This article is long and perhaps even tedious. Forgive me for that. There’s a lot I want to cover.
I know things look like hell in a hand basket at the moment, but I think things are proceeding according to my expectations. I also know that it’s been frustrating the last few days as the market capitulated, but I have not been interested in that because—to my mind—that is chasing into a low, and much like chasing into a high presents us with great danger, so does, I believe, trying to catch every inch of this move down we’ve had. I think we’re bottoming, and that can reverse sharply at any moment, and I’m in no mood to be caught in that.
I could also be wrong here, and I will be the first to own that if I turn out to be. But, looking at things as a whole, it seems to me as if half the people who are freaking out about their belief that the Fed has no options here have never actually lived through a rate hike cycle before.
The chorus identifying today with the likes of 2008 seems to me to have not actually lived through that as an adult. This is literally nothing like that. By 2008, people were defaulting on their mortgages in droves and the banks were already starting to crack. Literally the biggest financial giants in the world were crumbling. It was a literal catastrophe. Nothing like that is happening here. At worst, so far, the rate of change of growth has slowed. But we’re literally still growing. And the banks are flush with cash. No stress there whatsoever. And while prices may be a bit high by some measures here, they may not be that high (see my section on prices in this article).
So, if the Fed has to hike quickly to combat inflation, it may eventually have an impact. But keep in mind, in 2008, the Fed was already two years into a hiking cycle. We’ve hardly even had a hike at this point (I covered the timing of hiking cycles and market tops in the second section of this article). Based on that, and the shocking sentiment readings we’re getting here, I think we may have years before we top.
In addition to the points made about sentiment here, where 2 of the worst 23 “bull percent” readings were discussed, we now have 3 of the worst 24 “bull percent” readings, and even better now, the “bear percent” reading this week was the 5th highest ever.
We are right now experiencing a total sentiment washout.
If we were having this price action this year, and everybody interpreted it as a nice, healthy correction, eagerly anticipating new highs, with sentiment surveys bursting with joy and excitement, it’s time to be bearish. But right now, same price action (“every rally fails for months”) and people are calling for Armageddon. In my opinion—and I may be proved wrong about this—I believe this is setting us up for an opportunity that only comes to us a few times in a lifetime. Mid-nineties sort of rally material is possible to us here.
I know we’re all enjoying making fun of David Hunter and his ad nauseam melt-up call, but he is effectively right. Bear in mind, the man has been in the markets for decades, and he is basically right regarding sentiment. We’re nowhere near a euphoric high. He’s right about that, I think, and yes, it is funny that his wanting to make the big call keeps getting stuffed in his face. That actually serves his call well now, as now that he’s become a meme, people will laugh at his next melt-up call, and I bet that’s when we get it.
The other day, I referred to a structure on Apple and I want to discuss it at greater length here.
This channel, despite moving “up,” is still effectively “consolidation,” because of its choppy nature:
Read more “Next Major Targets for the S&P 500 and the Psychology I Think Will Accompany Them”