“Market Tells Put Equities At Major Risk?” or “Buy & Hold Cycle Just Expired?”

“Market Tells Put Equities At Major Risk?” or “Buy & Hold Cycle Just Expired?”

[vc_row][vc_column][vc_column_text]This may be one of the most important Max Power pieces yet. (Don’t you love hyperbole?) Honest it could be though. I am writing this with the intention of pointing back to it over the next several months and indicating how the first week of March presented tells that could have kept you from the crap that unfolded. Hope you followed that as it was a little tough to write, but essentially look out below. This is going to be a little longer than normal as I have to provide the key evidence and sequence it effectively.

Last week I highlighted the picturesque Head and Shoulder patterns in two of the most important indices, the S&P 500 and NASDAQ 100. I have been in the camp that the power of the two month rally would overwhelm the bearish H&S pattern soon taking the market to new highs. That is still a possibility, but this week’s action has diminished those prospects, adding credibility to the bigger picture bearish H&S patterns.

What occurred this week bears (pun intended) close attention. The Transportation Index has been down 11 days in a row (canary in the coal mine?), China reported a 20% drop in exports, European ECB head Draghi  announced increased stimulus and STOCKS FELL (hasn’t happened in a long while), and most importantly a collective buy signal failed similar to the Q4 correction pattern. This evidence is compelling and leads me to believe the Bulls have at least fumbled the swag they’ve held since Xmas. This occurring at major resistance…coincidence? Probably not.

March has now become an important month on the long term charts. Don’t want to get too technical, but this is important. Below is a very busy monthly chart of the S&P dating back to 1995. During this period we had three previous tops where the  MACD  rolled over while the S&P 500 continued to make new higha. Each event led to downturns of 45%, 57%, and 15%. Each MACD rollover previously were fairly slow shallow turns. This year’s is sharp, significant and steep. Just about every major index and sector exhibits this very vulnerable pattern. This is very worrisome as it portends to something worse than before. [/vc_column_text][vc_single_image image=”1372″ alignment=”center”][vc_column_text]In my estimation March will have to be a positive month (3 weeks to go) for any possibility of reversing the MACD.  The major resistance and H&S pattern make that outcome a long shot. The market could take some time without significant damage as it did in 2016, slowly turning the battleship MACD north and breaking stocks out for another leg higher. Problem now is we are deeper into this already extended business cycle and the high caliber bullets of deregulation/tax reform have been spent by President Donald.

These dots connect to the market taking out the Xmas lows, which would be a 15-20% correction from current levels. And the possibility the top is in for this 10 year (Saturday was the anniversary) Bull Market has increased? The Everest for the Bulls right now is the Right Shoulder and Feb highs (2820), and preferably take them out before the end of the month. My current advice is to reduce exposure ASAP and redeploy those funds if we do rise above 2820. It is easier to do now when we are less than 3% away than 15-20% lower the pattern projects over the next few months.

This potentially plays out poorly for the next 5-10 years as well. With current equity valuations hovering near all time highs (On My Radar – mandatory read if you have $ in the market ) the odds are the next decade will provide returns in the -2% to +2% annual range. If the debt bubble bursts in domino fashion that could be optimistic. Below is the S&P 500 going back 15 months. Chances are this could be a microcosm of what the next several years will look like, essentially no progress. But double the amplitude, instead of a 20% correction as we experienced in Q4, expect a 40%er sometime in the period. [/vc_column_text][vc_single_image image=”1377″ alignment=”center”][vc_column_text]Sorry to be such a downer, especially after cheering the Bulls on the last two months. The good news is if the pattern does not play out the opportunity cost is <3%. If it does play out we will be reinvesting funds at much less expensive levels.

The bigger takeaway is the possibility the Buy and Hold cycle from 2009 has officially ended? That could frustrated and disappoint many retirees and pre-retirees. The market has a way of doing that.

Final Thought –[/vc_column_text][vc_single_image image=”1214″][vc_column_text]More later,
Max Power

Disclaimer: Remember everything I said could be wrong, the market always has the last word.


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