Did someone say he's 'Waiting for the Last Dance'?
On Monday 17 May 2021 211pm, I emailed Clients my latest post titled 'Did someone say he's 'Waiting for the Last Dance''?
Time flies, it's already May 2021! Hope you & fam are keeping well in this soft Circuit Breaker!
I'm going to kick off today's writeup into 4 lengthy parts, so pls bear with me!:
1) Quick review from my previous posts
2) Current state of affairs & short/intermediate SPX (S&P500 Index) outlook
3) Big Picture SPX outlook with ominous warning from Jeremy Grantham of GMO fame 4) Closing words
1) Quick review from my previous posts
In my 5 Oct 2020 writeup, I said: 'Beyond this correction, it is likely this 11-year old US bull market will continue due to liquidity driven reasons. In a nutshell, the COVID pandemic gives the FED full legitimacy to issue their 'blank cheque' to support whatever asset class they deemed important enough to support. This is, of course a moral hazard and will come back to haunt them as a nation eventually.'
In my 14 Dec 2020 writeup, I mentioned:
'When you study the SPX chart, the bullish continuation Cup & Handle OR Pennant pattern will point to a SPX target of at least 3970 to 4021 respectively.'
On 15 Mar 2021, SPX price action unlocked the Cup & Handle Tgt with an intraday high of 3970.08.
Just 2 weeks later on 1 Apr 2021, SPX price action unlocks the 2nd & higher Pennant tgt with an intraday high of 4020.63. I rest my case.
2) Current state of affairs & short / intermediate SPX outlook
When your M2 (money supply) shoots up by 18% within 4 months in 2020, the amount of money sloshing around in the system is unreal & unprecedented. Since the US banks do not need to be recapitalized this time round (as compared to the 2008 GFC), the helicopter monies flew directly into the hands of consumers, economy AND the stock market.
When the liquidity backdrop is so solid & the trend is still up, I'll have to give bullish bias to the chart patterns I see on SPX. (https://www.cnbc.com/2020/08/05/the-ballooning-money-supply-may-be-the-key-to-unlocking-inflation-in-the-us.html)
For the intermediate term SPX outlook, pls now refer to my whatsapp messages (A to D) below (scroll down to bottom of page) to a Client dated 14 May. The message will quickly round up my mid-term views on SPX, Chinese Tech Giants & STI (Straits Times Index).
Now, for the short term SPX outlook, pls refer to attached Charts AA, BB & CC:
AA - Both blue uptrend lines T1 & T2 are not yet compromised but recent selldowns already scare the pants out of almost everyone (ahem, a 4.26% drawdown, hardly a blip on SPX long term chart..)
BB - Recent selldown was backstopped by the 50-day EMA and now price action reclaimed the 20-day EMA
CC - Most importantly, my favorite Bollinger Bands (BB) strategy, clients & followers who followed me long enough will know how to use it. In strong uptrends, the BB midpt line served as a rough support for price action and resistance for downtrends. Thus even with Friday's (14/5) strong price rebound, price action still has not authoritatively reached into the upper BB segment. Even when it does, we also need to see that the next price swing down does not breach back into the lower BB segment.
You must understand if it does breach back into the lower BB segment, then what we may be dealing with is generally flattish or ranging markets for the next few weeks.
Needless to say, if price action gets turn down by BB midpt line this week, then we may setting up for more pain ahead.
You see, currently, I do not have a bullish pattern on the Chart that immediately tells me we are heading higher. Further, as we are now in the US 6-months negative Seasonality (May to Oct) for the year, ranging or sideways market may become a feasible feature.
3. 'Waiting for the Last Dance'
Back in Jan 2021, Mr Jeremy Grantham of GMO had publicly commented that we may be already in the final innings of this 11 year bull market that took off from Mar 2009. His writeup was ominously titled 'Waiting for the Last Dance'.
Pls click this link to read his writeup - https://www.gmo.com/asia/research-library/waiting-for-the-last-dance AND
this link to see his Bloomberg interview https://www.youtube.com/watch?v=RYfmRTyl56w
While I did not agree with him saying the top for US mkts may be in weeks or months into 2020, current speculative fervor in the markets; explosive price increases; record issuance of SPACs & NFTs; Robinhood's young players who do frictionless trades & finally the 'UNBEATABLE confidence of the Fed Put' in crowd psychology, these are indeed frightening signs to heed.
However, in the written article he also lamented that he smartly exited Japan in 1987 at 40x earnings (previous high 25x), only to see it extend to 65x three years on.. before crashing..
Lastly, the Bloomberg interview is definitely worth your 38mins, if you are a student of Mr Market. The only issue I have is that Mr Grantham did not really answer clearly to the interviewer how the 'Fed Put' will eventually fail. He only says it will fail, citing history. If you've seen more concrete literature on how it will fail, pls feel free to share with me!
4. Closing Words While I'm no Grantham pedigree, I will admit that I did manage to pre-warn all my clients & followers (for those who are willing to listen of course) the potential of a 30%+ meltdown of the SPX back in May 2019 due to the bearish Broadening Pattern shown then on the chart - Reference https://www.facebook.com/whatsyourTA/posts/634005333730650.
Fast forward 10 months on, the SPX crashed 35% in March 2020.
Did I anticipate a Global Viral Pandemic to take place then? Obviously not, but the Chart Pattern did pre-warn the potential - the News just fit into the Chart :)
On 2 January 2019, I emailed all my Clients to get ready to 'BUY by scaling in appropriately' after a disastrous Dec 2018 where we saw a 20% meltdown into Christmas. The subject heading then was aptly titled 'A New Hope!'. Reference https://www.facebook.com/whatsyourTA/posts/565734900557694
It also turned out that Dec 2018 selldown was the low we will see for the next 14 months!
I'm hopeful (or at least will try my very best) that I am able to pre-warn you again of that finale move in SPX, so stay closely with me as, in the esteemed words of Mr Jeremy Grantham, '..it is a privilege to ride through a market like this one more time..'!
Live Long & Trade Well.
Thank you & regards
Thomas Ng, CMT
Principal Trading Representative 首席股票经纪
chart source: tradingview.com