ARTICLES

New Record High

As we predicted, the S&P500 reached a new all-time record high on Thursday 21^st October 2021 at 4549.78. This officially means that the correction that it was going through is over. That correction took the index down to a closing low of 4300.46 (on 4th October 2021) – which is a 5,2% decline from the cycle high of 4536.95 made on the 2nd of September 2021.

In the end, this turned out to be yet another “mini-correction”  of less than 10% - the 10^th since the COVID-19 V-bottom last year. This means that the major correction, of between 10% and 20%, which we have been talking about, is still coming.

What was notable about this correction, when compared to previous mini-corrections, was the duration of the downward trend and the sharpness of the recovery. It took 21 trading days to reach its low – which means that the bears really intended to take the market further down. They were strongly opposed by significant bullish sentiment which was evident in the “buy the dips” rhetoric and so prevented the correction from gaining any momentum. Then, when it became obvious that the bears were losing direction, the recovery was rapid – taking just 6 trading days to reach new record territory.

The bulls clearly took heart from the fact that the potentially dangerous month of October was substantially behind them, and the traditional Christmas rally was imminent. Consider the chart:

The last three days on the chart above were characterized by backing and filling as the index struggled to rise above the previous cycle high of 4536.95. The final day on the chart above was last Friday (22-10-21) which was characterized by a “long-legged doji” candle where the S&P went well above and below its opening but ended up just slightly down on the day: Consider the market action of Friday 22nd October 2021:

The intraday market action for Friday shows that there is still considerable uncertainty in the market about the new record closing high. You can see how the index, having made an all-time intra-day record high (4559.67), made a low of 4524 and then struggled to remain close to the previous day’s record closing high. The danger, of course, is that the new record high close could turn into a “double top” – which is a bearish formation. Technical analysts all over the world are now waiting to see if the upside break can be sustained and extended – or if the bearish sentiment will return to take the index down again, thus forming a double top.

You might wonder why we are so preoccupied with the minutiae of the S&P’s progress. The reason is that the stock markets of the world, including the JSE, tend to follow the S&P – so it is always your best indication of what is likely to happen. As a private investor, you need to always be watching the S&P to see where world markets are and where they are going. The direction of the S&P will establish whether you are looking at a bull trend or a bear trend. It will give you an indication of whether this just a correction and therefore a buying opportunity, or the start of a new bear trend, which would mean that you should be out of the market completely.

Our view is, and always has been, that we are in a mature primary bull trend, which is being peppered by mini-corrections (of less than 10%), but that we are over-due for a major correction of between 10% and 20% - which now seems unlikely to happen before next year.  

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PDSNET ARTICLES

The Anatomy of the Bear

As the bear market unfolds on Wall Street you either hold shares or you are sitting in cash. For those who are holding shares, as we have said consistently, you need to watch your stop-loss levels very closely because you are operating in a market where the odds are decidedly against you.

For those in cash, your position is

Bear Trend

We never regarded the COVID-19 fall of the S&P500 in March 2020 as a bear trend. In our view it was always a technical aberration caused by the “black swan” event of the pandemic. It caused a temporary downward spike which lasted from February to August 2020, but it was never a true bear market.

Then on Monday

Uncharted Territory

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• The war in Ukraine is in reality the remnants of the cold war, a low-level conflict

Triple bottoms

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Basic Fundamentals

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Teetering on the Edge

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Bitcoin versus Gold

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Uncertainty

Most investors would probably agree that there is a considerable amount of uncertainty in equity markets at the moment. From a fundamental perspective, that uncertainty has come about because of:

1. The force with which the central banks of the world (especially the US Fed) will “stamp on the brakes” to reduce

Powells Punch

In November last year we wrote the following about the U.S. economy in the Confidential Report:

“…what if the Fed is wrong about inflation and it persists at the current high levels or even increases? September was the 5^th month where inflation was above 5%. If they are wrong, then they will need to raise interest