Equity markets failed to stay above the February 24 lows on the rally attempt, thus producing a failed or false move. As we said in last week’s Bear Growls, “Re-establishing price above that February 24 low that sticks would add to the bull case. Failing to stay above the level after testing would add to the bear case. False / failed moves such as that have a tendency to unwind in a fast move in the opposite direction.” As we write this market note, we are seeing just that reaction.
In prior notes here on the Bear Growls, we have written about the 90-year cycle. In 1929 the market topped on September 3rd and had a major trading low after the October crash in November of that year. It was the first of five significant 20% plus failed trading rallies in that bear market before the final bottom on July 8, 1932. A difference of 1040 days top to ultimate bottom. (1040 is a biblical number)
Ninety years (cycles) later, the S&P500 topped on February 19, 2020, and the market crashed into the end of March on the COVID-19 panic. There is a major natural synodic cycle pair with 4.5 revolutions between the top in 1929 and the top in early 2020. It’s rather uncanny. That is a total of 1,620 degrees of movement in the pair. Move the decimal on that number, and we have close to a Fibonacci number of 1.618. Interesting and spooky at the same time.
The difference between these two scenarios is that in 1929 as the result of the stock crash, the Fed tightened credit, and Congress raised taxes under President Hoover, ushering in the Great Depression. But in 2020, in response to the COVID-19 virus panic, the Fed brought out the Howitzers full of cash to backstop a massive fiscal spend by Congress, expanding the central bank’s balance sheet by the trillions. The Fed saved the day in 2020.
If we move in time a similar distance of 1040 days from February 19, 2020 high, we land on December 25, 2022. Dates are important. If there is symmetry in markets and cycles, we should mark that in our trading calendar as a potential reversal point.
Now, as to our master cycle of 60 years (1962), there was a high on June 8th, a low on the 15th, a high on the 20th, with the big low for the year on June 25th (a Saturday this year). The 15th of this year is the Federal Reserve decision day. Remember this note is written a day or two ahead of Thursday’s posting.
When we refer to our Stock Trader’s Almanac for 2022, we note that the week of the 20th through the 24th shows a pronounced weakness historically over the last 20 years of the publication’s data. That observation pairs well with the master cycle.
As noted above, back in 1962, after that year’s June swoon, the S&P 500 found a low on June 25th; after that, the S&P 500 rallied about 11% into July 5th. Could something like that happen again this year if the master cycle is still operative? That is the question. Only time will tell; nothing is assured. But we will add that this year has correlated well with the 1962 model (so far).
In 1962, President Kennedy went after US Steel (a natural resource firm) as the company had instituted a painful price hike (inflation), which coincided with the first downdraft in the market. Later in the year, it was the Cuban Missile Crisis, which coincided with the second downdraft in the autumn that tested the June low. The crisis was a standoff between the Soviets and the United States over missiles in Cuba. Today in 2020, there are echoes of 1962, as the United States has an inflation problem and an administration at odds with another natural resource industry (Big Oil vs. Kennedy’s Big Steel). In addition, the US and Russia are involved in a proxy war in Ukraine, with saber-rattling by Moscow over the potential use of nuclear weapons.
Echoes through time.
What will a tradeable bottom look like in this bear market? We would like to see evidence of capitulation. That being forced selling. Margin clerks actively selling stock, usually around 10:30 & 11:30 in the morning and at 2:30 in the afternoon. A volatility index (VIX index) number above 40 that reverses back below that level. And importantly, a large bar that has a close for the session in the top 25 % of the day’s trading range (with a big demonstrable volume increase). Also a sense of hopelessness in the financial press.
Trade well and stay safe. JHS
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