When Will the Bear Market End?
What I am looking for before going long stock again.
The Bear Market Blues
With the market going down, and down, and down — my assumption is we are in for a bit of a rally.
And after that rally, chances are, we will go lower.
So, while I am sitting here, chomping at the bit to get in every d*mn day, I thought I would write out what I am, and what big money is, going to be looking for before going long and riding the next bull market to (rocket emoji).
Now, not all of these factors have to turn necessarily for us to start moving up in the market, so it’s important to follow my weekly “State of the Market” or do your own weekly analysis.
But if a few of these factors start to turn to a more “green light,” then the upwards pressure, and reasons for big money to get back in, start to build.
So let’s look at the abysmal “red light” signals that are currently strong markers that this bear market will resume, on time and on schedule.
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Federal Reserve Data
First of all is the federal reserve data.
Understand, this data is backwards looking, understand, the market will move before this data look perfect (the market is forward looking).
But at the same time, we are in the deep forest right now, and there is no sign that things are getting better anytime soon.
#1 — CPI and Inflation Data
Whether we agree with how accurate inflation data is, inflation data needs to show at least a turn. It seems that before May CPI, the market was still holding onto hope that we could be getting through this with minor scratches.
Then, then May came around and those chances went to basically nil.
🔴 Latest CPI Inflation Print: 8.6% | 🔴
Inflation rose to its highest since 1981. Major red light.
#2 — Federal Interest Rate Hikes
Currently, the Federal Reserve is raising interest rates to fight this inflation. This puts pressure on economic growth.
🔴 — Latest Interest Rate Hike: 0.75% | 🔴
[Current Fed Funds Interest Rate]
#3 — Slowing Economy and GDP Growth
The latest GDP number was also a very bad read for the economy. Negative GDP.
🔴 — Latest GDP Number: (-1.5)% | 🔴
[Historical GDP Chart and Recessions]
#4 — Federal Balance Sheet Reduction
Now, on top of all of this, we have the Federal Reserve taking liquidity out of the system. This is just another tool for tightening that the fed has, and is using, on top of all of these other negative factors.
🔴 — Federal Reserve Current Balance Sheet Trend: Tightening | 🔴
[Federal Reserve Balance Sheet]
Stock Market Indexes
Now let’s look at some of the stock market data.
SPY (S&P 500)
-Down (-9%) Year Over Year
-Below the 50 Day Moving Average
-Below the 200 Day Moving Average
🔴 |Strong Downtrend| 🔴
QQQ (Nasdaq 100)
-Down (-16%) Year Over Year
-Below the 50 Day Moving Average
-Below the 200 Day Moving Average
🔴 |Strong Downtrend| 🔴
NDAQ (Nasdaq Composite)
-Down (-10%) Year Over Year
-Above the 50 Day Moving Average
-Below the 200 Day Moving Average
🟡 |Potential Double Bottom Reversal| 🟡
NYA (Nasdaq Composite), DJI (Dow Jones), IWM (Russell 2000)
-Down Year Over Year
-Below the 50 Day Moving Average
-Below the 200 Day Moving Average
🔴 |All Downtrending| 🔴
TLT (20+ Year Treasury Bonds)
-Down (-30%) Year Over Year
-Below the 50 Day Moving Average
-Below the 200 Day Moving Average
🔴 |Strong Downtrend| 🔴
BTCUSD (Bitcoin)
-Down (-39%) Year Over Year
-Below the 50 Day Moving Average
-Below the 200 Day Moving Average
🔴 |Strong Downtrend| 🔴
With treasury bonds looking like a cryptocurrency, and stocks down big as well (with indexes hiding a lot of the acute pain), there really has been little place to hide.
Extraordinary Circumstances
Now, on top of all of this, there are a few extraordinary circumstances happening in the world that are not helping our situation.
Ukraine and Russia Conflict: Potential War
With the invasion of Ukraine by Russia, many countries are being drawn into helping and/or picking sides. This is starting to cause some unrest around the globe.
If nuclear powers get drawn into this, it could be devastating for the globe as well as the economy and stock market.
Until there is some meaningful progress here, this is going to be a potential “uncertainty” looming over the broader stock market.
🔴 |Russia and Ukraine Conflict: Uncertainty| 🔴
Ukraine and Russia Conflict
On top of this, Russia is a major supplier of oil and gas to the world, as well as specifically to Europe, who is starting to feel the pain.
With oil and gas prices surging, and no incentives for U.S. manufacturers to increase exploration and production, this remains another uncertainty for underlying costs of business.
🔴 |Oil and Gas Shortages: Uncertainty| 🔴
Supply Chain Issues and Shortages
There has been much talk about supply chain issues, and they continue to persist. With ports being shut down in China due to COVID, to shortages of semiconductors and other materials, supply chain issues are still making it difficult for businesses to gauge future productivity and consistency.
And this means uncertainty.
🔴 |Supply Chain Issues: Uncertainty| 🔴
Global Food Shortages
On top of all this, Ukraine was a major exporter of wheat. And, Russia controls 20% of the worlds nitrogen fertilizer — a key ingredient to farming in the modern era.
This means we are facing a global food shortage. And to put this in USA terms, food costs, already rising because of inflation, could continue to go up, which means less consumer spending, which means less earnings for stocks, which means lower stock prices.
Another uncertainty.
🔴 |Global Food Shortages: Uncertainty| 🔴
Wrapping It Up
So ya, ok. Let’s take a breath here and wrap this up. The current state of the market is not great. And, if I were making a bet, I think the odds fall strongly in the favor of a flat trend at best, and a continuation to the downside at worst.
However, not all of these problems need to be fixed necessarily — the stock market is always looking to the future — but I do believe many of these issues will need to start trending in the right direction before the market can go up and eventually break all time highs.
My Current Approach
So, I am not trying to time the bottom here. As Baron Rothschild said:
“I will tell you my secret if you wish. It is this: I never buy at the bottom and I always sell too soon.”
-Baron Rothschild
I do believe the market will go up again, and I am excited about that day. But until there is some economic and political alleviation, I don’t think the bottom is in.
Or, as is often the case, everyone is wrong and we hit the bottom last week.
But in the game of odds, I think more downside is heavily favored with interim bear market rallies with a fire that will melt all the short sellers down to waxy stubs.
If you must trade, get in, take profits, use stops — this is a swing trader’s market.
And good luck out there!
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