Contrary to popular belief, stocks don’t just go up.
They go up…and they go down. It goes down much less often than it goes up. But when they do, it’s usually painful.
Some people endure a tough period of falling stock prices and wait for the uptrend to resume so they can be profitable again.
You should know by now that I am not that kind of person. We are not satisfied with just waiting for the stock to do something.
I want to make money while they are going up and while they are going down.
That’s why I’m saying this…
So far in 2023, the stock has more or less risen. The S&P 500 is up 4% year-to-date. This gives hope to passive investors who are desperate for a new bull market.
But please understand, now is not the time to be a passive investor.
We are in the middle of another fakeout rally that we believe will lead to another brutal shakeout.
I don’t want you to be the next leg victim.
So listen carefully to what I am about to tell you…
Just Another Fakeout Rally
I was emailing Ian King earlier this week. He noted that from 2000 to his 2002, there were four fakeouts of his rally on the Nasdaq.
Whoever bought these fake rallies thought the worst was over, but they were wrong. After each of these 20% rallies there was another shakeout. These cuts averaged a 37% decline, pushing the stock to new lows.
This chart shows the big fakeout rallies from 2000 to 2002…
The first rally had a 23% fakeout followed by a -42% shakeout.
The second fakeout rally saw a 12% run followed by a -34% shakeout loss.
The third was up 16%, but immediately followed by a -31% shakeout bust.
Finally, the fourth and final rise in fakeouts sent the stock up 31%, but fell -41% in the next shakeout.
As you can see, for two and a half years people were tricked into thinking they had recovered. Little did anyone know that another shakeout was on the horizon.
My research predicts a bear market over the next two and a half years. It’s only been a year. That means the rally we saw last week was yet another fakeout before another massive shakeout.
Why is it like 2000 this time and not the other three times the Nasdaq recovered the following year?
Because the market dynamics today are the same as they were then…
History rhymes with dotcom crash
Late 1990s. Companies rushed to capitalize on the bull market through initial public offerings (IPOs). They sold their shares to the public through these IPOs.
But just think about it… the stock price skyrocketed, and the company’s management rushed to go public.
We can only assume that these CEOs had the best of intentions and wanted private investors to benefit from owning these great companies. But that would be too generous.
It’s much more likely that they wanted to cash out at a ridiculously high valuation whenever possible.
And they have repeated it in the last few years.
The number of IPOs set a new record in 2021. The previous high was in 1999, just before the bubble burst. The 2021 high was more than double what he was at the time.
This seems to rhyme with history, if not outright repetition…
Looking back further, we can see other similarities.
- In the 1920s, retail investors used new technology (ticker tapes and telephones) to quit the tedium and trade bull markets from anywhere.
Dreams of ocean liners heading to Europe and good luck on the beaches of New Jersey gave hope…and then October 24, 1929, followed by the Great Depression.
- It was the same in the late 90’s. New technologies such as the internet and online his brokers have allowed people to quit their jobs and trade in the bull market.
They flooded the market because everyone wanted the “lifestyle of the rich and famous.” Then, in 2000, the dot-com bubble burst, resulting in the worst bear market since the Great Depression.
- It was the same song, the third verse of the 2020s.
Discussion boards like Reddit and free online trading have helped people get out of their 9/5 jobs and enter the bull market.
There was a temporary pause due to the March 2020 corona shock, but the stock price fell for the next 12 months. In 2022, the market is back to reality…still in a bear market today.
Another constant in the biggest bear markets is enthusiastic “smart money”.
In 2021, the amount of money pouring into venture capital funds has doubled. The last time it happened was him in 1999, right before the dot-com bubble.
then and now
Now, there is one big difference between these markets and today. The Federal Reserve is raising interest rates. So the situation is even worse than it was then.
We were in the middle of a 40-year low interest rate cycle when the dot-com bubble burst. Today we are in the early stages of what could be a long cycle of rising interest rates.
The Fed doesn’t have many options. From 2009 he pushed interest rates to zero through 2022, which economists said would be impossible to sustain. As such, the Fed has increased the money supply faster than it has in history.
We are paying for it now. Inflation is the highest in 40 years. Government economists have assured us that there is nothing to worry about. They say inflation will return to 2% in a few months.
It always took years to fight inflation. This time it may be different from what we’ve seen in the last 800 years, but I don’t think so.
This is why I believe we are now in yet another fakeout rally.
Look at history. Also:
- Then the first drop… 28% drop in a few months (February 2000 to May 2000).
- Now: This first drop… a 37% drop in one year (December 2021 to December 2022).
Traders are thrilled as it appears to be recovering a bit…up 6% in a few weeks.
The market is expected to continue to rise as everything looks fine in the coming weeks. If you want to attend that rally, great.
But be prepared for the looming shakeout. And be prepared for the recession coming this year.
Remember, we’re in an equity bear market, but not an economic recession…yet.
My metrics show it could start this quarter. And that’s worse news for investors.
On average, stocks fall 38% in a recession. And it bottomed out after economists admitted it was in recession. We are months… maybe years… away from the bottom.
After seeing all of this, I have to ask again…what makes us think it’s different this time?
there is nothing.
Who can claim we’ve hit the bottom of a bear market when we haven’t declared a recession yet?
Therefore, we plan to trade shakeouts over the next few months to profit from the profitable opportunities that the bear market offers. If you want to join me, you can get all the details here.
nice to meet you,