Once I turned bearish on the finish of 2021, I made it fairly clear that I anticipated this inventory market downturn to be pretty temporary – not less than in historic bearish phrases. At our MarketVision 2022 occasion on Saturday, January eighth, I prompt that the S&P 500 would possible wrestle for 3-6 months and I even offered a chart of the S&P 500 and the way I anticipated we might commerce all year long, with a possible draw back goal of 3500-3800. Right here was the chart I offered at the moment:
By connecting the bear market lows of 2009 and 2020 after which dragging that sloped line as much as join the periodic highs, you possibly can see that the S&P 500 has traded in a channel (largely) over the previous 13 years. The midpoint of this channel has been examined a number of occasions and I used to be searching for one more within the first half of 2022. The precise worth motion has been strikingly near my outlook:
I’ve completed a LOT of inventory market analysis over time. I am at all times making an attempt to higher my understanding of how the inventory market works and what we’re largely more likely to see. I’ve beforehand proven the everyday inventory market reactions AFTER a bear market concludes. If you have not seen it, this is an Excel desk that I produced as a refresher:
That is the ENTIRE checklist of cyclical bear markets since 1950. 2022 marks the eleventh cyclical bear market since 1950. It lasted 165 days, a bit shy of the common cyclical bear market period of 201 days. We noticed a decline of 24.52% on the S&P 500, rating it the sixth worst cyclical bear market (out of 11).
The common 1-year return after a cyclical bear market backside is 42.59%. As of Friday’s excessive, the S&P 500 has rebounded 13.84%. If I needed to guess proper now as to how a lot we’ll rally within the 1-year interval from June seventeenth, 2022, I might guess 40%-50%, which might suggest an S&P 500 vary of 5091-5455 in mid-June 2023. I consider we’ll see it.
Resumption of Secular Bull Markets
When cyclical bear markets finish and secular bull markets resume, there’s historic priority as to how we’ll commerce. The a number of charts to observe present you some historical past of how these cyclical bear markets ended and secular bull markets resumed:
1957:
1961:
1966:
1968:
1980:
1987:
1990:
1998:
2018:
2020:
2022:
As soon as the S&P 500 broke again ABOVE its 50-day SMA, I drew a inexperienced worth assist line on the subsequent worth low. The NEXT worth excessive then confirmed that inexperienced worth assist line to be key assist. The 1962 bear market was the one one which noticed this worth assist degree misplaced in any significant approach after one other breakout was made. 1987 did see intraday promoting take the S&P 500 under that worth assist degree, however that promoting did not final lengthy. You possibly can see that, based mostly on historical past, I might be watching the 3900 assist degree on the S&P 500. I absolutely anticipate this can maintain as worth assist. If it does not, then the “resumption of secular bull market” thesis will have to be revisited.
For these of you satisfied that it is a secular bear market (long-term), and never cyclical, there was an identical bullish sign in October 1973 that finally noticed the S&P 500 drop one other 40% over the subsequent yr. 2001 and 2008 additionally noticed comparable bullish setups solely to fail and drop significantly additional. So I’m not, BY ANY MEANS, making an attempt to ensure any form of market backside. Nonetheless, as I mentioned in my June sixteenth Buying and selling Locations Reside present, market indicators informed me that there was an excellent likelihood we have been bottoming. If I see it, I name it. I do not lack conviction and I consider that serves me effectively, particularly given the fixed media scare techniques to generate clicks.
Objectivity is vital in any inventory market dialogue and evaluation. I consider we’re full pace forward, however ANY shut under 3900 suggests – not less than from a historic perspective – that we think about the chance that the bear market of 2022 has simply begun and even accelerated promoting might be in our future. However let’s keep in mind that we’ve got had 3 secular bear markets in my whole lifetime – and possibly most of yours as effectively. Consistently investing with the notion that THIS time is THE worst bear market of our lifetime typically does not work out effectively. It is all about odds, chances, and the way a lot danger you are keen to take.
Once more, I consider we’re heading increased – a LOT increased. I am now shares which might be exhibiting bullish character modifications on their charts and I’m laser-focused on figuring out and buying and selling these ON THE LONG SIDE all through the steadiness of 2022. On Monday morning, I will be writing about one such inventory in my EB Digest publication. It is a inventory that I am trying to personal, when the reward to danger units up appropriately. For those who’re not already an EB Digest subscriber, please CLICK HERE to enter your identify and electronic mail handle for extra data on this potential cash maker. There isn’t any bank card required and chances are you’ll unsubscribe at any time.
Joyful buying and selling!
Tom
Tom Bowley is the Chief Market Strategist of EarningsBeats.com, an organization offering a analysis and academic platform for each funding professionals and particular person buyers. Tom writes a complete Each day Market Report (DMR), offering steerage to EB.com members every single day that the inventory market is open. Tom has contributed technical experience right here at StockCharts.com since 2006 and has a elementary background in public accounting as effectively, mixing a singular ability set to method the U.S. inventory market.
