2022-06-20

2022 started with a bleak outlook in the market, and at TRi, we expected a mini stock market crash into the first half of the year. The January Barometer (A study with the premise that “As goes January, so goes the year”) showed a weak market in the first six months, then a bottoming and rally later in the year.

Heading into the new year, the market was already heavily overextended. The Fed was tapering asset purchases and talking about raising interest rates in 2022.

Here was the January Barometer outlook at the start of the year:

It’s impossible to predict the market, or how violent the January Barometer will play out. This updated chart shows the market following version “D” but since we’re heading into the June/July pivot, we could easily move back to follow “C” or “B”.

Read more about the January Barometer here:
https://therationalinvestor.com/blog/should-you-rely-on-the-january-barometer-to-predict-the-market?eaContext=620d449

The S&P500 chart is also following the Decennial pattern pretty closely:

And the Midterm election year cycle as shown in this year's Stock Trader's Almanac. (Credited and linked below)


We are the blue dotted line (Democratic president midterm), suggesting the same June/July pivot in the market.

Read more about the decennial pattern and midterm election years here:
https://therationalinvestor.com/blog/how-this-secret-2022-decennial-pattern-predicts-the-markets-future?eaContext=620d449

The patterns suggest the markets may bottom around the end of June or the beginning of July. That may seem impossible considering the narrative of rising inflation and interest rate hikes; however, there is a sign that the market is heading into deflationary territory.

A major component that drives inflation is the rising cost of Energy & Food, two areas of major importantce for people since they are required staples of living, eating, keeping the lights on, and getting around. Rising cost of energy also leads to a ripple effect where the costs of goods rise due to production and transportation costs.

On the futures charts we are starting to see signs of weakness. Natural gas and wheat are looking heavy which is a deflationary sign. A year from now, these prices could retrace to Gann’s 50% rule, and the “Inflation” story will be yesterday’s news.

In the latest meeting in June, the Federal Reserve tries combatting inflation with the largest rate increase since 1994. Jerome Powell said the Fed expect interest rates to climb to around 3.4% by the end of this year, up from 1.9% they were projecting in March. This likely means multiple 0.50-.75 basis point hikes in the second half of the year.

Although as the saying goes, the Fed often acts “too slow, too little, too late”. Now, since the gas and wheat commodities are coming off, suggesting a deflationary environment, the market could rally into these later interest rate hikes, and the Fed is “too late”.


Commodity pressures hit its zenith in October/November, marking the end of the cycle, and at that point, the market is more likely to rise. This would closely follow the January Barometer, and the midterm election seasonal pattern. Moving into the first quarter of next year, pullbacks into Reload Zones will clean up the market, setting up the base for the next bull market.

Will this end-of-year rally last? 
The Benner Cycle pattern shows that 2023 will be a year of “hard times, low prices and a good time to buy stocks”.

This suggests that 2023 could mean lower prices, bottoming patterns and plenty of sideways, heading into 2024 when the market can finally come back to life. Then, in 2025, the market goes into circuis mode, and as shown in the Benner Cycle, 2026 is a year of “Good times, high prices, and the time to sell stocks”.



Read more about the Benner cycle here:
https://therationalinvestor.com/blog/how-the-benner-cycle-predicts-100-years-of-market-movement?eaContext=620d449

When the market is in a rip-roaring bull, everyone looks like a genius. Everyone makes money. However, in a bear market, nobody makes money!


Even with hedging your positions or shorting, the rest of your portfolio is likely suffering. Times like these separate the professionals from the lucky traders. As Warren Buffett puts it, “when the tide goes out, you see who’s been swimming naked”.


We’re not in the business of predicting the future, just following our plans and the data, and making the best fundamental and technical trading/investing decisions. Right now, the market doesn’t look too hot and for Little old Ladies, it’s a slow patient waiting game. This is why you often see brokers and investment vehicles with a “3-5 year time horizon” disclaimer.

At TRi, we often say that “opportunityisnowhere”. There is no wrong way to read that, it just depends on your outlook. The current opportunity in the market is to grow your education, cool your jets, and if you’re a trader, then practising and developing your lower time frame day trading & swing trading plans.

The goal of a plan is to pre-define what you expect from the market, not try to predict it. When the market follows your pre-defined plan and setup, you act accordingly. Become obsessed with the process; Journaling, logging, demon hunting, and filling out report cards and become consumed with developing this skill.


If you want help, education and a community to support you, try out TRi with a FREE 30-Day trial to TRi at https://join.therationalinvestor.com/tri-30-days-free

Sources:
Decennial Pattern Blog
https://therationalinvestor.com/blog/how-this-secret-2022-decennial-pattern-predicts-the-markets-future?eaContext=620d449

January Barometer Blog
https://therationalinvestor.com/blog/should-you-rely-on-the-january-barometer-to-predict-the-market?eaContext=620d449

Benner Cycle Blog
https://therationalinvestor.com/blog/how-the-benner-cycle-predicts-100-years-of-market-movement?eaContext=620d449

Larry Williams Decennial Study video on Youtube
https://youtu.be/0O_ZOohg-Xk

Stock Trader Almanac 2022:
https://www.amazon.com/Stock-Traders-Almanac-2022-Investor/dp/1119845912