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December 21, 2022

Volatility Reports December 21, 2022 Dow & Co.

The issue for many is their analogical thinking.  Because knowledge is based on first principles, things that are undeniable. Context is one of the first principles needed to be certain what you are looking at is true. Otherwise, look-alikes will fool you.

The example here. The picture of Marilyn Monroe next to a look-alike is a great example that should get your attention. However, the chart overlay seen here is the epitome of what Contrary thinkers know, that background matters compared to statistics pulled out of the blue.

Here is a comment I saw in the public stream and responded to.  Just not because it is wrong-headed but because my traders need to know where I stand and why. Also, I am not trying to attract cynics, entry-level or anyone, not a professional or aspiring to be one.

Here is the bullish sentiment in full

  1. Consecutive years of declines in the US stock benchmark are rare
    When they do occur, the second year has been worse than the first
    Consecutive down years are rare for US stocks, so after this year’s drop, there’s only a low probability they will decline again in 2023. Yet if they do, history shows that investors will have to brace for another very unpleasant 12 months.
  2. Since 1928, the S&P 500 Index has only fallen for two straight years on four occasions: The Great Depression, World War II, the 1970s oil crisis, and the bursting of the dot-com bubble at the start of this century. In the benchmark’s almost 100-year history, such occasions are clear outliers. Yet when they have occurred, drops in the second year have always been deeper than in the first, with an average decline of 24%. That would exceed this year’s slide of about 20% to date. More than two back-to-back years in the red are even rarer. The S&P 500 tumbled for three straight years from 2000 to 2002 and from 1939 to 1941, while the longest losing streak remains the aftermath of the infamous Wall Street crash when stocks fell for four years from 1929 to 1932.
  3. To be sure, both fund managers and Wall Street strategists forecast a muted recovery for the S&P 500 next year. “Recession does not have to be doom for equities and markets tend to bottom before a recession starts,” said Manish Singh, CFAchief investment officer at Crossbridge Capital. He believes the S&P 500 saw its bottom in June during peak inflation.

I understand how smug the boys are in Boston, I have pals in the industry and interviewed with a few, and sat in Vanguard’s  “war room” for a number of their meetings. Be that as it may. It is the big picture and context that matters. Not what the public wants, the market is selling risk, not iPhones.

Looking back to the 1908 low (after the rich man’s panic), how the market trends in a 15 to 17-year secular bull followed by a sideways or down correction of the excesses for an equal number of years.

From the 1929 peak, Dow & Co stayed in a correction until 1949, 20 years after a 20-year bull. It is not arbitrary to start from 1932, it is a strong bullish bias to make their numbers look better.

From 1949 to 1966 (Dow hit 1000 for the first time) a secular bull of 17 years ended followed by a bear market from 1966 until 1982. So for 16 years, a broad trading range corrected the secular bull before a new secular bull.

Again, from the August 1982 low into January 1, 2000, high pivot, it was easy money followed by a secular bear of 10 years into 2009 (see Nasdaq.)

Finally AFTER the demographic baby boomer growth period another 13-year secular bull market to 1/4/22. What was crowned the “Great Bull Market” or the “Everything Bubble.” all of which was based on money growth, not population growth or productivity growth.

So in context, two down years is not rare, what is rare is after a secular bull market to avoid a secular bear has a low probability and given the added context of a Fiscal and Monetary policy that is painted into a corner.

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Below is the S-T chart for Friday’s trade.

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December 21, 2022

Volatility Reports December 21, 2022 (Crude Video)

Oil has a positive correlation to the S&P. Along with Apple and Bitcoin the premier risk takers market, Crude is also a leading market. A foreshadower of stock market’s direction

Crude oil futures made their recovery high on 11/6/22 providing a 23-day lead time to sell onto the last phase of the rally in the S&P and FANNG+ stocks, which topped on 12/2/22.

The weekly chart is plotted here with the SPY in the background to show the positive correction since 2018. The featured charts in this report focus on price, time, and dynamics.


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December 13, 2022

Volatility Reports December 13, 2022 (Dow Video)

Monday the $VIX closed UP 9.5% while the S&P 500 finished UP 1.4%.

2021 and 2022 experienced a 45-year topping cycle. Part of its unwinding – cycling from the high pivots 11/18 and 1/4 lower into the extra market events happening on 5/11 and 9/28.

What is amazing about these two dates is they create a 96-day cycle, which on the look back is accurate pegging tops and bottoms to the 6/12/20 and 10/30/20 lows.

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