Was I wrong? Are we really in a bull market?

Last week the Fed followed market rates and hiked by 75 bps and indicated more to come to ‘fight inflation’ and stocks fell. Then the CPI data dump on Friday cancelled that idea with a soft headline figure and bond yields and the dollar fell sharply and stocks surged. That my friends is what they call a whipsaw.

So the big question now is this: is the bear market over now that consumer inflation is falling? Have I been wrong all along since the deep lows of 13 October that this is a bear market rally and that stocks will start a massive decline when the rally terminates?

Despite all the bullish talk, I do not think so. I am always open to changing my mind if conditions dictate. But this is not that time.

For one thing, the crypto world is in freefall with the instant demise of the top trading platform FTX going belly up. Call me old-fashioned (and I am) but I have always believed cryptocurrencies were doomed when risk appetite finally waned. They have provided little practical usefulness – except when paying for illegal products and services from the dark web, of course.

The ultimate coin in this fantasy world is Dogecoin – born from a joke.

This is the share chart of Core Scientific a US Bitcoin mining company

The top was made in November 2021 – at the very same time the US stock indexes topped out, please note. The bear market in Core in all of this year was surely a signal to expect more crypto trouble ahead – and we are surely getting that in spades.

All of that is not to say that cryptos are/were not worth trading – they certainly have been for the nimble. But not for buying as an ‘investment’.

In fact, they are the perfect poster child for the end of the Age of Speculation that is slowly morphing into the Age of Conservation as we head into a deep depression.

While the Fed’s moves on interest rates remains the focus of attention for most investors, that is certainly not the only factor at work. There is the little matter of company earnings and for the Big Tech outfits, those have been in freefall. Latest Wall Street estimates are for lower S&P earnings into Q4.

Just yesterday, Musk has opened the possibility of bankruptcy for his new baby Twitter (see last week’s blog).

For a new owner who just paid $44 Billion for a company, this is a shocking admission (or threat?) after less than two weeks in the hot seat. But was Musk just being Musk and really wanted to frighten his remaining 50% employees back to the office from the stay-at-home idling they have probably enjoyed.

And even at a slightly lower range of bond yields than last week, they are still sharply higher than a few months ago and many zombie companies will surely go belly up this winter in a great profit squeeze (highly deflationary).

This is the updated Dow

I have a new possible wave label structure with the rally off the 13 October low as a ‘c wave (it has the required five wave pattern and is now in its fifth wave). Unless it can continue its surge, we have a mom div and an overbought RSI. It is also testing the Fib 62% retrace -a common region from where turns are often made.

But it has pushed above the upper tramline and that is a bullish factor. But one thing to remember is this: second wave bear market rallies always try to emulate or even exceed the euphoria surrounding that at the ATHs. That is the perfect time for Mr Market to smash the trapdoor shut. The weekend financial press will I am sure give us clues as to how far out the bullish sentiment has risen.

As I see in Friday’s headlines, the word ‘euphoria’ figures prominently – a sign the end is near.

The stark division with the Nasdaq is getting even starker. This index has only managed less than a Fib 38% retrace compared with the Dow’s over 62% – a recovery of less than half. Stocks remain in a fractured market.

And the small cap Russell 2000 index has met a crucial point where the major trendlines meet and right at the Fib 62% retrace

In my 22 October blog I suggested that the current rally phase would take at least 1/3 of the time taken by the large wave down off the major August high putting that date around that of last Tuesday’s US elections (remember them?).

That expectation was not fulfilled with Friday’s surge but with the duration of the S&P rally now taking a Fib 50% of that time, this would be an even more poetic occasion to surprise the new-found euphoric bulls. I sense next week will either see a stronger upside or the start of a vigorous wave 3/3 down.

I hope to be able to identify the tops to these rallies soon. If correct, the profits available will be immense.

One thought – if consumer price inflation is easing at a more solid pace than ‘transitory’, it is kicking off a disinflationary trend and with economic recession looming, that could easily morph into the deflation that I have long forecast. Remember, actual deflation (a severe decline in money and credit outstanding) is very rare in our fiat currency world where central banks can launch QE money printing at the drop of a hat.

And I am sure they will try that tactic again when they judge economies to be sufficiently weakened (next year?). But will it juice risk assets the next time around? I am not to sure. By then, liquidity will have been hammered so where is the appetite – and firepower – for shares? In fact, even rumours of a fresh round of QE would likely have the opposite effect to sink shares. Investors would smell a rat – What does the Fed know that we don’t?’

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The dollar has finally turned – and how!

The US dollar in the most important market in finance – by far. Around it revolves global bond yields and commodity (incl PMs) prices. I believe a new bear market has arrived.

I have been waiting for signs that the 28 September high was the final top to the 14-year bull market off the 2008 Credit Crunch lows – and last week’s action has provided it in spades.

I have been long pointing out the exponential rally in recent months as the dollar trade was said to be the only game in town (esp dollar/yen) with the Fed hiking rates aggressively (and Japan not). When the market started retreating in late September, I was not sure (how can you be sure you have found The Top after such a roaring rally?).

But last week, we got our confirmation and since all exponential rallies end in sharp declines, that is exactly what we are starting to see. That is why I issued a Flash Alert on Wednesday afternoon to VIP Traders Club members advising buying EUR/USD, Gold, Silver and T-Bonds. That was most advantageous timing!

Now, bombed out commodities are set for large gains.

One of the most important factors keeping many commodity prices low was the huge US dollar strength. For example, the grains – Wheat, Corn and Soybeans – have slumped in recent weeks from lack of foreign demand as US prices were in the clouds as measured in local currencies.

Also, Wheat has taken a knock as the mountains of Ukraine grain are now being moved to final destinations.

But with the dollar in decline, US offerings are getting more competitive. And the added bonus for Soybeans is that the US harvest is about over and farmer hedging usually eases up in this month and major lows are often set here to herald bull runs into next year towards the Southern Hemisphere harvests in our Spring.

Wheat has been clobbered recently as the Ukraine shipments have resumed but is due a recovery – probably sharp if it is starting a third wave.

Gold heads north

Last week was very good for our PM positions as the dollar sank. Members are long from $1645 and higher as the market closed the week at $1770 for a rapid gain so far of $125. So are we starting a major rally phase taking it above the old ATH just above $2,000?

This is the weekly chart that shows the Double Top I have pointed out before. Genuine DTs usually herald lengthy and deep reversals. The reversal so far is shallow. That gives a clue that the current rally phase will likely peter out well before reaching the old $2,000 high.

However, the dollar is likely to continue its path lower near term, Gold should reach my major target around the $1840-1865 region before turning. That should coincide with a major dollar low sometime next month. Let’s see how that pans out.

The bottom line is that December is shaping up to be a hugely eventful month. The monthly Fed announcement on the 14th may divulge less hawkish sentiments – and that could be bearish for shares (see last week’s historical chart showing when the Fed pivots, stocks fell). We live in interesting – and confusing – times!