There are a lot of people that say that trying to trade or time the markets is a waste of time. They typically want you to buy and hold forever so that they can get fees by having you fully invested in their funds at all times. The thing is they are right about warning against trading and market timing, but for the wrong reasons.
The problem with trading the markets or trying to time them is that 99% of the time there is actually nothing worth doing. Traders trying to make money look at the markets every day and try to make something out of meaningless noise. The small market players watch the news headlines and try to figure out some way to make money off of news that everyone else already knows or they try to get into stock picks to gamble it up, with no edge. The reality is that the optimal trading moments when it comes to market timing only come around every decade or so – so all that time spent trying to make something happen between those moments becomes a waste of a time, a typical spinning of the wheels, that in the end typically causes people to miss the great fat pitch when it presents itself, while the stock picker and chaser is like the man at the poker table who doesn’t even see the pitch when it comes, because he doesn’t even realize how the game is played – the Robinhood trader is the perennial sucker at the table who doesn’t know that he is the sucker. Open up a Robinhood account and you’ll see there is no information to base a decision on except what others are buying. It literally turns one into a simple sheep in the herd.
But let’s call these great timing points pivot points for the sake of discussion. What they really happen to be are changes in the secular (7-10 year trend) in a market. So a major bottom that leads to a bull market that lasts for 7-10 years is one such great trading pivot point to buy while a major top that leads to a major bear is also a massive pivot point to take profits or to bet against a market through short-selling, puts options, or short ETF’s.
I believe right now we are at TWO such pivot points that are not going to repeat again for many years in these markets. First, to give you an example of how important these moments are I believe two such similar pivot points happened in 2020.
And I’m not talking about the stock market crash that year, because on a long-term chart it just looks like a very short lived decline in a bull market that began in 2009.
I’m talking about commodities and interest rates. After the stock market crashed we saw secular lows occur in the commodity market.
For instance, take a look at the DBA ETF, which tracks a basket of soft commodities.
In 2020, DBA made a major bottom after having been in a bear market that began in 2011. It was a nine year bear market that actually brought soft commodities to an all-time low when compared to the price of the US dollar. While this happened millions of people opened up Robinhood apps and chased stocks that they saw move up the most on their app. They piled into junk stocks that moved that are now in bear markets, like AMC, NCLH, GME, ZM, SQ, PTON, and so forth. As DBA bottomed the price of oil in the futures market went negative and energy stocks made secular bottoms too at the same time. Now DBA is trading up this year and so are energy stocks even though the US stock market has been in a bearish trend since New Years.
The GREAT BUY of 2020 was energy stocks, commodities, and commodity related stocks, many of which pay high dividends, but the masses didn’t see it because they weren’t paying any attention, as they were too busy gambling on the apps, chasing garbage stocks, and people on TV didn’t tell them that this was a secular bottom in commodities. They had fun on these fad plays on the way up, but the fun ended for them last year.
Secular bottoms come after bear markets that last for years and are marked by a market or sector going through a stage one base and transitioning into a stage two bull market.
At the same time, the time period of 2020-2021 also saw a secular low made in interest rates after the Federal Reserve took rates to zero.
This low was in a bond bull market going back to the early 1980s, so it was a long-term move.
This chart only goes back to 1990, but you can get the idea from it.
A secular low in the bond market (along with the commodities bottom) was the major market even of 2020, that is underlying the market action of today and the years to come.
These two events are going to prove to actually be more important to the financial markets and the overall economy over the next ten years than the stock market crash and rally of 2020, because they are long lasting secular trends, which generate underlying trends in everything.
Bonds trade opposite to yields, so when yields go down bonds go up.
That means that this ultimate low in yields brought with it an ultimate top in the bond market – major pivot point.
Such a major market move demands the attention of anyone with serious money in the markets and anyone actually trading them, because of the implications of it, but almost everyone involved in the market ignored it then and are still doing so now, because they are too busy watching daily price action, playing on apps, or consuming financial news headlines of the day, to focus on the big picture – that takes years to line up to generate a major profit pivot point.
That major pivot trade for bonds mean selling bond investments and shorting selling or betting against bonds if one wanted to align oneself with the new long-lasting trend and make money. To not do it and keep holding them now going forward means to be willing to lose money for the sake of it. Going against the overall trend of a market is senseless, but people do it, because they are too busy looking at the daily gyrations to see it and know what is happening, or too scared to make their own decision as that means taking responsibility for them. Some people prefer to just throw money at the markets, hope everything goes up, and then rant against manipulators if it doesn’t, which is a mentality that blocks real winning in the markets.
The need to trade makes people gamble it up trying to game short-term news and short-term action when the big trades only come once a decade in a market.
Now I believe we have two key secular turning points in the markets playing out. The first, as I’ve been talking about in the past few weeks is gold and silver.
Gold and silver appear to me to be in the same position they were twenty years ago in 2002 when I first bought a mining stock. Now, like then, they have been consolidating for a year and a half and appear to be in the process of breaking out, but there have been three other consolidation periods since 2001. So this is the fifth one in twenty years.
Right now, at this moment, I view gold, silver, and mining stocks as the best trade and investment to make from a risk to reward stand point. Everything else may be a waste of time in comparison. One can buy gold and silver and put a stop near their December lows and risk ten percent on something that is likely to go up 4-10X in the next 5-7 years.
During a bull market the 200-day moving average acts as support. So the buying on dips in a bull market, which typically happens once or twice a year, is the time to buy going forward after the first breakout in the top mining stocks to play this metals bull market. Most people trying to trade to make a living can’t wait for that opportunity that only comes once or twice a year, so miss it when it does come – and few can hardly get in on a secular pivot point like right now in the metals markets, because they just do what the herd does, which never gets in early on a move.
That’s why there are no gold or silver funds or mining stocks listed on the top 100 most popular list on Robinhood.
I’m still bullish on energy and commodities overall and still own things I bought in those trends before this year, but the time to have bought them was over a year ago. Now is the time to focus on gold and silver, because once they start to run there may not be a similar great buy point in anything else for several years.
You see, at the same time I”m telling you this, the stock market is going through the type of secular top I have only seen twice in my over 25 years of trading now.
That’s how important the current moment is.
What the S&P 500 has done over the past several months is fall below its 200-day moving average and then rally back up to it with that rally stalling out! The last time it did that was in the fourth quarter of 2007.
This is what it is doing now.
The S&P 500 and Nasdaq are hanging on to their January lows. If they fall below that there will be another leg down that will take the market averages further away from their 200-day moving averages and those moving averages will then begin to trend down.
That’s classic stage four action.
Again, this is something that I have only seen happen twice in the US stock market.
What is going on in the stock market is something that demands attention, but few are paying attention, because they are still trying to gamble in stock picks or obsessing over daily gyrations. Why the market is likely to breakdown more is simple and that is what came before the current chart pattern.
If the market falls the masses will blame it on Russia, missing the big picture. What happened is what happens in classic market tops – the internals of the market fade as most stocks enter bear markets of their own ahead of the stock market averages. That happened last year. The reason why the averages keep doing good in that final inning of a bull market top is that the major big cap leaders stay strong and help push them up. But when they falter it’s all over.
Well – remember the “FANG” complex talked about so much in the past ten years? Many of those “FANG” stocks, such as Facebook and Netflix, have already crashed. The leaders are falling, so the market is done.
Recognizing, reacting to, and taking advantage of changes in trends like this that only happen once in a decade is how one actually does time the market – and how one actually does build real wealth in the markets.
All the rest of the in between stuff is mostly gambling.
This is a key moment.
You can’t see it on an app.
They won’t tell you on TV where they talk about the daily price gyration and the headline of the day and frankly most people don’t want to think about it, because they are trying to gamble on a stock pick or are focused on the daily gyration, but it is happening.
I talked with David Skarica of addictedtoprofits.net about the market action in this video update.
-Mike
