MarketCycle Wealth Management

Predictions on Gold and the Dollar

 

Way back in 2017, I drew the (blue line) walls of the USDollar (USD) trend channel that is shown below.  A picture perfect trend channel.  The USD has, quite admirably, embraced these walls.  We bought the USD at the bottom line and recently sold right at the top line.  While the USD may lose another 4-5% during 2023, we ultimately expect the USD to hold up fairly well for the remainder of this decade.

 

Why would the USD not just fall as so many now predict?

1. Strong countries have strong currencies; the U.S. still leads in relative strength over all other countries.
2. The U.S. Federal Reserve is still raising rates and this strengthens the value of the USD currency.
3. The Federal Reserve states that it will likely NOT lower rates in 2023, and I currently believe them, and this also strengthens the value of the currency.
4. The upper terminal interest rate level is likely to remain higher in the U.S. than in almost all other countries, offering continued USD strength.
5. There is strong foreign direct investment in the United States (in ownership of companies and in real estate).  The U.S. continues to attract the highest level of foreign direct investment of any other country.
6. Renewed interest in holding U.S. Treasury-bonds will help to prop up the USD as foreign investors normally buy the USD with which to purchase the Treasuries.  There is $250-Billion in what is normally used as Treasury-bond investment money still waiting (for some sign from above) to flow back into the USD and then into Treasuries.  And there is a truly gigantic short position on bonds and when this finally unwinds, bonds are going to go straight up, making big money fast; this will likely accelerate the need to buy USD to then use to purchase Treasury-bonds.
7. The USD continues to be a safe haven asset and this will only increase as people continue to worry about a U.S. recession (that even if it does manifest, may be less of a problem than some people expect).  Yes, MarketCycle’s recession indicators have triggered, but that doesn’t mean that a recession would be a problem for investors.
8. The USD does not make sudden moves unless the Federal Reserve is RAPIDLY altering rates… currencies meander along, often moving sideways for many years at a time.
9. China moved into recession first (and for longer because of their silly Covid restrictions), followed by Europe; the U.S. will be the last into recession, although in my opinion, any U.S. recession could be mild to the point of almost ‘non-existance.’  Just because the U.S. could be the last to come out of ‘recession,’ only because it is the last into recession, DOES NOT MEAN that the USD will be negatively affected.  It may, in fact, mean quite the opposite.   Again, strong countries have strong currencies.
10. The U.S. stock market clearly continues to remain in a Secular bull market that started in October of 2011 and that we are predicting will last until around 2029… 18 years in total, similar to all other Secular stock bull markets.  This would continue to contribute to both a strong stock maket and a strong currency.

 

GOLD:

Gold bullion is the opposite of the USDollar although they only loosely inverse-track each other.  The old saying is “If Dollar weaker, then gold stronger.”  MarketCycle’s client accounts no longer hold the USD, but we do continue to hold gold.  Gold continues to shine, however it will eventually bump up against its own resistance line as shown by the blue dashed line in the following chart.  The blue dashed line is shown as a faint line because I do not have full conviction that it will halt the upward move in gold.  Eventually, years down the road, gold will reach astronomical levels… this is one of my highest conviction long-term trades.

 

MarketCycle’s clients still hold a 7% position in physical gold bullion (held in the vaults of the Canadian Mint).  Why invest in gold?

1. Gold is a storehouse of value.
2. It protects against weakness in the USDollar.
3. Gold is a hedge against inflation (2030’s).
4. Gold is a hedge against deflation (2040’s).
5. It protects against political uncertainty.
6. Demand is increasing.
7. The price is rising because of production and supply constraints.
8. Gold acts as a rare (uncorrelated) portfolio diversifier.

 

 

A bear market occurs, on average, one year out of every five; this bear is old and tired and it naturally wants to go back into hibernation.  So, what is the biggest problem facing investors today?  I’ll say it yet again for all of those who didn’t believe me months back: the problem is not “waiting for the bottom.”  The biggest current problem is what to do with all of the extreme opportunities existing in almost ALL asset groups.  Do you tie up investment account money holding bonds when equities are showing so much strength?  Which assets to buy when so many look so good??

MarketCycle is basing its equity asset selection on a barbell combination of relatively lower-risk core equity assets (some foreign but mostly still domestic) balanced with stronger early cycle assets.  We also hold some diversifying alternative assets (as in gold and managed futures).  Plus we’re holding select extended-duration bonds because they are EXTREMELY oversold, offer strong current income, offer portfolio protection in case a recession does slow things down, and extended-duration bonds may finally be offering the potential for (eventual) stock like market gains.  Investors must lengthen their investment horizon, seeing what opportunities exist for the next 1-3 years, not the next 1-3 months.

 

A few quick & informative charts:

Investors are worried about potential falling corporate earnings affecting stock prices, but this doesn’t always happen:

 

The U.S. economy remains pretty strong, no matter how forcefully the Federal Reserve attempts to strangle it. (Chart courtesy of Bureau of Economic Analysis):

 

Planned job cuts, which are common in bear markets, are much lower today than they were during the Financial Crisis of 2008 and during the Covid black-swan event of 2020:

 

Investors are worried about high inflation, but inflation is rapidly falling. (Chart courtesy of the Federal Reserve):

 

And inflation is expected to fall at an even faster pace in the coming months… the grey line will likely drop to match the orange line. (Chart courtesy of Macrobond):

And finally, at this point maximum pain will be felt via missing out on the bull market rather than from avoiding any potential further downside (Chart courtesy of Sentimentrader):

 

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MARKET CYCLE  —  TREND FOLLOWING  —  MOMENTUM  —  LOW VOLATILITY  — HEDGE FUND

MarketCycle Wealth Management

 

The following is a synopsis of our annual survey of what the larger professional institutions and their big research departments are expecting for 2023.  Only two of the major institutions got 2022 correct.  Morgan Stanley and Bank of America got most of their predictions correct for 2022, although Charles Schwab and Blackrock eventually switched to bearish during the first quarter of 2022.  Most others became bearish when the market was hitting its lows in June and October… much too late to do any good.

So, below is our highly condensed version extracted from literally hundreds of pages and dozens of videos and professional-level podcasts.  Some of the newsletters from which this information is extracted are quite expensive and often unavailable to the retail investor.

Some of the predictions below offer end-of-year price targets.  I can vouch for the fact that nobody actually knows where the stock market will end the year in 2023.  I don’t know either, but I’ll freely admit the fact.  I can safely say that the very highest that the S&P-500 could go by the end of 2023 and still remain within the walls of its 14 year long trend channel is an unlikely 6000.

Last year, because we saw risk levels rapidly rising, MarketCycle predicted the 2021 top EXACTLY correct, even to the day:  S&P-500 to 4800 on the last day of December, 2021.  And while still in December, we predicted a difficult and high risk 2022.  Navigation was not easy as eveyone found out when the normally protective asset of Treasury-bonds fell sharply right along with stocks.  Falling Treasury-bond prices hurt MarketCycle’s performance for 2022.  For me, despite seeing the risk coming, 2022 has been the most difficult year of my career. 

MarketCycle called the June low along with a predicted retest a bit lower, which we then got in October.  Now we are positioned with a barbell approach of oversold cash-cow-small-caps and pure-value on one side and defensive equity and high-dividend payers on the other side.  Also of importance are our alternative assets (IE, managed futures), gold, and we recently, with trembling hands, re-purchased extended-duration Treasury-bonds.  Our prediction going forward into 2023 is for continued volatility that soon emerges into an obvious cyclical stock bull market that lasts for the next 6-ish years (with one big speed bump in between).  We now predict (and are positioned for) a sideways USDollar and oil… and rising quality bonds and high-yield bonds, rising small-cap and value stocks and falling commodities, but rising gold prices.  MarketCycle feels that the bottom is likely in (even though this opinion seems to make people angry).  We see inflation continuing to fall in a zig-zag pattern as stocks and bonds continue to rise in a similar zig-zag pattern.  Nothing moves in a straight line, even the light-beam coming out of a flashlight moves in waves.

You know that the bottom is in or nearly in when you see the following taking the lead:  small-cap stocks, value stocks, high-beta stocks, high-yield bonds, Treasury-bonds and gold bullion.  That is all happening right now.  And we clearly had a capitulation, that everyone else missed, and an October re-test of the June lows.  So…

MarketCycle led the pack in predicting rising inflation, peaking inflation and falling inflation.  We expected a tiny bump up in inflation to show up in either the December or January data release and we may have already gotten this since “services” (a large segment of inflation) moved a bit higher in December even as everything else fell.

Current INFLATION stats:

 

Those calling for a hard-landing recession and thus lower stock prices are not taking into consideration how incredibly strong the U.S. consumer is.  This chart shows the historically low consumer TOTAL debt obligations as compared to their household disposable income level.  The averge consumer is still flush with cash.

 

As the much respected Ed Heyman of Evercore recently quipped:  “The ability to know the future is difficult.”  I would add that it is impossible to predict tops and bottoms and it is equally impossible to time the market.  But people always get the wrong answers because they always ask the wrong questions; this problem is constant, continual and pervasive.

The correct question? = How does one quantify risk?  One can fairly accurately predict that risk is either increasing or decreasing because math quantifies data.  If one gets less aggressive when measurable risk is high and more aggressive when measurable risk is low, then it accomplishes the ultimate goal of determining tops & bottoms and timing the market.  In mid-December of 2021, MarketCycle saw risk rapidly increasing; the market topped on the last day of December.  During just the past 20 years, MarketCycle correctly (and with zero false signals) saw risk rising in mid-2000, late-2007, late-2011, 2015, late-2018, early 2020, and late-2021.  Bear markets always arrive during times of high risk.

 

 

So, drumroll please…  here are the new institutional predictions for 2023:

 

GOLDMAN SACHS:

1. End-of-year S&P-500 target = 4000 or higher
2. Flat earnings and flat stock market (and likely no recession) in first half of 2023, but a strong second half.
3. Only a 30% chance of a recession and if we do get one, it will be very mild.
4. Hold defensive stocks along with healthcare and energy.
5. Cautious on China in 2023.
6. Inflation to remain very elevated in Europe.
7. U.S. leads in relative strength.

 

CHARLES SCHWAB:

1. “Mild, gently rolling recession sets stocks up for a better second half of the year as inflation receeds.”
2. Consumer may weaken in 2023.
3. Continued volatility in first half of year.
4. Concentrate on cash-strong small-caps, dividend payers, low volatility and quality.  Equal-weight indexes will beat market-cap (IE, RSP to beat SPY… QQEW to beat QQQ).
5. Bullish on bonds.

 

EVERCORE (Ed Hyman, voted #1 Economist for the past 42 straight years via Institutional Investor’s Annual Survey):

1.  Mild recession during the first half of 2023, but stronger second half.
2. “The Fed has already done most of its work.”
3. “Inflation is falling, including rent, shipping rates and consumer services.”
4. Weak housing in 2023.
5. “The stock market is oversold, has already bottomed and is now heading higher.  There may be one temporary and relatively mild pullback early in the year.”

 

RESEARCH AFFILIATES:

1. Cam Harvey, the “Godfather of the inverted yield-curve,” has recently stated:  “Do I expect a recession in 2023?  No, and there are three reasons:  1) A labor shortage causing high employment to be normalized  2) The yield-curve is still positive & steep in real (inflation adjusted) terms  3) The current yield-curve popularity may negate its efficacy as a forecasting tool this time around.”

 

RAYMOND JAMES:

1. “Although there is a certain amount of uncertainty, we are now seeing a more compelling risk/reward profile for both stocks and bonds.”
2. “We are seeing strong signs that the peak of inflation is likely behind us, with pressures moderating rather quickly.”
3. Bullish on both bonds and stocks.

 

HENNESSY:

1. End-of-year Dow target = 40,000
2. “There is cash everywhere.  We see $7-Trillion in cash on the balance sheets of the S&P-500 companies.  We see $10-Trillion sitting in money market funds.  We see $18-Trillion with consumers in bank savings accounts.”
3. “Earnings growth is still positive.  The S&P-500 is more reasonably priced.  We see a 16% gain in 2023.”
4. Bullish on value stocks and small-cap stocks, financials and energy.  

 

NATIONAL BANK:

1. Mild recession in first half of 2023 and bullish on second half.
2. Strongly bullish on extended-duration Treasury-bonds and defensive sectors of the stock market as well as pure-value stocks and cash-cow small-cap stocks.
3. Bonds and alternative assets (as in managed futures and long/short) may prove to be more profitable than stocks in 2023.
4. U.S. to continue to lead in relative strength, followed by Canada.
5. Inflation to continue falling.
6. Sideways USDollar.
7. Mild recession early in 2023, but stocks to rise before the next interest rate cut.

 

DWS GROUP:

1. “In view of the higher interest rate level, bonds are significantly more attractive than in 2022.”
2. Bullish on U.S. stocks, emerging market, India and China.
3. Small-caps, value and REITS and bonds should lead.
4. Bullish on alternative assets such as ‘managed futures’ and ‘long/short equity’.

 

FIDELITY:

1. “We do not expect any significant downtrend for 2023; stocks may instead follow a sideways path.”
2. “With interest rates high, bonds may provide a better support to investor’s portfolios in 2023 than they did during the past year.”
3. “There may be some risks on the horizon that could rock investor’s boats in early 2023.”
4. For 2023, hold value, small-caps and add some foreign exposure if the USDollar continues to slide.
5. Quality bonds will add ballast to portfolios.  

 

JEFFERIES:

1. End-of-year S&P-500 target = 4200
2. Bonds gaining in strength as year progresses.
3. Stocks volatile until mid-year.

 

BNP PARIBAS:

1. “We expect a weak 2023.”

 

WELLS FARGO:

1. End-of-year S&P-500 target = 4500
2. “Play defense.”
3. Weak first half of year with a very mild recession, strong second half.
4. Weaker USDollar.
5. Gold to move sideways.
6. Favor U.S. stocks, quality and defensive now, but shifting to cyclical during second half, including energy and healthcare and even tech.  Prefers small-cap and mid-cap stocks. 
7. Hold extended-duration Treasury-bonds now.
8. Strongly suggests holding alternative assets such as managed futures and long/short equity.

 

BANK of AMERICA:

1. End-of-year S&P-500 target = 4000-4600
2. “Stocks flat as corporate earnings slide but strong consumer and corporations limit the downside.”  Second half very strong.  “Remember that stocks move many months ahead of the economy, so buy stocks during the first half of the year.”
3. Volatilty remains high.
4. Inflation falls to 3.2%. 
5. Buy small-caps, defensive sectors and energy.  Avoid large-cap stocks.

 

BARCLAYS:

1. End-of-year S&P-500 target = 3675
2. “We see the potential good news, but we still believe that it is all a low probability event.”

 

MORGAN STANLEY:

1. End-of-year S&P-500 target = 3900
2. Weak first half of 2023 because of weak earnings, but then a strong second half.
3. Hold defensive sectors, healthcare, energy and quality stocks.  Avoid large-cap stocks and the technology sector.

 

BLACKROCK:

1. Weak first half of 2023; strong second half.
2. Inflation falls, but stays higher than the Fed’s expected 2%.
3. Buy Treasury-bonds but keep to the short-end and overweight quality corporate bonds on the longer-end.

 

FUNDSTRAT:

1. End-of-year target for S&P-500 = 4750
2. Very bullish on equities.
3. “Inflation down and Fed quits.”
4. “If any recession, it will be a soft-landing.”

 

INVESCO:

1. “We will see more clarity in 2023.”
2. “The bottom is already in.”
3. “We’ve already priced in a recession.”
4. Inflation will fall in 2023.
5. Very bullish on both U.S. government bonds and corporate high-yield bonds.
6. Bullish on gold and U.S. REITs (Real Estate Investment Trusts).
7. Suggests a regional barbell approach to equities:  United States & China.
8. Very negative on commodities other than gold.
9. Suggests adding cyclical U.S. sectors and factors, especially small-caps and value stocks.

 

WISDOM TREE (via Dr. Jeremy Siegel):

1. Inflation is rapidly falling, but food and energy are a bit sticky.  The first rate cut will come in the second half of 2023.
2. Unemployment will continue to deteriorate as the Fed raises rates.
3. We may avoid a recession.
4. “I think we’ve already seen the lows in June and October.  Even a recession would not cause us to hit new lows in the stock market.”
5. Market surprises are likely to be to the upside (bullish).

 

VANGUARD:

1. “If there is a recession, it will be a soft-landing.”
2. Bullish on bonds.
3. Favors U.S. equities particularly small-caps and value.
4. “Small-cap stocks are way undervalued.”

 

FIRST TRUST:

1. “The Fed will pause in early spring and cause stocks to rise again.”
2. Commodities and USDollar weak.

 

FRANKLIN TEMPLETON:

1. “Bond markets are already improving; they will show attractive returns even in early 2023.  It will take a bit longer for stocks to find their footing… likely in mid-2023.”
2. “Bonds will, going forward, privide ballast to portfolios in 2023.” 

 

YARDENI RESEARCH:

1. End-of-year S&P-500 target = 4800+
2. The economy is in too good of shape to enter a full recession; we’ll get a soft landing.
3. Fed eases in late 2023.
4. Bullish on energy, financials and later on technology.

 

JP MORGAN:

1. End-of-year S&P-500 target = 4200
2. “We see a retest of the 2022 lows, but they will hold.  Strong second half of the year”
3. Hold defensive sectors, healthcare and energy.
4. Treasury-bonds to be strong in 2023.
5. Strong China.
6. Bullish on gold.
7. Weak emerging markets. 
8. Sideways USDollar.
9. Managed futures and long/short continue to help portfolios.

 

OPPENHEIMER:

1. “Double digit stock market gains in 2023.”
2. Slowly work into holding cyclical stock sectors.
3. “There will be no noticable recession.”

 

LEUTHOLD GROUP:

1. Bullish for 2023.
2. Sees the Fed as being done and that they will drop rates in the second half of the year.
3. Falling yields will help Treasury-bonds.
4. Falling rates and commodities will help to stimulate the stock market.

 

CREDIT SUISSE GROUP

1. End-of-year S&P-500 target = 4050
2. “A year of weak, non-recessionary growth and falling inflation.”
3. Buy Treasury-bonds.
4. Barbell approach of defensive sectors and cyclicals.

 

UBS:

1. End-of-year S&P-500 target = 3900
2. Predicting a U.S. and global recession.
3. Hold defensive sectors and quality stocks.

 

RUSSELL INVESTMENTS:

1. “U.S. equities offer the best outcome with limited downside.”
2. Emerging markets will do well, but only if China releases significant stimulus.
3. Bullish on bonds, especially on U.S. Treasury-bonds.
4. Commodities to move lower, USDollar to move sideways, REITS to move up.

 

DOUBLELINE:

1. Expects the Fed to overshoot and raise rates too high, which causes a weakened economy and rapidly falling inflation leading to actual deflation, which makes bonds a stronger asset than stocks in the first half of the year.

 

LPL RESEARCH:

1. “Low chance of a recession and if we do get one, it will be mild.”
2. Falling inflation.
3. Housing market begins to rebound in late 2023.
4. Bullish on bonds.
5. Bullish on stocks in second half of 2023 with a 17.6% gain expected by the end of the year.
6. Prefer U.S. stocks, small-caps, value, defensive and healthcare.

 

RIVERFRONT:

1. “2023 will transition into a new stock bull market, but some additional bumps first.  Bull markets usually have ‘false starts’.”
2. U.S. stocks will lead in relative strength.
3. Small-caps, value and dividend stocks will lead.
4. Bullish on bonds, especially government bonds.

 

RBC ROYAL BANK:

1. End-of-year S&P-500 target = 4100
2. Choppy market in 2023.
3. Any retest of the 2022 lows would hold.

 

DEUTSCHE BANK:

1. End-of-year S&P-500 target = 4500
2. Quick recovery in the second half of the year, after recession.
3. Suggest cyclical stocks for second half.

 

CITI GROUP:

1. End-of-year S&P-500 target = 4000
2. Mild recession caused by poor earnings, but still buy during the first half of 2023 since stocks move ahead of the economy (and recession).
3. Do not overweight U.S. stocks because the U.S. will be the last into recession, buy overseas.
4. Healthcare and materials.
5. Winner = China equities.

 

ISHARES:

1. Bullish on stocks, particularly the United States, small-caps, value and the healthcare sector.
2. “Investors should just continue adding bonds to their portfolios in 2023.”

 

STANCHART (Standard Chartered Bank):

1. Fed cuts rates by 2% by end of 2023.
2. Commodities down and USDollar down.
3. Gold up to $3070 per ounce.

 

BMO:

1. End-of-year S&P-500 target = 4300
2. Recession is barely noticable.
3. Hold U.S. stocks especially small-caps, value, financials and healthcare.
4. Any retest of the 2022 lows would hold.
5. “The market cares more about falling inflation than it does about any slight earnings misses.”

 

 

Our 2022 CHARITY:  Each year, I take a good-sized chunk of the money received from the management fees of client accounts and give it to one charity… community playgrounds, needy children, etc.  This year a check was written to the Natural Resources Defense Council.

 

FOX MOUNTAIN RETREAT:  Clients are allowed to stay in our Airbnb, one time, for 3 days at no charge (and bring a group of up to 5 total).  I’ve not met the majority of my global clients, so this is a chance for us to meet.  This peaceful retreat house is on our property in Charlottesville, Virginia.  The retreat house is also available via Airbnb so clients must contact me directly and I will x-out the dates at Airbnb so that nobody else can book them.  Some Airbnb guests just use it as a place to sleep in order to attend events in the university town of Charlottesville, but my hope always is that guests will use it as a chance to go into peaceful retreat.

WEBSITE:  https://FoxMountainRetreat.com/

Airbnb listing:  https://airbnb.com/h/FoxMountainRetreat

 

 

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MARKET CYCLE  —  HEDGE FUND  —  DUAL MOMENTUM  —  TREND FOLLOWING  — LOW VOLATILITY

 

MarketCycle Wealth Management

Brief Blog About Bullish Breakouts 

 

This blog was written on the morning of Thursday, December 1, 2022.

Educated investors perform their job via fundamental analysis (looking at recent but still past economic and corporate data), or via technical analysis (looking on price charts for repeatable current patterns and possible future patterns, etc.) or, like me, they do a combination of both.  Part of my extremely long ‘education’ was in learning which incorrect indicators and systems to avoid (90%?) while creating an entire proprietary system of accurate in-house indicators.

As I’ve repeatedly stated, much of technical analysis only works because millions of traders all across the globe believe that it works and when they see something important occur, they all move in unison, like a school of fish, thus creating a self-fulfilling prophecy.

This week has already been an important week for technicians.  When an asset, on its price chart, breaks above overhead resistance created by a trendline or by a prior high, then it is often “off to the races” for the now bullish asset.  After breaking through an important overhead resistance line on a price chart, it almost always moves back down to retouch the same line from above, confirming that the same line is now a support line.  And if it fails to break through overhead resistance, this is often telling the story of a possible pullback, as we just saw with the USDollar.

Please note that all strength, as I’ve been repeatedly saying, is in the United States.  The rest of the world’s economies are falling apart.  One should always invest where the strength is.  Our indicators say that the U.S. may get a mild recession in 2023 but that it most likely is a soft landing that affects the economy and only minimally affects the stock market.  I still believe that we have seen the lows of this bear market.  We might get a temporary and relatively mild pullback in February(?) before heading higher again.  Bears don’t live forever… this one is already gasping and grasping for its last breath.

With investing, if you want to wait until you feel good about the economy, then you are likely going to leave a heck of a lot of money behind and in someone else’s hands… stocks lead the economy by about 9 months.

 

IMPORTANT BULLISH PRICE BREAK CHARTS:

The Dow stock index has broken above its trendline, broken above its 50 day moving average, broken above its 200 day moving average and now it has broken above the prior high created during the mid-summer of 2022 (see the green arrow).  Higher-highs are very bullish.  [NOTE: This chart offers a pretty clear image of investor’s totally overblown fears during 2022.  Right now, the 2022 bear market (that started on January 1st) looks fairly insignificant.]

 

On Thursday December 1st, the S&P-500 stock index followed the Dow by moving above its one year long trendline (see the green arrow); it had been unable to do this during the two prior advances in March and August of 2022.  The S&P-500 has finally broken above its moving averages.  This line break is bullish for stocks even if it pulls back in the short term.

 

Corporate bonds, bonds issued by corporations and paying interest, have recently also broken above their downward sloping trendline (see the green arrow).  This is bullish for corporate bonds.  HIgh yield bonds are likewise now showing strength.

 

Government issued Treasury-bonds normally offer portfolio protection.  When stocks go down, they usually go up.  This hasn’t worked so far this year, which is unusual because even during the decade long stagflation period of the 1970’s, they substantially beat stocks in price gains.  I have to constantly remind myself that there are a lot of inexperienced traders influencing today’s markets, so now things can play out differently.

T-bonds have now broken above their year long downward sloping trendline (see the green arrow).  This is bullish and it is very important.  Portfolio protection that pays interest and offers price gains; insurance that pays us to hold it.

 

And finally, as I predicted, the USDollar was NOT able to move above its trendline and this is somewhat bearish for the USD.  However, the bearish USDollar may prove to be a bullish tailwind for both U.S. stocks and for U.S. bonds.

 

Thank you for reading!

MarketCycle Wealth Management is in the business of navigating our client’s investment accounts through rough waters.  We strive hard to earn our keep.

Our REPORT subscription service is available via the link on this website. 

 

 

MARKET CYCLE  —  TREND FOLLOWING  —  DUAL MOMENTUM  —  LOW VOLATILITY  —  HEDGE FUND

MarketCycle Wealth Management

 

A Turbid Crystal Ball

The gaze is not crystal clear, I freely admit that I might be wrong, but the following are my “predictive” thoughts about 2022 and 2023:

1. Normally, a new cyclical stock bull market can only begin after the Federal Reserve has halted all interest rate increases and right now they are still raising rates, but like much else about the recent bear market, this time it might behave very differently.
2. Back in December of 2021, MarketCycle correctly called the higher risk period of 2022.  I felt that the market would eventually bottom and that months later it would retest by going a bit deeper than the first bottom.  This happened.  I have to admit that the downdraft went deeper than I had expected.  Now the ‘always behind the curve’ Federal Reserve may cause the turmoil to last longer than I originally expected, although the stock market may now, over the coming months, gyrate “sideways and up” rather than just down.
3. Way back in the Spring of 2020, MarketCycle was perhaps the very first to predict the high inflation period that was headed in our direction.  After 40 years of falling inflation, this was an important call.
4. I also correctly called the inflation peak before just about anyone else.
5. I called the stock market bottom in June of 2022.  People likely think that this was a bad call, however the vast majority of stocks did, in fact, bottom in June.  I still believe that this prediction will prove to be technically correct.
6. The market has now completed its normal “third leg down” (per prior blog) and excessive “margin” (borrowed investing money) has slowly worked its way out of the system.  I now feel that the Federal Reserve will “talk down” the stock market whenever it gets “too strong” and this may cause some sideways swings before the stock market fully grabs its cahoonas and just heads up to new record highs.
7. Regardless of the recent and temporary crypto-currency Black Swan event(s), I believe that the larger and more important cryptos will move higher as risk is once again slowly embraced.  Before the Black Swan event, crypto had been basing sideways for 6 months right at strong support; it was getting ready to head higher again.  Now, it may head a bit lower before strongly moving higher again.  Bitcoin is not an investment, it is a speculation that still has the potential to offer gigantic profits via holding only a tiny portfolio position.  MarketCycle has figured out how to capture the price spikes and this has now made bitcoin of interest to us.  Bitcoin and ethereum base sideways and then spike and then fall… base sideways and then spike and then fall… base sideways and then spike.  It looks a bit like an EKG.
8. MarketCycle correctly predicted the rush up and then the peak of the USDollar (where we sold our USD position on the week of the peak).  I now expect the USDollar to move mostly sideways and very slightly down (and this will not offer a good ‘shorting’ opportunity).
9. I am now calling the bottom in Treasury-bonds, although it might be a messy bottom.  Extended-duration T-bonds may soon provide higher tax-free interest, much lower risk and they will now likely move higher whenever the stock market moves down, offering important portfolio protection.
10. I expect gold to continue to gain in strength as the USDollar weakens.  By the 2030’s, investors will fully realize the importance of gold.
11. I expect commodities to continue to move lower, but for food and energy (and diesel) to take longer to move down.
12. My feeling is that, over the next couple of years, stock market strength will be found in small-caps, cash-cow stocks, pure-value stocks, financial sector stocks, healthcare sector stocks and high-dividend stocks (not dividend-growers and not utilities).
13. The United States should continue to lead in relative strength for the next 6-7 years.
14. I now feel that a recession will be “randomly called.” MarketCycle’s main recession indicator has recently triggered.  Any recession may be an inch deep and a mile wide and it might have only a minimal effect on the stock market but a broadening negative effect on the economy and on the housing market.  Remember, the stock market and the economy are not the same things; the stock market moves roughly 9 months ahead of the economy, both up and down.  If one waits for the economy (and one’s emotions) to improve before investing in stocks, then nine months of strong profits have already been left behind.  People repeatedly buy at the market top and then sell (or buy protection) at the market bottom, the exact opposite of what they should do.
15. Nothing in investing moves in a straight line, everything zig-zags.  MarketCycle’s inflation indicators have signaled that we might get an uptick in the inflation data (perhaps in December but more likely) on January 12th and if so, this could cause the Fed to move 0.5% on February 1, 2023 instead of the expected 0.25%… and if this all plays out, then it could cause a temporary & tolerable dip in the stock market.
16. 2023 will likely be “the year of recapturing new highs.”  The Dow, which is leading the market higher (just as it did after the year-2000 “dot-com” bust) will soon recapture its pre-bear-market highs.**  Small-caps will eventually follow suit, especially “pure-value, cash-rich small-cap stocks.”  This is why our barbell approach has been working so well… defensive (Dow) on one end of the barbell and aggressive (small-caps) on the other end.
17. ** The Dow stock index has now moved above its bear market trendline, above its 200 day moving average and as of Friday, November 25th, it has now made a bullish “higher high” by moving above the prior bear market peak.  The S&P-500 and the Nasdaq-100 are being held back because of their high technology-sector holdings; whatever leads in the prior cyclical bull market will not lead in the next.  NOTE: Some investors make trading decisions based on the activity of the Nasdaq stock index, but this is a mistake because the Nasdaq very often lags the general market, sometimes for a decade at a time.
18. Right now we are entering the historically strongest period of the stock market year at the same time that we have reached the strongest two years of the Presidential Cycle.  The most profitable period during any new cyclical bull market is always during the first two years off of the bear market bottom (when stocks are being offered at incredibly low prices and risk is naturally lower than it is at a market top).  Quality stocks are currently cheap and quality bonds may be even cheaper.

The stock market always moves higher despite the temporary corrections that cause markets to zig-zag around their median price.  The below chart shows the S&P-500 stock index over the past 122 years (since the year 1900).  The market gets too strong and it moves too high above the median trendline and then it corrects to or below the line in order to let off the excessive pent-up steam… then it moves higher again.  ALWAYS.  And the general stock market “trend direction,” as you can see below, is always UP over time.  This is why it PAYS to invest in stocks (partial ownership in a corporation)… where you share in the profit gains generated by the corporation and where you can also receive continuous dividend payments directly into your investing account.

All stock market corrections and bear markets are TEMPORARY occurances that occur during all Secular bull markets.  Avoidance is not the answer.  The only investing technique that anyone needs to deploy during these temporary & difficult periods is: PATIENCE

 

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Three Legs Down and Bottoming

 

Three seems to be the magic number.  You know the old saying:  “Third time’s a charm.”

This posting explains what normally happens in a bear market, but as I’ve said in recent articles, this bear market seems to have a deep desire to fool people even while still sticking to the normal bear market pattern of three legs down.  Eventually a new multi-year bull market arrives that contains three prolonged legs up.  Most investors, even professionals, appear to be oblivious to the fact that market cycles almost always move in three stages up and then three stages down.  The problem for even knowledgable investors is that you don’t know in advance whether you’re going to get a common one-legged market correction or a deeper three-legged bear market until you’re half way through the process.

We’ll soon know how it all plays out in this most recent bear market, but we appear to have already survived the third leg down as shown by the big blue “X’ on the “2022” chart below. 

Bear market corrections serve the process of cooling-off an overly heated stock market.  2021 was a rip-roaring year and 2022 came along to let off some of the pent up & excess steam.  This will now (or soon) allow the bull market to resume.

Bear markets seem to almost always have three legs down:  

1. The initial bear market drop is caused by the riskiest portions of the investment markets selling off:  small-caps, high-yield junk bonds, transportation stocks (because shipping is slowing down), always over-valued technology stocks, consumer discretionary stocks because consumers naturally pull back from buying non-necessity items.  This first leg down is followed by a big bounce up in stocks.
2. The second bear market leg down is caused by commodities selling off from their overly high valuations and this further pulls the stock market down.  This second leg down is followed by a big bounce up in stocks.
3. The third leg down is caused by a combination of investor panic followed by brokerage panic causing the brokerage houses (like Interactive Brokers) to call back margin-loans (margin is money that is borrowed from a brokerage with the sole purpose of adding it to one’s investment account assets).  This strong third leg down, during which the safest mega-cap stocks are finally sold, is followed by a bottoming process and then it is always followed by a prolonged and powerful and profitable bull market.  Always.

The current bear market has already experienced three legs down.  It has likely now either already hit its bottom or it is currently involved a sideways multi-month bottoming process.  Either way, we are likely at or near the end of the bear market, not the beginning.  Good times will ultimately re-emerge.

[During a bottoming process, the assets that normally perform the best are:  cash-cow-small-cap stocks, select low-volatility stocks, financial sector stocks, healthcare sector stocks, consumer staples sector stocks, select high-dividend stocks (not dividend-growers), pure-value stocks and gold.  This asset information is certainly worth the price of this free blog.]

We need to forget about “recessions.”  This time around we are likely to get a milder “profits & growth recession” and much of this will have already been priced into the market during its third leg down.  The Federal Reserve will attempt to force a prolonged bottoming process in order to further and more quickly reduce inflationary levels; they are the wild card.  Markets went through a classic sideways bottoming process during the past two big bear markets of 2000 and 2008.  For people with even a small amount of patience, this bottoming process is tolerable and it will eventually be forgotten when the new bull market begins its strong upwards march.

Normally, during the first year of a new cyclical bull market off of a bear market bottom, the stock market moves quickly higher, like a rocket… rapidly recouping any losses and generating fresh profits.

 

The following chart shows the bear market of 2000… three legs down and a sideways bottoming process:

 

And this next chart shows the bear market of 2008… three legs down and a sideways-and-down bottoming process:

 

And this chart shows the current cyclical bear market of 2022.  I expect this bear market to be milder than those in 2000 and 2008 because we are also in an overlapping Secular stock bull market that likely won’t end until around 2029.  But this one is already showing three perfectly executed legs down (see the blue “X”) with a bottoming process that is likely either completed or entering into a multi-month bumpy period (moving mostly sideways, but it could briefly dip down again like it did in early 2009).  In my opinion, without the recurring and well-timed trash-talk by the Federal Reserve, a brand new multi-year cyclical bull market would already be rising and unstoppable.  Perhaps it technically already is.

 

 

 

And for my final comments:

Investing is investing; it is not gambling.  In investing you win; in gambling you lose.  A long term chart of gambling would be choppy and downward sloping because gambling is a gamble.  But owning stocks actually means that you are a partial owner of a strong and normally profitable corporation; it is an investment that, over time, pays continually and steadily via price gains and dividends.  If you own H&R Block stock, you can absolutely claim to be a partial owner of H&R Block corporation.  Of course, for safety reasons, investors always divesify amongst many stocks; if you own 500 stocks and one goes bad, well, who cares.

This final chart (below) shows the stock market profit path over the past 122 years.  Stocks move above the orange median-trendline and get overheated and then they have to move back towards the orange median-trendline to cool off, as they just did in 2022.  They only move and stay BELOW the orange median-trendline when stocks are also in a Secular bear market, as they were during the 1970’s and the 2000’s and that is not happening now (we are currently in a Secular BULL market that likely runs from 2011 to 2029).  [“Secular bull” just means that the over-riding tendency is to move higher for longer regardless of any temporary corrections and bear markets and recessions.]

While they do zig-zag as I often repeat, they ultimately just keep going higher because stocks are INVESTMENTS, they are a piece of the action, they are YOUR piece of the action.

Bear markets are common but they never last long; the stock market is primarily bullish and that is clearly seen on this 122 year long stock market chart; it just keeps going up.  Gambling is 50/50 at best, for example you have a better chance of being abducted by Martians than you have of winning the lottery, but people that invest are clearly ALWAYS rewarded over time. 

$1 invested and held in a stock index starting at the very beginning of this chart (in the year 1900) and held until today would have generated a gain of 8,727,946%.  You could buy Europe with that amount of money.  lol

Stocks can earn in one day what a “safe” money market fund can earn in one year.  MarketCycle’s stock positions did this on Friday.  In just a few months, stocks can earn what a money market fund would earn during an entire human lifetime.

My point is that if investing were gambling, then this PROFIT line would not only go in one general direction, which is up.

 

SUMMARY:  Bull market coming back soon to a neighborhood near you.

 

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MARKET CYCLE  —  TREND FOLLOWING  —  RELATIVE STRENGTH  —  BEAR MARKETS