I haven’t done an update on the financial markets since October 1st. My views about it haven’t changed since then, but it is clear that the market action is making more people confused about it. Bond yields are ticking up and people are calling for a new bear market, while the economy is not in a recession right now, when it may have seemed like it would be by now. I still don’t think anything big is going to happen in the markets for the rest of the year.
Since that update, a war has broken out between the state of Israel and people in Gaza. Israel gets involved with a war with one of its bordering regions every ten years or so – this is nothing new. People in the United States are making Youtube videos, for views, predicting World War III, but how many times has the state of Israel been at war since it’s creation? The Israeli leaders have called these type of war operations “mowing the lawn” there. I’m not trying to argue whether it’s right or wrong, but just to point out that this is nothing unusual, and it isn’t all that surprising that Israel is at war again. On Fox News Senator Tom Cotton talked about helping Israel bomb Gaza until the rubble bounces over and over and he is a frequent guest on there, good for the ratings, with lots of fans.
I’m not an expert on it, but it seems that the Israeli intelligence agencies were totally caught by surprise by the horror attacks inflicted on their country.
So, it looks like this is the biggest intelligence failure since 9/11.
No one can predict how long this war will last, what the next step will be, or how it play out.
That’s called the fog of war.
And now investors feel like they are in a similar fog when it comes to the markets.
When markets were in a clear bear trend last year it was obvious that the markets would keep falling until they stopped.
The only question for people in them was could they hold until it stopped falling.
Then things turned up early this year after a bottom was made last October/November.
Here is where things stand now with the S&P 500.
Since losing steam at the 4600 level, the S&P 500 has dropped down to 4200.
If this area doesn’t hold, look for the next level of support in the 4049-4100 area, which is roughly the 50% retracement area of the October low of last year and the high of this summer.
People are confused by the market pulling back like this, but the rally earlier this year was not the start of an endless bull cycle and what is happening is not really confusing, if you know market history.
At the beginning of the year, I said that I believed we were in a new cyclical bull market, as I cited the work of Walter Deemer. He showed how we saw a huge positive thrust in the internals of the market that always marked the stock of a new bull market. And it did. But, history also showed that this cyclical bull market would likely not lead to the type of year after year of gains as people experienced before 2020, but more likely a 2-3 year affair, as was seen in the cyclical bull markets of the late 1960’s and 1970’s. Now – just like then – is defined by a time of inflation and back then the markets were in a secular bear market. Cyclical cycles are short-term 2-5 year cycles within a longer term 10+ year cycle.
Here is what these cycles looked like for the DOW.
So, I thought in January what we would see the markets do is what they did in those shorter 2-3 year cycles and have most of their gains take place within a few months, and then basically do NOTHING for 12+ months, before eventually beginning a new down cycle, probably sometime next year, as opposed to now.
And that seems to be what is happening.
Hopefully, the markets can form a new bottom for this current decline around here and get some positive action out of earnings news.
But even if that happens, I think we’re still set up for overall sideways markets for the rest of this year, with very limited sustainable upside.
Due to market conditions, and a lack of good trade setups, I have been doing few trades at all and few updates.
The stock market feels confusing and difficult for people now, because that is the nature of a short-term cyclical bull market after the early big rally plays out.
The upside from here to the high of last year on the S&P 500 is around 11%.
The next real investment buy point will be after the next bear market plays out.
Yep, that’s going to be a long time from now.
Some morning links: