What we are witnessing in real-time is the end of the 90 year stock market super cycle. In hindsight, historians will say the pandemic super bubble was the end of the super cycle rally which began in 1933.
The extraordinary era that is assiduously used to extrapolate future stock market gains, is over. It turns out printed money is not the secret to effortless wealth. But, who knew?
Leaving politics aside, the health-related response to the "panicdemic" was unquestionably incompetent. An approach we were told was based on "science", at the local level, resulted in a hodge podge of made up rules with zero consistency from one city and country to the next. Any time you traveled you had to learn the new set of rules, all of which were based on "science". It was pathetically idiotic and yet there has been literally no assessment of what should have been done better. Which is how we roll in this society - lurching from one crisis to the next. However, it will be the global Federal economic response which will cause by far the most dislocation. The true cost of which has so far been obscured by the super bubble.
Three years ago in March 2020, global central banks panic eased the most in history. They flushed global markets with unprecedented amounts of printed money, which went straight into asset markets. From that point forward we have witnessed one pump and dump implosion after another. Beginning with the Gamestop melt-up in early 2021 which was attended by the Ark ETF, IPO/SPAC, Chinese stock vertical melt-up and meltdown. At the lows of that meltdown, the hedge fund Archegos exploded amid RECORD Nasdaq down volume.
That event is what I call the "left shoulder" of the super cycle head and shoulders top. But, stocks recovered and marched to the all time highs in late 2021. That event was attended by the melt-up high for Crypto currencies, reflation trades (banks, industrials, retail, leisure, transports), and of course Tesla and the EV complex. That peak was the "head" of the super cycle head and shoulders top. Next came the bear market of 2022 which culminated in an oversold low in October 2022. Since that time, markets have been rallying in what bullish pundits are calling the "new bull market". Which is what I call the right shoulder of the super cycle top.
The super cycle head and shoulder top can best be viewed by semiconductor stocks which have the most obvious top. Notice in the lower pane that consumer sentiment has been trending down throughout this topping process. Why is that not getting any notice from today's bullish pundits? Why would they assume the consumer is still strong after 20 consecutive rate hikes. Which happens to be three more rate hikes than what imploded markets in 2007.
Today's bullish pundits inform us that there has never been a Dow/S&P rally of this size and duration that didn't end at new all time highs. Never - meaning going back to WWII (1945). The last major rally of this size and duration that failed was 1930. Currently, the S&P 500 is up 28% off the lows of October 2022. Coincidentally, the same size rally as occurred in 1930. The one that back then had everyone convinced there was a new bull market.
At this latest one year high, the S&P 500 is STILL unconfirmed by the equal weight S&P, despite the primary cap weighted index making ten successive new 52 week highs. This is the longest string of divergent highs between these two related indices, in 20 years of market history.
All due to this artificial intelligence mega cap Tech rally. The bank run in the Spring is long since forgotten.
All of which brings us up to date.
Market history and Elliott Wave Theory predict that the impending failure on the right shoulder will be cataclysmic for risk assets. The fact that the equal weight index has not made a new high indicates that for most stocks, this counter-trend rally ended in February of this year.
Note the record NYSE down volume in the lower pane which attended the Spring bank run:
What we are witnessing now with this latest melt-up is bearish capitulation.
Once the global margin call begins, the main thing we should expect is that unlike March 2020, this time around central banks will under-react to this crisis. A crisis they helped to create. Which means that the liquidation of risk assets and attendant de-leveraging will be deeper and more severe than what we saw last time. By the time central banks panic, the global margin call will be complete.
And then will come the bullish capitulation AND total loss of faith in printed money.
The erstwhile secret to effortless wealth.
