2022-09-14

When Technicals Die

Bear markets wreck even the best of traders and investors. Most investors are ruined by the bull market. Meta is down 60 percent from its peak. Lots of people think it is a "good buy" or a "good value." Look at the chart. There's a trap door open to another 30-percent decline. At the lows, investors panic and dump everything. In the junior mining sector, companies will trade below their cash value. Then there will be legit good values, but stocks could still drop incredible amounts in the final panic.

Traders are fooled by the fact that what works in a bull market stops working in a bear market. More importantly, a bear market is still "bullish" about half the time. A bear market sees concentrated periods of losses, with the past week being a perfect example. You could use technicals all the way up to spot that rally. I didn't see any bears call for that type of drop though. It is unpredictable. When the market is in a highly emotional state of fear, technicals are near useless because they will hit oversold and stay there until the selling is done. Some major technical levels will help, but trading it is simple: be short before it starts.

I think that moment to short was in August. Monday was another shot. From here on moving forward, every rally is a change to short again before the next flush lower.

The 3980 area held overnight, despite offering no resistance yesterday. The 3930 area might be support, bnut

I still think bonds can rally from here, but it's only a hop to the target low from topping pattern. If bonds start selling off again, the target on ZB is 121 area. That is only an 8 percent decline from here. It would take TLT to around $100 per share and see the 30-year bond yield at 4 percent. It's possible that level coincides with the "wave 3" decline in stocks. Bonds might bottom before the low is in as panicked, safe-haven buying kicks in.
Crude oil has rallied and kept energy outperforming, but the economic slowdown in Europe and China is going to spill worldwide.
My overall sense of the market: this still isn't recognized as a bear market. It's like September 2008 before the collapse. There are bullish pockets such as low auto inventories that show recovery from the pandemic isn't complete. Yet most of the market participants are Kool-Aid drinking mice trained to get a peanut everytime they "buy the dip." Most did not trade the dotcom bubble and aftermath. They have lived through an era when every ouchie got a Fed bandaid. They can't conceive of a situation such as Apple having peaked as a company, nor do they understand the degree to which Apple is propping up the indexes that signal the health of the stock market.

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