Two timing the markets...
Multiple meanings in that headline... but, simplest explanation is... there is a fundamental trend the market follows... and there are deviations from trend as "noise" to make things interesting...
Prediction is difficult because being right about direction in the major trend... still ignores that the scale of deviation within trend can be significant enough to obliterate "the pattern" in shorter time frames... while in the options trade, the "value" is constantly burning from one end (time) while swinging wildly on the other... in such degree as to wipe out the benefit of being "mostly" right... success requiring either you insulate yourself entirely from the time function... or be exactly right about the short term versus long term dynamics...
But, in a world fundamentally built on mean reversions... a range of mean things happen...
Which is to say... fundamentals can be ignored for a time... but not forever... At some point "be careful what you wish for because you might get it"... proves valid. So, in our current economic predicaments... the core driver is still "choices". Markets do vary based on our 4 year election cycle, election results and expectations tied to them... matter... in defining not "outcomes" as much as "outcomes and paths to them"...
It should shock no one that ""the powers that be" clearly had expectations of what "should" happen (transitory) in the economy and in markets... versus what is happening instead. The clear eyed will not be surprised that expectations in many things (energy related) are not going to be met... given the inputs from the political side... that are hostile to and destructive of basic economic function. A bit of buyers remorse has been shockingly slow to develop... but made inexorable in result of the persistence in error entrained... leaving no path open other than "correction".
The reality today is... "stuck on stupid"... so there cannot be any correction in the direction of travel on the economic path (or its reflection in the emergent in the market trend)... without "change" occurring in who is driving the bus... and what destination it shows is selected as the end point on the route being traveled.
Markets and inflation expectations changed in November of 2020... with the (s)election "result"... No one should be surprised by "the great resignation" that has followed... given a "leadership" heading the wrong way... and almost no one willing to follow voluntarily. The market "driven" to drift higher for another year under that error in expectation... now seen easily enough as entirely a displacement in a misdirection from the underlying trend change that did occur... leaving not only a need for "removing the error" thus imposed... but also a need for "correcting to the changed reality" as real economic potential has diminished substantively in the wake of election 2020... and the near total gutting of free market incentive as functional driver of choices.
So,bottom line... my charting the "market" from late 2020... has recently shifted... My prior charting showed the market falling off a cliff from the end of March to maybe May 5th... and we're now well into that being proven "about right"... But, my prior charting used parabolic functions drawn from reversal of the prior trend...
What I see today is that extending that modeling "doesn't work" any more... but delivers "can't get there from here" results in smoothing into the real market functions. What recent change imposes... is recognition that the uptrend to the end of 2021... did not fold over into an organic decline... Instead, there was a disconnect that occurred as 2021 ended and 2022 began... that requires charting the rise as one parabolic function, and the decline since then as another... The two functions are that different... that they can't be linked any more... proving in charts as "math" that a disconnect has occurred... a discontinuous change.
So, the new trend... is not just an organic shift... but a deliberate repudiation of the prior trend. And, its natural connection to reality... is fundamental enough that (barring extreme events that I am not predicting) the "correction" required to enable markets in beginning to work at finding a bottom... cannot occur until November of 2022... when voters (might) be able to give revised orders on trend preferences to their elected representatives. Given more than 1/3 of people (correctly) don't believe election results are truly reflective of reality in how people did vote... or that voting for a change of leadership under another party will actually change anything fundamentally... you should probably not expect to see much of an anticipatory function occurring in the days prior to the election... Even the change occurring... will leave a long lag period before the decline now entrenched... not in the market but in the economy... can begin to be reversed...
Biden and the Democrats are trashing the economy... and making a massive mess of the world... which will lead us into a "recession" that has an unchecked potential to be greater than any in living memory... with food shortages likely... the failure of energy and power distribution systems likely... ie., "the wheels coming off"...
The election is not able to correct error that has already been imposed... cannot stop stupid in its tracks until after the date (in January 2023) when change actually occurs... but will instead function as proof of "be careful what you ask for because you might get it"...
Charting markets as SPY again... this time with charts reflecting a discontinuity in parabolic functions occurring on 1 January 2022... "possible" in pink and "probable" functions defined in purple... with the limits and potentials in the patterns in the steering currents in green... gives me this:
Two times... the major trend... and the patterns within the trends...
If 2008 remains a valid proxy for "what comes next"... this charting will prove overly optimistic... as we might well see three weeks in a row of "straight down" from this point... as we did in the three week decline in October of 2008...  |
