The following report and analysis has been contributed by Adam Taggart of PeakProsperity.com
Bull market liftoff? Or bear rally rollover?
Stocks are at an inflection point.
After a bruising end to 2018, the major indices caught fire at the turn of the New Year as the world’s central banking cartel leapt into action. Here’s how the US Federal Reserve reacted:
The central banks have more than demonstrated that they are now subservient to the markets. Losses will not be tolerated
Which is why the chart below by Sven Henrich goes far in explaining why they’ve been in full panic mode this year: a major long-term technical breakdown threatened. As prices fell in later 2018, the S&P 500 broke through a trendline that had remained unviolated since the markets began recovering from the Great Financial Crisis in 2009:
As Sven has been doing an excellent job of monitoring, this violated trendline may now have flipped from “support” to “ceiling” for the S&P.
Which may be why we were treated to not just one, but three Federal Reserve chairs during last weekend’s episode of 60 Minutes. Their triple-strength “all is well” show of force was good enough to juice the S&P back up to the long-term trendline this week — but not convincingly through it.
The market looks very much paused at the brink of a breakout here.
The bulls are expecting a sharp rebound in GDP from Q1, which they claim was artificially low due the government shutdown. They point to 2018’s solid 3% economic growth, claiming the US is humming along fine and about to get a shot of adrenaline once America and China announce an end to their trade war. In their eyes, the S&P is poised to rocket higher once it punches vigorously above 2820.
The bears see a topping out of a classic bear market rally, one that has been propelled by no convincing fundamentals — only central bank jawboning/easing and continued massive buyback programs (plus this week’s rare Quad Witching options expiration). They see an extremely overbought market, with stocks ready to break down to new lows for the year.
Which Way From Here?
If we look over at the bond markets, we see no confirmation at all of the recent exuberance in equities, especially the melt-up seen this week:
When the bond and stock markets disagree, it’s usually the (much larger) bond market that has it right.
Moreover, many analysts, including Goldman Sachs’ volatility trader Moran Freeman, are predicting a near-term resurgence in the VIX, which would correlate with lower stock prices.
Returning to Sven Henrich’s charts, here he shows how we’ve been seeing a successive pairing of descending wedges for volatility (predictive of upside breakouts) and ascending wedges for the S&P (predictive of downward breakdowns). The tighter the wedges, the more compression they have to force prices to move quickly when they break:
This week, the VIX hit its lowest level ($12.50) of 2019. This suggests a reversal is much more likely going forward — possibly as high as $50 — than continued suppression.
And beyond the technical arguments, the fundamental underlying the markets are on their way from bad to worse.
DoubleLine’s Jeff Gundlach basically vomited on the bull case in his latest macro market outlook, optimistically-titled Highway To Hell (well worth the viewing). In it, he noted how global economic indicators are falling off a cliff at this point:
And in terms of stocks specifically, he emphasizes that despite the early ramp-up this year, the S&P “was and is in a bear market”, and that he predicts stocks will take out the December low during the course of 2019 and markets will roll over earlier than they did last year.
GMO’s Jeremy Grantham sounds a similar warning, albeit a longer-looking one. Grantham, who has been expecting a meltdown in stocks since last year, not only sees the US stocks as overpriced — he predicts they will deliver sub-par returns for the next two decades that will “break of lot of hearts” among today’s investors.
Tech Looking Especially Vulnerable
I wrote several reports last year warning of dangerous overvaluation of the FAANG stocks, which had yet to show any weakness at that time. I went as far as to issue a rare notice that I was building a short position against these stocks, one rewarded with a 50% return when successfully exited three months later.
If anything, the big Tech stocks look even more vulnerable now than they did back then.
The NASDAQ (of which the FAANG stocks comprise the majority of the index’s market cap) has rocketed up over 20% since its December lows, sitting now just 5% below it’s all-time high.
This surge in value is starkly contradicted by the negative developments arising for these companies in 2019. Here are just a few recent ones:
- Senator and presidential candidate Elizabeth Warren is proposing much tougher regulation, specifically calling for the breakup of Amazon, Google and Facebook. She’s also making the case that Apple should be prevented from selling apps on the App Store it operates. Politicians and regulators in the EU are making similar arguments.
- Two of Facebook‘s key executives (it’s Chief Product Officer and the head of WhatsApp) just resigned,right as the company faces a criminal probe into past security and privacy scandals.
- Apple’s iPhone sales dropped worldwide last year, falling 12% in the critical holiday FYQ4 quarter. Since then, smartphone demand in China has been falling off a cliff — at its lowest in years.
- Netflix is still burning cash at a horrifying pace while large competitors are readying to provide consumers with compelling alternatives. Disney recently announced its streaming service will include its entire movie catalog (soon to include Fox’s, as well), for a cheaper price than Netflix. Apple is expected to launch its service in May, and be free.
- Google and Facebook are under threat of multi-billion dollar fines in the UK if they fail to rid their platforms of “toxic content”. Google is also fending off similar fines in China, India and France.
I could easily go on. But do the above headwinds (along with a Q1 2019 US economy growing at a pitiful 0.4%) justify Tech stock prices kissing their all-time highs?
No. Not even close.
Which is why I’m moving a percentage of my “dry powder” cash savings into a new short position at this time, one larger than I placed last year. It’s not a move I take lightly (and as usual, this is NOT personal financial advice). I’m only doing it because, in my estimation, the preponderance of evidence for a near-term reversal is overwhelming my strong default risk-averse preference to sit on the sidelines.
In Part 2: Assume The Crash Position we detail out the wide range of options that investors skeptical of current market valuations can consider — for both protecting against a downturn and, for the more courageous, profiting from one. We also reveal the latest outlook from our endorsed financial advisor as well as the latest trades I’m making in my own portfolio.
We should know soon which way this market breaks. If it indeed breaks downward, make sure you’ve prepared in advance for it.
Click here to read Part 2 of this report (free executive summary, enrollment required for full access).
What little I have in the stock market is about the amount you could put on the head of a pin.
I invested in Land, Silver, Gold, and Guns.
Land, guns, ammo, tools, farm, barter goods, and cash.
Gold and silver isn’t much good where I live.
“Gold and silver isn’t much good where I live.”
Makes sense, prepare for where you are.
Sgt. I agree with your list my Brother, maybe I would add a few cases of “liquid courage”? Jim/Jack/George?
Uh this seems like a no brainer…. Invest in what is undervalued (metals and other resources) and sell what is waaayyy over valued (stocks etc.). As far as liquid courage, make your own it’s a lot cheaper and better. Jack daniels is pure swill compared to what I can make. Even shit like knob creek and Makers Mark are shit in comparison. I have friends that are and were bartenders and they agree 100% lol 😛
I’m certain you “stuff” is great, however as a trading item, or in a disaster, almost anything will do.
I keep a case of cheap brandy around because it is what the Blacks in town drink, not us.
Federal Reserve Notes.
USA 33 Trillion in debt. No end in sight. Politicians Spending like a drunken sailor at port, after 6 months at sea.
USA will be same after politician spending party ends. Alone, hell of a hangover, beaten up, headache, Not only broke, wallet missing, but can’t find pants!
Never keep more than few thousand is US currency.
Food-Gold-Silver-Ammo-Land-Livestock-Training in useful skills, much better use than cash.
Allowing moron greed filled bankers use of your money helps them NOT YOU.
Worse than cash is the No Money Digital currency that allows the government ABSOLUTE control to DESTROY you.
Look at how they censor-Lie-Steal-deplatform critique-imprisons whistle blowers, how do you think they will act when they finally have your guns and no cash in your pocket but digital made up “value” that they can lock down and delete ANYTIME?
5G millimeter waves to make you sick.
No cash in your pocket.
Digital currency to watch, snoop, track, control you.
USA broke, destitute, government BROKE once world stops using US dollar for transactions and world stops buying debt notes.
AI to control and watch you
Robots to take your jobs.
How do you like your New World order by the bought and paid for, lieing/stealing politicians and corrupt corporation Masters?
What sunshine they have planned.
Which Way From Here?
National debt will quadrupple.
S&P will quadrupple.
DOW will quadrupple.
Unless the trucks that deliver the garbage to
the entitlement welfare obese slobs
that buy everything on debt or entitlement checks
stop rolling for any reason, then it is game over.
Otherwise, growth expands like a cancer until it no longer can feed off the host.
There is no bulls left. All so called experts are advicing sell, sell, sell….
I am not selling.
I see a trigger event causing the halt on trading in all industrialized countries.
And then, another trigger event causing the re-opening of trading in… Shangai.
If most US, Japan, EU manufacturing is already in China, then why not transfer all trading there.
This may sound too simple to be true and maybe it is, but it’s certainly feasable in SHTF situation.
It don’t matter if even 80% of the American people were unemployed, as long as the government increases spending year-on-year, and the Fed keeps increasing the national debt, as long as the irresponsible stupid obese lazy American welfare entitlement people get their checks, and the delivery trucks keep making the deliveries… there can be no collapse.
It is and shall continue to increase, as long as the trucks keep rolling and make deliveries to the obese lazy American ‘people’.
Yes sure you’ll see recessions and pullbacks, but in the long scheme of things, the debt = the stock markets.
Now go ahead and short the markets with all you can.
Get away from debt…thats half the battle. The other half is buying needs only.
If the Fed raises rates, the house of cards comes down
FASAB Statement 56: Understanding New Government Financial Accounting Loopholes
AND HAVE A NICE DAY
Off subject, If you’ve had a lost pet and have to deal with the humane society, you will see why the people of New Jersey are suing them for extortion. Everything good is called bad, and everything bad is called good.These women are justifying their extortion , as getting more money to save more. At what point does it become kidnapping and ransom? And let’s castrate him to get even. I can’t castrate him ,but I can castrate his beloved friend.
OT but I just buried my Dad today. Lost him to congestive heart failure at age 87. He’d been having trouble for awhile so it was only a matter of time. He’s in a better place now. What makes it even worse is that he was buried on my 62nd birthday. This is one year I’m NOT celebrating. Life sucks but I always manage get through it.
Sorry for your loss.
I’m sorry I can’t type
(say) anything to make
Sorry for your loss.
DR, sorry for your loss. Best wishes to you.
I just read this I’m so sorry my friend for your loss.
My father is in a nursing home because of Alzheimer’s. Mentally he has been dead for about 3 years now. His brain just keeps his organs functioning.
Again my friend sorry for your loss. I hope this makes you feel better. There is a silver lining. He won’t have to go thru SHTF. He passed in what we will call very soon the Good Old Days.
My condolences DP. I lost my mother on March 7rh this year. I definitely feel she is in a better place of comfort & peace. May God be with you during this difficult time.
DR, not DP. Sorry!
Sorry to hear about the loss of your Dad.
DR, sorry for your loss, you and your family will be in my prayers tonight. Remember, as Holy Scripture says, “God Is Love”. Know that your dad is in the hands of a loving Father, as he was to you, I’m sure.
If you are looking for comfort, view the You Tube video “Praise You in the Storm” by the group Casting Crowns.
God Bless you our brother and watch out fur dem hogs.
DR, sorry to hear that. I know how it is. I have NO living relatives other than 1 uncle and a few cousins. But life goes on so keep yer chin up and stay in the fight!
Off subject again, I asked the 50 year old guy working at the liquor store , If he had his own child growing inside of him, would he kill it under any sercumstance, he without hesitation said No. Eve what a girl?
Off , Hey how many of us like outsider humans more then our dogs. Are we evil? Or sensible? My dog would die for me , My so called friends? I guess I’m not worth it, to people. And maybe that’s what I deserve. Dogs don’t play politics. They die for you or not?
Netflix has a documentary called “Unacknowledged”. It is worth watching. The subject of UFOs doesn’t interest me; But regardless whether these people are lying about the existence of UFOs, they say we are going to have a false flag committed
Sorry for your loss, D.R.
Sorry for your loss Renegade. My condolences to you and your family.
My thanks to everyone who gave me condolences. I’m still standing tall and strong just like Dad would want me to. His loss has only made me more determined than ever to stand against the evil that will confront all of us one day.
Sorry for your loss.
We still have a short while before the DOW tops out. Best guess is between Easter and the last day of August this year. Then watch out. 15,000 DOW is a real possibility this Fall.
I am writing this not because I agree, or want this to happen, which I might, but because as “Preppers” we all want to be aware of what is happening around us.
#1. The Renew America site has an article calling for Conservative Forces to “Take to the Streets” to save the Republic.
#2. American Thinker has another article on a coming Civil War.
#3. A State Senator from Missouri has introduced a bill calling for all males over the age of 21 to purchase an AR-15! Called the Militia Act.
Information is power/safety for we who prepare.so watch out fur dem hogs!
all males?? say what??
Did you know AR doesn’t stand for assault rifle??
It stands for ArmaLite Rifle.
That fact alone should trip up democrats when demanding we hand them over.
Missouri’s gun law:
McDaniel says it “points out the absurdity of the opposite side,” and their proposals to “add more requirements and barriers for law-abiding citizens.” The former sheriff’s deputy says he decided, “let’s get back at them.”