run of the useless advice they always offer in such circumstances – when the markets take a deep dive ‘unexpectedly’.

But this advice is not useless to us! Far from it. As usual, I take it as a contrarian indicator to look for a bounce/rally that should be imminent.

So now the Fed has chosen to go the almost full monte with a 75 bps jump – and now some are expecting even 100 bps hikes either next month or the one after.

With this clear statement of intent, the Fed has told Wall Street that it will prioritise its war on inflation over keeping the asset bubble inflated as id did late year.

So is a bounce/rally imminent? It may be – as I suggested two weeks ago in my 6 June blog Has Inflation Peaked – and Will Shares Rally? Here is the chart that gives a few clues:

But any bounce /rally will be up against the severe pressure to unload shares as dictated by the strong impulse of the third wave down. But a renewed sharp decline early next week would cancel out this option and herald the approach to an accelerated decline to the next support area around the 27,00 region on the Dow.

Sentiment is decidedly bearish with economic news grim. Latest reports from the US real estate markets show a sharp fall-off in buying interest as 30-yr mortgage rates surging above 6% making the average repayment on a median home $2,600 pm up from $1,600 a year ago. The affordability ratio has dropped to the lowest on record.

And a deflationary wave in US retail is on the cards this summer as retailers are way over-stocked with huge discounts likely. That will impact margins and put even more pressure on the shares of retailers. But it will ease pressure on the closely-watched CPI figures and lead to an ‘unexpected’ decline in the headline rate.

And what’s this? Last week saw a pull-back in energy markets with sharp corrections in NatGas:

On Friday, the market collapsed to the lower tramline – a wipe-out from the 8 June high above 96 to Friday’s 68 low: a loss of 30% in only eight days. Of course, at the higher levels in early June, it was testing the important Fib 62% retrace of the wave off the 2008 high to the July 2020 low (of 15).

But you can see how volatile this (and also crude) markets have become which is typical behaviour following rampant bull markets earlier. They are in pure whipsaw territory making trading exceptionally difficult – trend followers should stay away!

But if energies are truly retreating, that would help ease inflationary expectations, put a lid on Fed interest rate rises – and lead to share rallies and a surge in depressed bond prices. Very few expect that scenario! It is truly a contrarian option and one I am watching very carefully.

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Some thoughts on the social scene

It is no secret that societies have been deeply divided on many issues for some time. But what is changing now is the prospect of massive labour strikes not only here in the UK but in the USA as well. The background is clear – cost of living ‘crisis’, energy costs soaring, inflation rampant and wages not keeping up. Divisions at work are now adding to the political.

Bear markets are marked by social rupture and division. The bull era of ‘woke’ ‘inclusiveness’ that dominated much policy ended when the Great Asset Mania ran out of steam and the Great Bear came roaring onto the scene about six months ago.

Late on Thursday, the Dow hit the Fib 38% retrace support off the Corona Crash low in 2020 with a very accurate hit to 29,800 and is currently bouncing. But will this bounce have legs given the large mom div?

That is why I advised VIP Traders Club members to lighten the load and bank significant profits on shorts taken much higher up.

And I believe the UK government’s plan to move illegal refugees arriving by skimpy boats across the Channel to Rwanda for processing is also an indication that opening the doors to all who arrive (inclusiveness) is no longer acceptable (division).

There is much Crypto blood on the streets – is it time to buy?

Regular readers know that I have been a solid bear on cryptos for some time – in fact from when Bitcoin topped out near the $70,000 level back in November, I recognised that high as forming a likely Double Top pattern with the $65,000 high put in the previous April.

In recent days, the news has been super-grim. There have been several wipe-outs including the infamous Luna alt-coin that crashed from $119 to zero in a flash. Now that’s what I call volatility! In fact it is infinite. And now comes news that the Celsius trading platform has crashed and has blocked all withdrawals by the investors/gamblers.

Amazingly, a major Canadian pension fund took a $400 million stake in Celsius that probably marked the top of the extreme levels of FOMO mania that existed in financial markets until just recently. Imagine – a pension fund which has strict investment criteria was allowed to invest in this dodgy crypto platform start-up. Maybe it was the promised 18% returns that did it. Of course, it was all built on sand.

Aa a measure of the capital destruction that has taken place, the whole crypto universe was valued at $3 Trillion in November and at less than $1 Trillion recently.

Yes, there seems to be a near-panic mood in crypto-land. From Wed 8 June the Bitcoin price fell from $31,500 to $20,000 on 15 June – a crash of 36% in just a week.

But although much of the crypto world is total fantasy and hype, Bitcoin remains a huge and liquid market and thus I treat it like any other, especially if the price charts display reliable patterns that occur in other major markets (they do).

Take a look at the chart with my wave labels:

Do you see what I see? Yes – a complete (or nearly so) a-b-c three down with all the sub-waves present and correct. And if you look down at the momentum oscillator you can see a momentum divergence building between waves 3 and 5. So if the market decides to turn up soon that mom div would be the cherry on the cake to signal a substantial rally phase to get under way.