Bonds have been in a bear market for over a year now and the S&P 500 and Nasdaq fell into a bear market this year after they both peaked around Labor Day. In the first quarter, though, commodities took off and surged, but in the past few weeks they too have been falling. At the moment there really is nowhere to hide in the markets and people need to be extremely careful. Cash reserves are key, because if you want to be able to buy when this is over you need them to do it.
The S&P 500 fell yesterday to give a sell signal on its daily stochastics. You could see it coming this weekend. What is worse, though, is that the VIX has barely gone up at all in the past few weeks and is actually lower than where it was a month ago, as you can see on the bottom of this chart.
The VIX closed below 28, to show that there is no fear in this market as it remains locked in a vicious downtrend channel. In fact, incredibly, the stock market has been falling for six months and not once this year has the VIX hit 40. That’s with the Nasdaq down 28% and Bitcoin in total collapse, along with speculative instruments such as the ARKK ETF.
Bear markets end in panic selling and there has been none and no sign of any now.
To understand bear markets you must understand stage analysis.
In bull markets the market trades above its 150 and 200-day moving averages and those averages act as support.
In bear markets they act as resistance and they trend down.
Knowing simple concepts like this and applying them is the key to strategic stock trading.
While the S&P 500 has been falling since New Years, commodities didn’t start to drop until a month ago, as you can see from the broad based commodity GCC ETF, which includes energy, agriculture, and metals.
To give you an idea of what is happening with commodities, silver was one of the first to breakdown in May.
A year ago now I went to a 50% cash position and 50% long.
Around New Years I began hedging with shorts, but I am now doing a lot of selling of even more longs to raise even more cash.
I don’t think we’re going to see an end to this selling until at least October and the bear market may not end until next year.
One can debate what is making markets go up or down and make endless predictions, but in the end the charts and current trends are not debatable.
They all show that markets are in a bear phase and there is no sign of an end to this bear cycle.
When it ends there will be a great buying opportunity for things across the board, but a rally day in the markets today or this week or next week right now is meaningless in the big picture of the bear cycle, because that is all noise until there is a true panic sell-off.
The selling really intensified in May when silver fell and spread enough to become a generalized sell-off.
It’s also a global bear market.
For instance look at this ETF for Germany.
And look at Japan to give just one more example.
I believe it’s best to be as defensive as possible in this market and be patient and stand aside as much as you can and let the bear cycle play out before becoming a serious buyer. Once there is panic we can see what holds up during that panic as that typically becomes a leader on the next real rally or bull cycle.
For example, the price of gold has come down from its recent high, but is still above support at $1700.
I’m not sure if that will hold or not, but what is more important is that gold continues to outperform the stock market; notice how the relative strength ratio on the bottom of this chart is continuing to go up.
Focus on what is outperforming the market and what is lagging.
The things to be most cautious on are the laggards.
The fact that they are market laggards is one of the reasons why things like crypto coins are acting as financial millstones.
This is a tough year, in a market like this every day stocks of the biggest companies in the world get hit. MSFT, for example, fell over 4% on Tuesday.
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-Mike
