Here’s My Thinking Here

It’s frustrating for me to have untold legions of people criticize me for being bullish here—cautious, to be sure, but yes, generally bullish—but I continue to believe this is only a correction. Now, part of that comes with the territory of having a big account, and putting myself out there, and I accept that. But I don’t easily tolerate emotional people screeching at me, making the flawed assumption that I’m being bullish just because. I have reasons, and I’ve elaborated on many of them recently, but I thought I would bring some of the thoughts together to defend my position to some degree, so that folks know that I am—for all of my many failings—actually attempting to be rational here.

  1. We know that markets, historically, can tolerate rate hikes well, often for quite some time before a bull market ends. And we haven’t actually even seen hikes yet.
  2. We have no 10Y/2Y yield curve inversion here (though it’s moving in that direction), and even if we did, it would mean little to us here today as markets tend to top (on average) six months after such an inversion.
  3. Much of this recent selling has been news-related. Historically, news-related selloffs are almost always reversed.
  4. Historically, wars are, as awful as it is, often not as bearish for equities as we might want to presume. And it’s not even clear yet to what extent we might classify this geopolitical event as “a war,” nor to what extent the U.S. will be involved.
  5. Bear markets are most often associated with recessions. And presently, the economy is still growing, though its rate of change of growth is slowing. Now of course many, many individual names have had outright bear markets, but as far as whole indices, it’s not something we typically see without also seeing recessions.
  6. Bear markets often start on peak euphoria, and frankly, most of the sentiment data seems to point to the opposite: that since the COVID crash low in particular, sentiment has been especially bearish.

I have more, but you get the idea here. I’m not simply shooting from the hip. I am acknowledging that none of this stuff points to a market top. And thus, so far as I can conclude in advance, this appears to be merely a correction. And now that raises a new question: how big and how long? Extremely hard for me to say.

I know that the vast majority of corrections in stock market history take on the appearance of a 3-swing structure of some kind.

And so, even at the January 24th low, I could see a 3-swing move on the S&P 500, like this:

SPX

And given that, there was a chance that the correction was over then. A 3-swing move was the bare minimum requirement.

And even if we needed a “larger” degree structure, I could also accept this as the larger, more time-consuming 3-swing move:

SPX

And you might ask why on Earth would one do that, given the fresh high in the middle of the move, and in answer, it’s because of the mighty Nasdaq-100, from which we can borrow that structure (without inadvertently capturing a new high in the middle of the it):

NDX

And so that was a nice, big, 3-swing move, and so concluding that the correction was over at the January low was a reasonable one.

And even though we’re now at the January lows again, it’s still nothing but a 3-swing move:

SPX

So, in other words, though I can’t predict the precise moment it will end, I do know that at each of these stages, there has been an increased probability that it will be over sooner rather than later and I am not interested in trying to chase down the last inch or two of it. Now I was fairly bearish up the highs—for technical reasons—and all you psychos gave me hell up there, and now the opposite is happening here. I believe at any moment, a 3-swing correction may complete. And to my mind, that means this bull market is not finished yet and we should eventually head back to new all-time highs.

In the meantime, we’re enduring a news-driven selloff before any Fed hikes have been implemented without a yield-curve inversion without any signs of an imminent recession on peak bearish sentiment. Now, I’ve enjoyed some of this selling, but I’m not looking for more than what we’ve gotten. And I have reasons for that. And now you know a lot of them here in one place.

I would rather be late to a party rather than be wrong about there being a party. If we are entering a huge, big, bad bear market, there will plenty of opportunities for months and months and months to make money to the downside. So, I’m in no rush. I want to sit here and monitor the evidence before me, free from the strong emotions so many of you are allowing yourselves to be subjected to right now. The evidence I’m looking at is not telling me we’re in trouble yet, and the price action is freaking many of you out. That’s fine, do that, but please stop accusing me wrongfully of being in the hyper-emotional state that some of you find yourselves in right now. I’m looking at this evidence, I’m drawing conclusions from it, and I ask you to allow me to do that. You don’t have to agree with me on this, but if you would, please, stop constantly insinuating that I’m emotionally attached to the bullish view. That view is grounded on a wide scope of evidence. That evidence changes, and I will too.


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