Seeking a bottom - METAR style

Investment Analysis Clubs Macro Economic Trends and Risks
1

Several TMF posts and articles in the financial press have wondered, “Are we near a bottom?” Some even say that inflation has to get better because it can’t get worse.

Mommy, are we there yet?

Even the WSJ:

https://www.wsj.com/articles/markets-2022-slide-has-already-…

**Market’s 2022 Slide Has Already Changed Investor Behavior**
**Once-popular trades fall out of favor as investors brace for further volatility**
**By Akane Otani , Karen Langley and Gunjan Banerji, The Wall Street Journal, May 8, 2022**

**<snip sad examples of declines in stocks, options, cryptocurrencies>**

**The share of investors who believe the stock market will fall over the next six months ended April at its highest level since March 5, 2009, according to the American Association of Individual Investors. Widespread pessimism isn’t necessarily bad news. Some analysts view the AAII survey as a contrarian indicator, betting that when sentiment appears to have soured to an extreme level, markets are poised for a rebound....** [end quote]

So if the dumb money (people like me) think the market will go down, it’s going up! Right?

Now, let’s look at this METAR style.

  1. Do these look like bottoms? They look like falling knives to me.
    https://stockcharts.com/h-sc/ui?s=%24SPX
    https://stockcharts.com/h-sc/ui?s=%24COMPQ
    https://stockcharts.com/h-sc/ui?s=%24UST
    https://stockcharts.com/h-sc/ui?s=HYG

  2. Is inflation ending? Any sign of a top? Any news that Covid is getting better in China? Notice that there are 2 jobs per unemployed person. See any sign that wage inflation is ending soon?

https://data.bls.gov/timeseries/CUUR0000SA0L1E?output_view=p…

https://www.bls.gov/charts/job-openings-and-labor-turnover/u…

  1. Is the Fed satisfied that its current fed funds rate raise is sufficient to control inflation? No, it’s only raised the fed funds rate 0.75% but is seeking a “neutral” rate – one that is at least as high as inflation so it won’t stimulate the overheated economy. They have already said that they will raise the fed funds rate at least twice more, 0.5% each, PLUS reduce their long-term Treasury and mortgage bonds in a month or so. Do you think the markets have priced that in so well that they will ignore it when the Fed acts?

  2. The Fed always raises rates in cycles. They have barely begun. How long do cycles usually last? How long before the market bottoms? Hint: it’s not 2 months, folks.
    https://fred.stlouisfed.org/series/FEDFUNDS

Finding the bottom METAR style: it will be AT LEAST 6 months, maybe a year. Wishful thinking and mechanical analysis that ignores Macro factors will not even begin to find a bottom.

When the market pundits are screaming and there is blood in the streets…and inflation begins to decline decisively enough that the Fed can declare victory … that will be a bottom.

Wendy

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2

Hey there are odds on this.

Might never happen but this world do not expect nothing to happen.

I do not know the odds.

When the Chinese financial meltdown hits bottom it will be global.

3

I do not know the odds.

+++
+++

And, neither did the pro bookies @ the KY Derby Yesterday.

80-to 1 is the Second highest to EVER Win.

4

Finding the bottom METAR style: it will be AT LEAST 6 months, maybe a year. Wishful thinking and mechanical analysis that ignores Macro factors will not even begin to find a bottom.

When the market pundits are screaming and there is blood in the streets…and inflation begins to decline decisively enough that the Fed can declare victory … that will be a bottom.

If you’re retired and have 5 years’ worth of living expenses in cash, do you need to worry about this?

Does it make sense to incur trading costs and capital gains taxes to trade on the fear?

intercst

3 Likes
5

The media used to chatter about the “second half recovery”.

Now their marching orders seem to be “all disaster, all the time”.

Topics on yesterday’s “news”.

Disastrous baby formula shortage getting more disastrous.

Disastrous gas price increases to get more disastrous.

Disastrous airline ticket price increases to get more disastrous.

oh yeah…and SEVERE WEATHER!!!

Steve

2 Likes
6

To your point on 1. Do these look like bottoms? They look like falling knives to me.

All of them have broken through support to new 52+ week lows. That is what a PnF chart calls a “bearish bottom breakdown”. Back in 08-09 I learned a hard lesson, once the market went up off of new lows like this for a few days, buying in… getting sucked into a failed rally a few weeks later. Happened 3x.

Using intermediate term trends like the 10M MA, Breadth thrust, and % above moving average spikes through 60 and sustaining that can help start changing the color from dark red to light green. But right now, it’s bleeding badly.

Life is tough at the hard right edge of the chart.

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