Did Red Friday kill the Bull Market? Saturday 27 November 2021
After going on the defensive and hedging the portfolio in early November (as described here https://kudakwashe-chinhara.medium.com/is-the-bull-market-over-part-2-more-words-on-cycles-sunday-31-october-2021-6ea904067298), I ultimately reversed from long to short just before Thanksgiving, for the reasons given in the aforementioned update.
While the tech-heavy US indices (NDX and SPX) seem to be holding up, the 5–10% drawdowns in all other markets/regions suggest to me that something of note is taking place…at best a higher-degree 4th-wave correction in Elliott parlance i.e. something of greater order (though not necessarily magnitude or duration) than the correction last September. In this ‘at-best’ scenario, the mid-point of the bull market was in April of last year, which implies a terminal date by April/July of next year. Recall that we have two cycle-beats of interest next year…April/May and Oct/Nov. Therefore, the first could certainly coincide with a notable correction (read “crash”) in at least some segments of the market (e.g. SPACs, Meme-stocks/RTY, TSLA, leveraged-Crypto plays/stocks and Cryptocurrencies etc). In that case, perhaps Oct/Nov would then be the period that everything gets ultimately taken to the cleaners. In other words, a 50% decline would be mild. Prior to that, however, we would easily SPX > 5000. Perhaps as high as 5800! Imagine that. SPX trading at both 5800 and sub-2700 in 2022 (perhaps even sub-2000).
Of course, the 9-month chop from hell in the RTY that we just witnessed warns that things could evolve a lot slower. Perhaps the entire process described above will only start in Oct/Nov…
And of course, perhaps we get so much currency debasement, such as I witnessed coming of age in Zimbabwe, that the stock market goes to infinity in nominal terms while the economy goes tits up in real terms.
Bottom line, a reckoning for all the monetary and fiscal tomfoolery of the last dozen years will likely soon be upon us.
In the interim, I am short and running trailing stops on said shorts. Should my inputs indicate, I will be reverting back to a core long perhaps in the 4400/4500 region. The Thanksgiving to New-Year-Eve period has historically coincided with equity market strength. In particular, the latter half of December has the below Efficiency Test.