How Much Rally is Left: Bull Patterns Fail in Bear Markets

There are some chart patters such as the double bottom in biotech, with a higher second low, that are very bullish looking. Biotech rallied for almost 4 months, from March to July 2008. It has rallied for about 6 weeks now. Percentage-wise, it is not far off the move in 2008.

In bull markets, bear patterns reliably fail. In bear markets, bull patterns fail. Asuming this is a bear market, there is probably not much upside left. My head tells me the market could start falling almost immediately because I expect a pullback here, and that could in hindsight be the start of a larger move to new lows. My gut says that bears are coming out again and maybe that's a sign there's one last squeeze left before the reversal. Is started taking profits last week and looking to position for the next bear move.


China Angry About Potential Pelosi Visit, August Terrible for China and EMs

Very Dead Cats

Some of the tech funds have almost no bounce, Meta among them. Here are four others, familiar names here. They should implode once the bear market resumes.

First Atlanta Fed Forecast: 2.1pc Growth

They were around 2 percent with the first estimate in April too. Movement matters, but I don't take the estimates to seriously until midway through the quarter, at which point there will be about a month's worth of data. The first weeks can be highly volatile because early reports are overweighted.

Korean Won Chart

More charts below, but USDKRW is the most interesting. It has has sustained moves higher during the 1997 Asian Crisis and the 2008 financial panic. I laid down a green horizontal to highlight this. If the trendlines have any value, they say USDKRW will go much higher, if it is going higher. Not particularly insightful given everything going on, but given the base and lack of any upside target except prior highs, it looks like a 20 percent devaluation from here. Note that I expect a pullback in the DXY here. This could be a bigger move in a dollar pullback, then breakout scenario. CNY,JPY,EUR below the jump.

What's Going On With TLT vs ZB?

Depending on where you start the pattern, TLT is trailing ZB performance by about 3 to 4 percent, sometimes as much as 5 percent. The gap is easy to see today because ZB is breaking away to the upside through a horizontal from, but TLT hasn't even cleared a horizontal from late May. The bottom chart shows how TLT outperforms ZB in the long-term because TLT pays divideds, while ZB is price only, but even stripping out dividends (in set) shows teh wide variation. What I don't know is why this variation exists. it could be random. In the grand scheme, it doesn't matter as long as the trend is right because eventually, TLT will breakout or ZB will fail. Yet I'm wondering if there's something to this relationship that would tells us to buy TLT here expecting a gap close, or to buy ZB because it won't close. Looking at the gap over the past year, it looks like TLT should close the gap in a rally and widen the gap if the market falls, but thus far the gap has not closed in the rally.

Apple Pop, Prepare for Drop

As discussed back in February, Apple and Microsoft were hitting their SEC-regulated natural limits in some growth funds. Long story short, even passive funds tracking indexes such as Russell 1000 Growth will be forced sellers of Apple or forced sellers of other holdings to stay within SEC rules. Rules are quarterly, percent of days in compliance, so August 15 or thereabouts is a date after which they have to be adjusting if they've drifted out of compliance.

Fund managers use modeling to try and track the index without replicating it, but it becomes harder when they are limits on what they can own. However, the main point remains: managers tracking the Russell 1000 Growth Index (IWF is an tracking ETF), either directly or as a benchmark, have almost no room to overweight Apple if they're tracking it. If Apple's weight increases because other stocks fall more than Apple, they have to sell Apple to stay in compliance.
Apple has a gap at $174 and change, I think that is the limit of upside risk. I took a short-term position against Apple this morning, with near-term options, assuming the market pulls back from here. Will assess going forward, but I will be looking to open a larger position out towards the September-October timeframe. The ratios are peaking, but if the overall market goes higher, Apple can go higher without lifting its ratio.

A September-October Crash Scenario

Crude oil is "inflated" by Western green energy policy and psychotically anti-Russian foreign policy. The ruling class in Washington, DC, New York, San Francisco etc. must be removed wholesale if the public wants cheaper energy. For now, a majority of the public wants to do some combination of permanent lockdowns and nuclear war with Russia and China, so that will not happen. No one on the scene proposes both a return to realpolitik and an energy policy based on actual science and physics, instead of computer models generated by an apocalyptic green cargo cult or a policy that favors oil and gas producers over the rest of the economy.

The main assumption for this crash scenario is the economy declines as expected, but crude oil remains high. The stock rally also eases financial conditions. This keeps inflation and inflation expectations high.

The Federal Reserve, which has dragged its heels on inflation the whole way, stops dragging its heels on QT. When the QT amount doubles to $95 billion in September, the Fed starts actually doing QT.
The combination of higher than expected inflation plus the Federal Reserve getting serious about inflation again triggers a far larger market collapse than the one in mid-June.

This is not the only possible crash scenario, only one of them. As I've been saying for months, there are only two real "free lunch" policy available for the government: peace with Russia and doing anything to increase confidence in energy markets. Ease the sanctions, let energy costs plummet and economic pressure will lift. Sans that, their only hope is that the economy collapses enough to kill oil demand without triggering something like the 2008 market crash because there is no known scenario where things get better without getting worse first.

Fed Taper Still Going Slow

The gap between what the Fed should have tapered and what it has tapered, continues to widen.

Indexes: Breakout or Pullback

I dropped a green line on RTY. I'm not sure I want it there, but I put it there for comparison purposes. Nasdaq reversed at that line, and that's the one I place the most weight on. The Nasdaq is still the more important index because it is leading the rally.

A breakout above that line is the more important event because it will cause more short covering. A pullback is a normal test, and I'll be looking to buy the dip.

Having said that, now is the time to start hunting for new short targets. I will be looking top down, from macro trades in FX, bonds and commodities down to sectors and then individual targets. VIX will hopefully return to April levels, providing cheap puts.

Gold Testing Trendline

For the Records: German Greens Vote For More Coal over Nuclear

Anyone who is serious about climate change would never choose coal over nuclear. Yet the German Green party voted for exactly this in July. The entire topic of climate change is a scam as evidenced by the behavior and political choices of its leading adherents.

WSJ: Germany’s Nuclear-Power Implosion

The West is gripped by a suicidal, depressed, self-loathing people who fall for any foreign criticism. The same pattern of decline in seen in many regimes. The U.S. shares parallels with the late Qing dynasty, complete with the drug abuse, lack of confidence, and rule by invaders. Upcoming will be the Boxer rebellions (expelling of foreigners; Muslims in Europe and who knows who in the USA), followed by the political volatility, low level to full blown civil war, then religious/cultural revival. Enjoy the decline!


Indexes Based and Silver

The major indexes have almost completed patterns that point to the final leg of the bear rally. Silver, I did not set a chart alert for the buy zone, but it was a good place to be buying. I do still have gold miner ETF calls though...


Clean gap through support.

Amazon Almost to Gap Fill

Chart includes the after-hours post earnings pop.
Update: This has to hold into regular trading hours to count.

Japan Stocks

Three off a watchlist. One is at a 52-week high, one has a nice base, one is just for fun. The latter is a children's clothing company that is sinking into the financial abyss.

Game On

H&S formed along the long-term resistance line. The game goes on for the Federal Reserve...

When Does the Bear Rally End and Ethereum Breakout

I give you a news item from July 2008. Cramer Declares The End Of The Bear Market
I am indeed sticking my neck out right here, right now, declaring emphatically that I believe the market will not revisit the panicked lows it hit on July 15….. Bye, bye bear market. Say hello to the bull and don’t let the door hit you on the way out.

– Jim Cramer, last night (Wed July 30), on his “Mad Money” program on CNBC

The linked post is bearish, he was only noting Cramer's call. Notably, the same guy is temporarily bullish today: The Lows Of The Year Are In
The bear market is not over. That was simply chapter 1. We’re a long way from home. This is a tactical call for the next few months.

Ethereum broke out. This initiates what should be the final leg of the bear market rally.

Meta Kills XLC

The rally in the market could have a bit more to go, but Meta all but killed the XLC trade following weak earnings. Weakness in the chart also makes it a good short candidate as soon as the market turns. I went looking for gaps. There's a big one that runs from $26.53 up to near $33 per share.
Here is Meta ratio with XLC and QQQ. I was expecting Meta could outperform QQQ, and had it, the XLC would easily be well into the green now. Instead, a small loss here. Earnings are a nice excuse, but other firms reported bad results and still rallied.

It's a Recession! Job Losses Have Only Begun

While Wall Street debated if the recession would start later this year or early next year, and the Baizuo in government and media were redefining recession, I called the recession in June, dating it back to January. IICS Calls Recession Back to January 2022. It is now official. The BEA reports 0.9 percent contraction in real GDP in Q2 2022.

No special insight was needed for the call since the Atlanta Fed GDP Now model showed this was likely. The only insight I added was that I believe whatever number is reported was going to be rosier than reality. Even if GDP was positive in Q2 and technically not a recession, I would not have retracted my recession call because I believe the future data revisions will show a deeper contraction. Things are also poised to get worse.

It is true that this recession is rather mild thus far if looking at jobs and economic activity, but the outlook isn't a soft-landing. The odds that this is only the start of something much larger are much higher than anyone in government or Wall Street would care to admit to themselves, let alone in public.

Federal Reserve Bank of NY Model Projects 2 Years of Recession

It's Not a Recession. It's a Depression.

The good news on jobs is that unemployment might remain low for people who want to work because poor education, substance abuse and welfare have permanently reduced labor supply, particularly skilled labor. If you're willing to learn a skill and show up to work everyday, you are probably at low risk for job losses outside of the worst case scenarios. Notice how low claims are below. That chart isn't population adjusted either. Claims are very low compared to the population because many people are no longer "in the labor force." They live on welfare, disability, or retired. While it's great for skilled labor, it isn't great for overall economic growth.

Having said that, job losses started ticking up in June. Below is the 4-week average of continuing claims for unemployment.  History shows turns on this chart shouldn't be taken lightly. Continuing claims started rising in April, the average turned up in June. Everyone in a political position (government, media, Federal Reserve) are all talking up jobs. They are betting their reputations and their careers in some cases, on the uptick below being a wiggle rather than a trend change. 

As for the markets, initial moves on recession news were: long-term treasuries up, stocks up, gold up, oil down, dollar down and yen up. Expect some chop, but many of these moves can continue for a few days.