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I can see intelligence flowing all throughout this marvelous world, a sort of “Universal Intelligence.” Perhaps this is what gives us our “Innate Intelligence.” I mean, how in the world could we take two half-cells from two different people and create a new human being, compete with a liver and lungs and arms and eyes… and a brain. It all appears to be potential perfection, but it is not perfection. If this world were perfect, it would also be extremely boring. We need continual spice for the plot; if we do not have any negativity, we will just create some. This is by design. We wonder how “bad” things can happen, but we need a combination of both good and bad; the yin and yang. We need the interdependence, the balance, the day-and-night. We need spice for the plot, and ultimately, only that inclusion offers perfection.
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The market needs pullbacks and corrections, negative spicey events, in order to maintain its perfection. It is just that simple. The problem is in dealing with our emotions, our expectations, and expanding our viewpoint so that we can more correctly see the truth from a distance.
Right now, we are still in a 20 year-long Secular bull market with 2-4 years left to go (the recent democrat win will likely prolong the bull market). There is a profitable bubble forming that may (I have to add “qualifiers”) drive this stock market to astronomical highs, out and above its own trend-channel. We are still early stages in the AI Bubble despite many having already given up on it entirely. The famous Stanley Druckenmiller recently said: “When you see a bubble starting to form, you don’t run, you instead buy with both hands and hang on.”
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But near term, we get “spice for the plot.” In May I predicted an extended high-risk period (and soon put some protection on accounts) and we got a 5-month sideways chop. Then in October I stated that the market was further weakening and that it would remain weak until shortly after the U.S. election (and I raised an additional 8% cash)… and we then got Thursday’s big downdraft.
On Thursday, we touched the (closely watched) 200 day simple-moving-average in both the Nasdaq-100 and in the S&P-500; it is unusual for both to do so on the same day. The S&P-500 could still drop down to around 7250 (orange dashed line below) or perhaps we already hit the “V” bottom. Technology will strengthen first (NDX-100), before the general market (S&P-500). I currently do not think that the S&P-500 will hit the red dashed line, but I don’t control that. Regardless, in my opinion, the market will soon move higher… and then much higher… and then much, much higher. As Forrest Gump would say: “Sideways markets happen.” It is important to understand what we have been going through for the past 1/2 year is a STEALTH BEAR MARKET that everyone has missed.
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There appeared to be no clear capitulation on Thursday; which is what occurs at correction bottoms. The final fearful investors sell as a group; the market spikes down, and then the few real pros move in to take their money.
While there has been no clear capitulation, several equally important things have happened.
Leverage and margin (money borrowed from a brokerage for investment purposes) both blew up. Multiple hedge funds blew up (will shut down); margin was called-in even for many retail investors (“margin” always blows up, it is like a bomb and I will not allow clients to use margin). This “margin-call” caused the giant single day drop on Thursday (November 5th). This is a sort of capitulation… see the red dot below:
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And also on Thursday, a record amount of protection was purchased for portfolios all across the globe… note the red dot far upper right. So, the “short” position in stocks is even greater now than it was when I wrote my prior blog on a potential “short-squeeze coming.” This massive purchase of portfolio protection is also a sort of capitulation, indicating that a market bottom is here, or close. Investors normally buy protection after it is too late to help.
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Since June 1st, most of the selling has been in the leading sector of technology and AI, but technology is now at a P/E (price-to-earnings) of 16.9 which means that technology is suddenly being offered at a very deep “bargain-price” discount. The remainder of this bull market will be centered around technology and AI despite what the naysayers believe (but it is still ultra-important to diversify). The technology sector P/E is at 16.9, which is very cheap considering that we are STILL in a Secular bull market that is centered around tech.
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Bonds are dangerous and they have a LONG way to fall over the coming 15 years; they will likely eventually reach 1981 levels (far left) or perhaps even lower. Bonds are bombs.
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Gold appears to have bottomed. It made a bottom in June, but then decided to retest that bottom. Gold is ultimately going much higher.
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The U.S. Dollar will likely continue to gyrate sideways within a range (purple horizontal lines) for the foreseeable future:
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Our Inflation/Deflation Indicator shows that inflation is still winning; it is currently being caused by President Trump’s tariffs and war costs and by the extreme level of spending and money printing. This proprietary indicator is designed to only show direction and not the amount of inflation; importantly, it changes 2-3 months BEFORE it is picked up by standard measures. This tells me that inflation will generally remain high for at least another 2-3 months. This chart also shows that inflation moved higher in mid-2025 but the Fed did not see it until mid-2026. (My greatest feat was in discovering how to accelerate the future trend of data).
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SUMMARY: Near-term = close to bullish. Intermediate-term and long-term = quite bullish. Technology is oversold and it will lead the general stock market higher. We could still reach record highs by the end of this year… it’s possible. I subscribe to FundStrat Research in order to get a second opinion from a group that thinks very differently than me, but on Friday Tom Lee sent me a notice to buy tech and sell most defensive positions. Darius Dale of 42 Macro Research is still bearish but he sees the bottom as being very close, as do I. As of publishing this article, the all-important market internals are a mixed bag of bullish and bearish with a “bullish-feeling” starting to appear. Everybody feels that the move off of the bottom will be explosive, partly because of the incredibly high “short” position (to “short” means to “bet against the bull market”). You have to be “in-it-to-get-it.” We also need a dash of patience and perspective.
Thanks for reading!
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God adding spice for the plot:
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