Finding the end of the bear market of 2022 (Survivor Series Part 3)
Finally, we are at Part 3.
I'm writing this Survivor Series because of mortality and legacy.
You might be wondering why I am taking the time to map out a large part of my thought process, tapping into some of the best strategies in how to get an inside look at why the stock market cycles, and why many investors tend to get in too late and get out too late as well. Even more pecular that I am not agressively marketing these strategies, else I would blitzing YouTube and Seeking Alpha with record of previous calls etc. I know that some of what I share is not commonly used or understood.
Let's just say it has to do with legacy and mortality.
In my personal story, I had incurable eczema since the age of 9 that got progressively worse every year while I was a teenager in Singapore. From secondary school to junior college to university and then to the market place, the best specialistists in Singapore could not figure out how to bring the inflamations to a manageable level. By manageable, I mean being able to contain the eczema with steroid creams, anti-histamine, diet and lifestyle. Like a slow motion car crash, I saw my walls closing in with every year it worsened and seeing no long-term solution.
In order to keep my severe eczema (that the dermatologist thought at one time as of the worst cases he had ever seen) from raging out of control, from the age of 26 onward, I was put on a high dose of Ciclosporin and other immunosuppressents. Taking these heavy drugs come with a price, a slow hanging noose, because eventually they will damage your liver and you will have other complications. However, without them, the eczema kept raging out of control, till I ended up in hospital with septsis and cellulitis. Once in the emergency ward, I would pay thousands more dollars to getting into the hospital, then they would inject me with antibiotics, AND THEN THE IMMUNOSUPPRESSENT again anyway since it was life-threatening if unchecked.
At the age of around 39, when all hope looked lost, and few people gave me a chance. God did something to my body. Suddenly, everything was easier. WIthout any drastic change of diet or medicines or work-life activities, my inflamations were less. I started to require less and less immunosuppressent to live. What started as 200 mg a day at the age of 26 that carried on to 35, suddenly got more and more reduced until by the time I was 45, I was only on 28mg a day - a dose so small that the doctor isn't worried about me taking it anymore.
I am in the process of writing a book about this experience, this flight from the dark, the fight going into and out of the Abyss, where I lost almost everything, my health, relationships and career opportunities. A book for the "modern-day" Job, so to speak. A long letter for those who are at the verge of hopelessness, that feel foresaken by God. I write how to preserve your faith, and how to accelerate your time through the Abyss into the redemptive season. As a Christian, I almost lost my faith, and was embittered with many things, including being disappointed with everything, including church. But now that I can turn behind me and see God's redemptive plan from hindsight, I could never have imagine the depth of my depravity, but also the depth of God's unfailing love.
But this is a conversation for another day.
Today, although I am living as normal a life as I EVER HAD since the age of 9 because my eczema is so much more manageable... I can go out anytime I want, I do things slowly, but nothing stops me from doing what I need to do... I still bear the after effects of having so much drugs in my body for more than three decades. I feel like an old man at times. Two weeks ago, I had a very sudden pain in my gut. In turned out to be appendicitis. I rushed to the hospital and got an operation the next day.
As someone that had to deal with mortality for so long, wondering when my body would fail, this operation was just a reminder for us that we should number out days. We won't last forever. The stock market is filled with thousands of voices, some scream very loud, and some are popular even though they lack substance. This blog won't be read by many, and I will be sharing gold in here. If any fund manager would read through them, I am positive they would pick up a thing or two that would greatly improve their performance. But there won't be many, because this isn't a popular blog. But this is OKAY. I am writing, especially this Survivor Series, so that I can let my children read it one day. Or, people that call me family, I write this for them. Being able to time the major bottoms in the stock market totally changed my life.
Many people say "no one can time the market" so don't try.
All of these people can't time the market, hence that's why they say it.
More accurately, it should be "no one can time the market perfectly."
But this means that investigations can be done, and you don't have to be right every single time, you just need to put more and more odds in your favor. Once you get to a certain threshold, to a certain accuracy, the rewards can be exponential if you have patience, God's grace and wisdom.
Let's start Part 3 now.
In "Finding the end of the bear market of 2022 (Surivivor Series Part 1)", I explored how to understand potential downsides in a bear market based on history. It's important to use history as a guide so that you can have a sense of "value" based on market downside. For example, if you know that the average downside for a bear market with a recession is about -37%, if we get close to it you should know you should start looking for buying opportunities instead of being paralyzed by fear. You can even feel happy if you start buying around here, knowing that on the longer term you most likely got a GREAT price for your stocks. It helps you psychologically, which is what you need when you invest.
We also explored how the bear market, the falling stock prices don't line up perfectly with the bear market. Most of the time, by the time a recession is oficially called, the bear market is closer to the end than the beginning! This is why you can't wait for good economic news before you get into the market if you want to get bottom prices.
In "Finding the end of the bear market of 2022 (Survivor Series Part 2)" I explored a whole suite of sentiment and breadth indicators to gauge when there could be enough hidden firepower, a gunpowder, as stocks reach a potential bottom, in order to get a sense of when an intermediate bottom could occur before it becomes obvious. This has been an obsession of mine for years. I am in the stock market because a part of me wants to do well and use those finances for good purposes, the other part of me wants to nail those bottoms because it's the ultimate challenge to do so. Nailing major bottoms is always contrarian, the big boys investment bank analysts will tend to disagree with you at those bottoms. Making a bottom call and firing in an investment while bad news abounds requires not just courage and a sound mind, but requires you to suspend lots of our natural inclinations to carry it out. I think doing so is one of the most challenging things a man can do, because it requires discipline, a different way of looking at things, it requires analysis, some luck, and the conviction to go against the crowd in a volatile market.
If you notice the two canary stocks I listed in that blog post, they were ULTIMATE bottoms on capitulation. FRG and NLY. When I nail those absolute bottoms, I always feel very incredulous... because its so rare and I could have been wrong.
Yes, in a way, it was luck. I can't be totally sure it would happen. But I had too much evidence go my way such that I knew it was worth a shot. That's what bottom catching is, you can't totally know where it is, but you have enough to convict you that it's a good news to try. If you want to know why I thought those particular stocks were bottomed, it was because of analysis into the companies themselves, their valuation and what they represent in the social imaginary of the stock market. Just PM me or ask me out for coffee if you want to know.
So now that I addressed where the markets could go, depending on the severity of the recession and what the fund does in the Part 1, and how to see intermeidate bottoms sizing up in Part 2, (because every major bottom looks like a bear market intermediate bottom first, that's why you need to know what it looks like!), I want to remind of you an important phenomenon when it comes to getting confirmations of a longer-term recovery, and then I want to share with you the difference between "elementary" technical analysis, to "intermediate" technical analysis, to finally, technical analysis that gives an uncommon edge. The reason I want to talk about technical analysis is because of the controversial nature of technical analysis, and how the very average analysts can look like experts (and are often offering obviously average advice that is too late) and how the real experts can look average because all those indicators look the same?!
For a longer-term recovery, BONDS must recover as well... in this stage of the cycle.
This works if we are indeed in stage 6 of the idealized stock market cycle...
In stage 6, all asset classes drop, and we are in late expansion to early recession, which is what it seems like right now. If so, then you SHOULD expect BONDS to lead stocks lower, but eventually lead stocks higher when the bear market abates!
Here is a chart of the $SPX and the inverted 10-year yield (a proxy for bond prices in percentage)... every since the bear market started at the beginning of 2022, you can see bonds leading stocks. Every time the stock market tries to make a mini-rally, if bonds are continually dropping, the stock market eventually has to follow suit. This is because of the phenomonon of liquidity being drained out the system and the fear of recession.
Note that this relationship between stocks and bonds DON'T hold in such a correlation in OTHER PARTS of the IDEALIZED STOCK MARKET CYCLE. Hence, technical analysts that try to develop a strategy to optimize such a relationship without knowledge of the stock market cycle might be caught offguard when the market regime changes without them knowing. By the way, the market NEVER annouces when they will change regime, that's why lots of work and research is needed to understand these various disciplines... the macro, the sentiment, what fund managers are doing, what the FED is doing, valuations of companies (when they become irresistable).
Hence, until we see a nice bottom in the 10-year yield, or some proper strength, it is prudent to assume that any intermediate rally may likely lack strength and eventually fail. But, if you see the 10-year fall, and the USD weaken, that is considered BULLISH in this part of the cycle.
Look at the intermediate rally now... the 10-year yield is actually weaken a little, AND, the dollar is starting to look like an intermediate top. If the 10-year yield and the dollar continues to weaken, it's highly likely the stock market rally can continue. However, if you see the 10-year yield or dollar strengthen, eventually the stock market rally will likely fail.
So... bear this Intermarket Relationship in mind.
I hope this small snippet of knowledge will invoke you to explore all the various stages of the stock market cycle and understand the Intermarket Relationship.
Knowing these things helps you to understand what is short term moves and what are long term moves. For example, in stage 6, it's bullish if the dollar and yield weaken, if it continues to weaken, it makes sense to buy the stock market on short term weakness. However, if there is no dollar or yield support, it may be prudent to stay out the market.
Of course, it is good to add other indicators to this, to increase or decrease the conviction of your trading move.
In the next post, I will explore what I consider to be basic, intermeidate and effective technical analysis, culminating in my proprietary indicator that has had an 80% success rate in the last 6 months in confirming which intermediate up or down moves are legit.
Let not your heart be troubled.
Pain is temporary, Grace can see you through.
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