Are we really approaching Armageddon? The climate alarmists and politicians think so – but only in 20 – 30 years (or 12 months, according to Prince Charles). But there are others in the financial community that believe the coronavirus economic Armageddon will be here much sooner than that – in a few months, actually. Now that’s what I call a true Double Whammy!
And as markets continue their historic collapse, the cries of despair get louder and louder. But at some point, Peak Virus Fear will be reached and that is when markets will likely turn around sharply. But for now, the falling knife is cutting many bullish fingers. But this morning as I write, stocks are up. Is this just a Dead Cat Bounce? Here is the current bounce
The large mom div could provide the oomph to push the wave 4 above the blue trendline i n a short squeeze. We shall see. I have this morning advised VIP Traders Club members to take some profits earlier.
This is the huge pay-off for we valiant band of stock market bears who have been anticipating a severe downturn following years of manic bullishness. As an example of how market conditions have changed, here is a chart of the yield spread between Junk Bonds (HYG) and Treasuries. Remember, a low spread indicates supreme confidence in the future that conditions would continue – to the moon. And vice versa.
And the vice versa scenario is now dominating as we are now in a strong risk-off world. Even Bitcoin – that poster-child for bullish extremes – has crashed. Some are saying the blockchain revolution is dead.
Yes, risk is now being shunned and the over-leveraged (companies and individuals) with too much debt will go down the fastest. Many bonds, especially in the fracking sector will default. So will corporates in many public-facing sectors, such as retail, airlines, travel. Governments are rushing to staunch the woulds, but it will be to no avail. That can only delay the inevitable disaster to come.
And in an ominous move, long term US bond yields are creeping up so that roll-overs will be a lot more expensive than before. This will add to the default tally.
We are at the leading edge of a surge in bond defaults that will signal the first stage of the Great Deflation phase of the Depression to come. The next set of data points will be an uptick in the unemployment rate and a drop in GDP. That is baked in already. And to prove it here is the latest US data
The drop from February is the largest on record as the virus takes its toll. Economic activity is surely falling off a cliff.
Of course, the bear market will encounter savage face-ripping counter-trend rallies. With DSI bulls now in record low territory, that is assured. But I am advising my clients to keep holding most of their shorts – where we first shorted the Dow at 29,090 and above – through all rally phases.
Naturally, most of the MSM pundits are still urging us to ‘stay the course’ and avoid emotional decisions. But what they fail to understand is the market lives on emotion all the time, even in bull trends. What they really mean is not to panic with shares down 30%- 40% or more.
They missed the boat at the highs and are now trying to save face by clubbing together in their rickety dinghy as the waves lap above the gunwhales. Safety in numbers? – but how safe are they?
When the markets drop further, how many of their followers will still be with them?
The time to panic was in January at the highs when manic bullishness was rampant! That’s what we did as we adhered to the old market principle: If you are going to panic, be early!’
These are the very same pundits who believe it is earnings and the data that drive markets. Well, they are being proved right at last since company earnings are in free-fall along with shares! Of course, the latest company reports are still referring to ancient history when times were great last year. That is what the bulls are seeing.
Sadly for them, the juicy dividends they have relied on to judge share values are in great danger of being cut this year and cut heavily to preserve cash.
The markets are moving tremendously fast – stay with the current trends with a Free Trial to my VIP TRADERS CLUB. My members are making huge gains with my expert calls in Gold, Stock Indexes and now the US Grains.
Did you miss the boat at the tops? Don’t worry, many did. But I see a lot more great opportunities to come. Don’t miss out a second time. These are once-in-a-lifetime opportunities!
Facebook gets a face slap
Negative sentiment towards social media has been building for many months. Recently it is being heavily criticised for allowing radical messages on its site as well as scams that fleece individuals out of big money. Last year I was waiting for the dam to burst and send the shares sharply lower.
And my wish was granted – here is the chart of the action
From the $224 ATH in January, it slowly descended then rose a little into the wave 2 high a month ago and then the trapdoor was opened and the shares sank like a proverbial stone. It has lost about 40% off its high so far.
I believe the era of unfettered social media dominance is over and governments will clamp down on them hard. In a bear market, previously excused ‘dodgy’ behaviour is brought to light and the transgressors are punished. Facebook will head the list.
Gold continues sharply lower, as forecast
In my blog of 22 February I stated that Gold was about to drive sharply lower from the recent highs. This was the chart I posted then
In fact, the market was just a few days away from posting the high at $1700 on 9 March. That set in place another overshoot of the upper tramline and put in my wave 5 high – and if the market could decline back below that tramline, it would rapidly descend to the lower tramline. Here is the chart updated:
That didn’t take long! The market has crashed below the lower tramline and is in the first stage of a big five wave move lower.
Now why did gold crash – against all expectations of the army of pundits who believe gold always provides a safe haven when stocks are crashing?
The simple answer is that gold is not a haven of safety in a deflationary scenario when all assets are hammered in unison.
But an even greater re-adjustment/carnage is ongoing in Silver
That’s what I call a bear market! But we have taken big profits on the long side over the years, but knowing we were trading against the main trend.
Since Silver is partly an industrial metal, it often trades with the stock market, as it is doing now. And it is being true to its normal behavior – dropping faster than gold in a bear market.
As for Gold, I see it trading under the $1,000 area in due course with Silver well under double figures. That will be scarcely believable to the diehards who are buying both ‘on the cheap’ as they catch the falling knife.