Bear market warning? Trump-China, Deep State politics, Fed clobber stocks
WASHINGTON: The market’s up! It’s down! We’re on a roll! We’re all gonna die! Since January’s tax-cut high, stocks have been on a hellishly sickening, corkscrew ride to nowhere since February. But the direction has mostly on the downslope as Washington’s plug-ugly politics, various flavors of Trump-China syndrome, fears of Fed interest rate hikes seem to be sending a strong bear market warning to investors.
News of further potential Chinese retaliation against America’s goods and services ripped stocks apart right at the Thursday opening bell. The Dow, for its part, began a waterfall decline that reached a negative 400 points, more or less at its worst.
Headline-grabbing political leakage and proclamations didn’t help, as Trump’s latest legal eagle, Rudy Giuliani, upset the applecart with potentially explosive news on the Trump-Stormy Daniels front, not to mention attacks on Bob Mueller’s Deep State attack on the Trump presidency.
In equal measure, we learned as well that the “investigation” into Trump’s personal attorney may have been used to prompt phone conversations between the two that were likely wiretapped. In advance! This clearly serious attack on the fundamental right of attorney-client privilege even got a few liberal barristers mightily upset, as America’s once proud rule of law continued to sink under Deep State and globalist pressures.
A note appended to our A.F. Branco headline cartoon(©2018, via his website “Comically Incorrect”) is more direct on the subject.*
“Since Mueller can’t find any evidence of Russia/Trump collusion he’s opting for more drastic measures, like breaching attorney-client Privilege.”
Taken together, Trump-China Syndrome, increasingly blatant and frantic Deep State efforts to remove President Trump from office, and the Fed’s pathological fear of inflation were just too much for the market, which sellers battered all day. Bear market warning flags now fly all over commonly followed stock charts, indexes and averages.
Oddly enough, however, buying slowly crept in throughout Thursday afternoon, and the Dow itself eked out a meager 5.17 point gain by Thursday’s close.
The S&P 500 and the NASDAQ weren’t quite so lucky. But, sustaining only minor losses by the close, both these averages approached flatline by the end of the day.
That said, it’s increasingly clear, at least to this columnist, that the market’s late winter-early spring “correction” is morphing into a full-fledged bear market, something that’s not uncommon in any president’s second year in office, sad to say. It also doesn’t help that we’re now firmly in “sell in May” territory, a period of generally unfavorable seasonality that usually persists until August or September.
As if we weren’t worried enough, we discovered the following YouTube video released Thursday by one of our investment services, StockCharts.com.
Posted directly below, this video, in addition to its lucid analysis of today’s roiling stock markets, has an extensive interview with one of our favorite gurus, Tom McClellan of McClellan Oscillator fame. We follow the oscillator regularly to spot market extremes, which usually result in a turn of sentiment, at least short term. The Oscillator’s generally deadly accuracy has saved us from many a blunder.
In this interview, Tom cites a number of factors that lead him to believe that
- We’ve already stumbled into a bear market decline; and
- The bear market will persist until sometime around August 2018 at the earliest. Tom believes that his charts currently offer us a glimpse into what he calls a “nearly perfect bearish storm.”
Interestingly, Tom states his belief that the 10-20 percent decline scenario that allegedly encompasses most market “corrections” is based on an essentially bogus observation asserting that anything more than 20 percent is a bear market.
Tom is more broad minded. He believes “a bear market is when the majority of stocks are going down” in any given period of time. That is what we’ve experienced since the current bearish sentiment surfaced in February 2018. Tom’s presentation confirms that bear market warning in a chilling array of predictive charts.
Please note: This Stockcharts.com video is as long as a regular TV show and perhaps a bit longer. So be sure you have the time if you decide to watch it. If you just want to catch the McClellan segment, start the video at around the 20:15 mark. The segment concludes at around 53:30, roughly half an hour later.
Tom McClellan’s bear market warning.
This entire video is worth watching, BTW, again if you have the time.
If you caught a portion of this video before heading on to other stuff, you can see why we’re worried. We might not have sold off enough positions to avoid serious portfolio hurt in this decline. We began rectifying that matter today. Whether we’ll start putting on short S&P 500 ETF positions (SH for regular S&P 500 short market tracking shares or SDS for 2x the potential decline – or both). If so, we’ll let you know, as we’ll likely leg into these over time, as markets will occasionally go up.
But down is likely to be the bias at least in the intermediate term. The bear market warning signs continue to increase. In such a situation, it’s best to raise cash and hedge our remaining positions. That’s the prudent thing to do when declines become more persistent. And far more damaging. As the current decline threatens to become. Prudence dictates that we follow the bear market warning signs. We’ll start by selling off more weak positions and by going short in a general ETF way. So that’s what we’re going to do over the next couple of weeks.
*Reproduced with permission as per the above link.