Market Trek

with Brian Whitmer

  • The Cycle of Optimism: 2 Years Up, 2 Years Down?

    Hey guys, Brian here. I hope your week’s going great.

    There’s an interesting two-year cycle of peaks in optimism that’s been going on for about six years now. In this video, I’m gonna show you this cycle because, if it is still operative, we’re in a time window right now where we could see a big surge in negative sentiment. Stay with me.

    All right, guys, welcome back. Real quick, before we look at this cycle, let me just show you where I’ve been the last few weeks. I’ve been traveling around Hokkaido, in northern Japan, and this is the view coming down the ropeway of Mount Hakodate — very, very cool little city. I really loved it here.

    There’s some interesting financial history here, too. Hakodate was one of the first Japanese ports to open to international trade in 1854. There was a convention that ended Japan’s period of isolation. Hakodate that saw this, you know, influx of foreign traders, and it was a big historical event that really played a major role in modernizing Japan’s financial system.

    The other interesting thing is that Hakodate was the capital of Japan’s first attempt at a Republic — the Republic of Ezo. A group of Samurai rebelled, tried to set up a Western-style democracy. It lasted five months, and was overthrown in 1869. But for the time, it was a huge departure from feudal Japan and toward a modern governance system. So, super interesting place. Really glad I got a chance to visit.

    Let’s take a look at this cycle. Top graph here is the Dow, bottom graph is the VIX Implied Volatility Index. We have inverted this to align with stocks. So the top’s in the blue graph here. Our low VIX readings, which show high complacency, extreme optimism, right? Those readings align very well with peaks in the Dow. As they should, right?

    The cycle here is fairly clear, right? Every two years — 2018, 2020, 2022 — the inverted VIX, it hits a cycle high that coincides with a high in the Dow and that leads to some kind of selloff.

    So, I’m bringing this up now because this cycle is due to reverse again. The window was November to January. So, we’re on the tail end of that turn window.

    The cycle is especially compelling right now because of some other indexes that show what I’ll just call dangerous levels of optimism. This is one of them.

    Steve and Pete published this chart in the January Financial Forecast. (Subscription link’s below.) It’s the bullish percent in the weekly AAII poll — famous poll showing expectations of retail investors. So, this is not institutions. It’s mom and pop.

    Bullish percent just hit 61%. That’s the highest percentage since the first quarter of 2021. And that, if you remember, is when the mania in SPACs ended, when the IPO mania ended, when the mania in meme stocks reversed. That’s where we would have to go to find a time when mom and pop were more enthusiastic than they are today.

    The behavior of retail traders, it’s a contrary indicator, and their commitment to the market is extreme. And we think it’s going to change dramatically during the next wave of declines.

    Let me know what you think in the comments. Again, subscription links below, if you’d like to see more of this kind of analysis. And thanks for watching.

    Is Bitcoin a “buy”? How about tech stocks? Gold? Oil? Indian stocks?

    See what Elliott waves show for 50+ of the world’s biggest markets in our new Global Market Perspective.

  • Market Trek: We’re Watching This Stock Market Divergence, and So Should You

    Hey guys, Brian here. Hope your week is going great.

    Little market history lesson today. February 1966: that month marked the orthodox end of Cycle Wave 3 in the Dow. There was a divergence back then that helped analysts navigate that bear market.

    A similar divergence just popped up again today, and not many people know about it. So stay with me.

    All right guys, welcome back. Before we look at these charts, let me just show you where I was last month.

    This is the Nikko Toshogu Shrine. We’re in Nikko. This is about a two-hour train ride from Tokyo. The interesting thing, one interesting things, about Nikko is that a lot of Japanese firms hold their high level meetings and retreats here. It’s a really peaceful place. Thought to be good for strategic planning, decision making, team building.

    There’s also cool story about a secret hidden treasure somewhere in the shrine, gold and gems, samurai artifacts from the Edo Period. Treasure hunters, I’m told, have scoured the place, and the treasure is still out there. I certainly didn’t find it. So, best of luck to anyone else who visits. I really enjoyed Nikko. The whole area is just beautiful.

    But, let’s get back to this market model from ’66. All right, these graphs come from the latest issue of Global Market Perspective. (Subscription links below.)

    Top graph here is the nominal Dow. This is the Dow we see every day. Bottom graph is the Dow divided by the Producer Price Index. We call it the Inflation-Adjusted Dow. It’s essentially what stocks would look like in terms of the things that we all buy.

    These two peaks here are important. This is February 1966, end of cycle wave three. Here, the peak in the Dow coincided with a peak in the Inflation-Adjusted Dow.

    This is December ’68. Nominal prices almost match that prior peak. Inflation-adjusted prices are lagging here. This non-conformation leads to declines of 36%.

    And ultimately, if we extended this chart out through the early ’70s, the Dow rallied, but then it declined another 45% into December ’74.

    Let’s look at the same indexes today. Dow rallies to a new high on January 2. Inflation-Adjusted Index doesn’t make it, right? And neither do a lot of the broader indexes.

    There has been no new high in the Wilshire 5000, no new high in the New York Stock Exchange composite, no new high in the Russell 2000 or the Value Line Composite.

    So, just as in ’68, we think the enthusiasm has pushed a select few averages to new highs, but many more indexes are weak. We view this as a fractured market. It’s an unhealthy market, and ultimately, it’s a market that is vulnerable to significant decline.

    So, let me know what you think in the comments. Again, subscription links below, if you like this kind of analysis, if you’d like to subscribe to our newsletters. And thanks for watching.

    Is Bitcoin a “buy”? How about tech stocks? Gold? Oil? Indian stocks?

    See what Elliott waves show for 50+ of the world’s biggest markets in our new Global Market Perspective.

  • Market Trek: How to Know What’s Next for Interest Rates (Without Looking at the Fed)

    The price of the U.S. “long bond,” the 30-year Treasuries, is down 50% since 2020. The corresponding rise in interest rates has been reshaping the financial landscape. When might interest rates come down? Watch Market Trek host Brian Whitmer give a one-of-a-kind, Elliott wave-based explanation that has nothing to do with the Fed or economy.

    Hey guys, Brian here. I hope your week is going great.

    In this video, I just want to share a few insights from a free report we just released. You can download a copy using the links below, but I want to talk about treasuries today.

    This is supposed to be a safe haven asset, but long bonds are now down more than 50% since March 2020. This selloff is changing the investment picture in some important ways, and we’ll talk about how it’s changed and what we are looking at now. Stay with me.

    All right guys, welcome back. And let’s just go ahead and put up this chart first and foremost. This is just a spread between volatility on a long Treasury ETF and volatility on an S&P ETF.

    So, what it shows is that, relative to stocks, volatility in treasuries — highest in 21 years! Again, this is supposed to be the world’s safe asset, and treasuries are, at the moment, way more volatile than equities.

    In addition to volatility, there is this chart showing the issuance of treasuries. Blue line here is marketable debt pushed to 14 trillion. The gray bars are the six-month change in outstanding net debt. That is pushing toward two trillion.

    So, what we have is essentially soaring supply at the same time we have soaring volatility and falling demand. And these trends are steering investors away from the treasury market.

    That, at least, is the mainstream explanation: supply and demand. Feel free to take it or leave it.

    We approach things differently. We look at markets in terms of waves of social mood, and that’s why we’ve been showing this chart. It is the five-wave decline in long bond futures. It’s a classic impulse wave. Prices have moved ahead of the mainstream narrative that revolves around supply and demand.

    Our view is that once this wave is complete, that’s going to mark a larger degree bottom, and then we’ll see the largest countertrend price rally. So, it’s a fall in yields, the largest since the March 2020 peak.

    So, that’s where we stand in terms of Elliott waves.

    You might think that this would be good news for the economy: If interest rates come down, it’s easier to service the outstanding debt. We actually think it’s going to be quite the opposite, and we get into that a little bit in this free report.

    So, don’t forget to download. Use the links below, and thanks for watching.

    Free, see more insights inside our new report “Essential Investor Insights” >>

Brian Whitmer

Global Markets Strategist
Editor, European Financial Forecast

Brian Whitmer was a civil engineer in another life, so he’s got a good sense of how things are constructed. Applying that skill set, he deconstructs today’s sundry financial vehicles, like CDOs, meme stocks, subprime mortgages, SPACs, et al, and contextualizes them for his subscribers. He edits the monthly European Financial Forecast and contributes the European stock section of our monthly Global Market Perspective.

Brian’s also got a bit of wanderlust, so he gets a first-hand, boots-on-the-ground feel for what’s really going on around the world.

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