Let me begin by saying markets across the globe are deeply oversold and way overdue to bounce from here. I told Barron’s this weekend, ”The market put in A “near term low” on Wednesday…but not “THE low.”
The Dalio Low – Jan 20, 2016
Timing is crucial in life, and in markets. Staying in harmony with what is actually happening on Wall Street is critical to navigating both bull and bear markets. Keep in mind, markets do not go straight up or straight down. They ebb and flow. I’m calling last week’s low “The Dalio low” because legendary investor Ray Dalio went on TV last Wednesday (the exact low of the week) and spoke of a possible depression (I agree with his thesis). A few hours later, the Dow plunged 565 points before turning higher around mid-day and that marked the low for the week. (Full disclosure, after being mainly in cash since December 2015, we started buying for clients on Wednesday and have long exposure to equities as of this writing). That low reminded me of what happened in late September 2015.
The Icahn Low – September 29, 2015
Interestingly, on September 29, 2015, Carl Icahn, released his doom and gloom video (I agree with his points) and that also marked A near term low for stocks. Not THE low, just A near term low. Over the next five weeks, immediately after the video was released, the S&P 500 soared over 13%! That’s a huge move for the S&P 500. At this point, stocks are deeply oversold and way over due to bounce. Until Wednesday’s lows are breached we have to expect the market to bounce (or at the very least move sideways from here).
Oil prices also placed A (not THE) new near term low last week which also helped sentiment. Central banks interfered again last week. China injected $50B to stimulate their market and the European Central Banks (ECB) hinted at more easy money in March. Central banks love interfering with markets and have distorted the playing field for years.
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Avoid Bull Traps, Bigger Picture The Market Remains In Lousy Shape
Stepping back, any near term rallies (or more easy money aside), the market remains in lousy shape and we feel it is just a matter of time until the major indices fall 20% from their 2015 highs which officially defines a bear market. We turned bearish in August 2015 (before the Big Aug Crash) and said stocks are topping out and we now believe we are in the early innings of a new bear market (and a global recession).
Bear Markets Already Exist All Over The World
Nearly every currency and nearly every commodity in the world are already in steep multi-year bear markets. Several important stock markets across the globe and several important areas of the U.S. stock market are already in a bear market (defined by a decline of 20% or more from a recent high) which means it is just a matter of time until the major indices play catch up to the downside.These are some of the important areas that are already in bear market territory: Commodities, The Small Cap Russell 2000 ($IWM), Transports ($IYT), Biotechs ($IBB), Retail ($XRT), Junk Bonds ($JNK), Materials ($XLB), just to name a few. Finally, U.S. stocks are deeply oversold at the moment, if they can’t bounce from here… Good Night Irene.
