Thursday, May 26, 2022


Late stage Tech crash and early stage housing crash. With a Fed tightening liquidity at the fastest pace in history. Retail investors are doomed. They've doubled down on collapse...

Collapse is ahead of schedule. The market has already reached the -20% Lehman pre-explosion level which took nine months to reach in 2008 and only five months this time. Despite being at the CRASH level AND at the cusp of bear market, I still get questions on Twitter if that means the market is NEAR bottom. No, it means the opposite, the worst has not yet begun. 

So far this decline has been a text book end of cycle market. First growth stocks imploded. Now cyclicals are imploding, led by retail stocks. Defensive stocks are weakening. And Energy stocks are in a blow-off top. 

It's a classic pre-recession market. It checks every box. And yet still today's pundits will claim no one saw it coming. 

"We remain steadfast of the view that the inflation scare is going to pass very soon — The lagged effects from the supercharged U.S. dollar is huge in terms of the impact on the cost of imported goods. Inventories have shifted from deficient to excessive"

The stock market is following a familiar pattern of a recessionary bear market. The first phase is the Fed-induced P/E multiple contraction"

The only problem is that Rosenberg is far too bullish on his S&P price prediction as are many other "bearish" pundits, which is why sadly today's investors are being told that it's too late to sell. Unfortunately, nothing could be further from the truth. After Y2K, it took 13 years for the stock market to make a new high. Inflation-adjusted it took 17 years. In 1929, it took 25 years to get back to the all time high on a nominal basis. In Japan, it's been 32 years on a nominal basis. On an inflation-adjusted basis the losses are much worse. 

Investors are reaching what I call "The valley of death". The point from which it will take DECADES to recover.  Unfortunately, not everyone has that kind of time.

This decline has now reached the point of no return. Retail gamblers are ALL IN as they've been buying every dip lower. Which means that the next phase will bring what I call "Bailout failure". This is the greatest risk markets face and yet no pundit is discussing it. It's what happens when investors are far too complacent in the face of epic risk. Sadly, the Fed can't bail out all global markets at the same time. Which means that retail gamblers who waited over a decade to pile back into the casino are going to ride unaffordable losses lower.

Here we can clearly see via the S&P futures net speculative (long-short) contracts traded, that speculators have been getting more and more complacent over the course of this LONGEST CYCLE in history.


Another problem is that investor MASS COMPLACENCY has fed back into the Fed's financial stress index via a muted VIX and compressed bond yield spreads. Which means that investor complacency has led to FED complacency. Which will be a DISASTER. Per the meeting minutes released Wednesday, in three weeks the Fed is going to unleash the tightest liquidity reduction in market history. 

Fed overtightening has caused every recession since WWII, so why stop now?

Going into this week the Dow was on the longest losing streak in 100 years - down eight weeks in a row. So, no surprise, it's bouncing this week ahead of the May long weekend. Working off the oversold condition. The market is now oversold on price and overbought on breadth. Which is the recipe for a panic collapse. 

Crashes occur in oversold markets that have been bought all the way down. 

Here we see the S&P 500 has declined to the bear market level, however the NYSE is MORE overbought on breadth than it was at the top and the counter-trend high in April:

In summary:

It's too late for bulls to capitulate because capitulation will initiate meltdown. Consumer Staples and Utilities - "recession stocks" are the "leading sectors" for now. 

Which was the same pattern we saw in 2008. 

"The current market price structure is eerily similar to the global financial crisis in 2008"

"In order to call for a stock market bottom, capitulation from both institutions and retail investors is needed. Before market capitulation happens, leadership in sector, industry group and stock is likely to disappear"