Hurry up but.... Wait...
We are use to short, fierce bear markets. But is this one different?
If you follow CANSLIM and William O’Neil’s investing method, you probably know the excitement generated by the investment community when the indexes logged, what he dubbed a “Follow Through Day”, yesterday. The IBD homepage immediately changed their market outlook to “confirmed Uptrend” and investors/traders are recommended to buy something on this day.
Let me be the first to tell you… There is nothing “up-trending” about this market right now. And we could not be farther from a confirmation of a uptrend either. Let me preface by saying I don’t think any other single human has done more for the investing community then William O’Neil. He, and the company he started, Investors Business Daily, are incredible resources putting out high quality research that has directly changed lives of thousands, if not millions, of investors. But price is price. So lets dig in.
In the classical sense, an uptrend is achieved through a series of “ higher lows and higher highs” in price. Simply, price is moving from the lower left of the chart to the upper right. Looking at a weekly chart of the Nasdaq 100- We see the complete opposite. In my book, we are now in a confirmed downtrend. (Image below)
I want to look at the bear market of 2000. Not because I think we will repeat that, but just to see what is possible and how devastating that would have been to jump the gun on every rally attempt without waiting for a real, confirmed, uptrend.
Some of the stats are pretty astonishing from the bear market of 2000
From Peak to Trough the drawdown lasted around 134 weeks (close to 700 days) with overall drawdown around 80%
From Peak to what I would call a “new uptrend starts” the drawdown lasted 168 weeks ( Almost 850 days) with a overall drawdown of around 73%
In the Midst of all this, we saw rallies of 41%, 24%, 32%, 53%, 59%, and 18% which all rolled over and took out the lows once again (that’s what downtrends do)
The “Covid-Crash” lasted 16 weeks ( 80 days) until we were back at new highs!
2008-2009 GFC saw around 76 (380 days) weeks until what I would call a new uptrend emerged (image below)
I also have a hard time imagining investment allocators wanting to put money to work when Walmart had its single largest drop since 1987 yesterday, Target is down over 25% today and the indexes whipsaw up and down over 2%-3% a day.
How do you investment billions of dollars in an environment where mega-cap stalwarts are flying around like penny stocks and the indexes are this wild and loose?
I don’t think you do.
Likewise, I am not a Macro guy at all… But the little that I have read and seen, I do believe the FED will do whatever it takes to get inflation under control. And I have to think that involves sending the economy into a recession and creating much lower asset prices across the board.
The current price trend of the stock market and the Macro outlook seem to be aligned for a much longer and protracted bear market then many individuals have seen in a long time. Of course, a real confirmed uptrend in price and/or a FED pivot away from raising rates/shrinking balance sheet will have me pivot as well. But as of right now, know the path your on, and know the path of least resistance.
I am not saying stand aside and do nothing. Some of the best companies and investments were started in the darkest financial times. Some of the best tradable rallies to the upside happen in the worst bear markets (as noted above). Now is the time to start your research (if you have not done so yet). Now is the time to start studying your edges, market history, and new companies that are changing the way we live, work and play. Now is the time to get started, before the next bull market starts, and they always do.
So what are you waiting for? hurry up and start!… but wait….