We’re a product of our upbringing so naturally when we see an important market turndown, we think of A Bronx Tale and the scene in the bar with the biker gang. You know the scene, right? It’s when Sonny locks the door to the bar – from the inside – and tells the gang “Now youse can’t leave” and he and his crew turn the tables on “Satan’s Messengers.” During the melee – narrated by Calogero – the scene’s soundtrack switches from “Come Together” by The Beatles to the “Ten Commandments of Love” by The Moonglows. The mural above is at the corner of Hughes Avenue and E. Fordham Road in the Belmont / Arthur Avenue section of The Bronx, where “Sonny had five fingers, but he only used three.”
The market’s price action, plus the inability to ignore bad news, continues to suggest investors are in the same position the biker gang found themselves in when Sonny locked the bar door. It’s true in Europe, too, as we’re looking for equity indexes there to break. Canada has, up until now, avoided the weakness seen in the US but we believe, as they used to say in the old gangster movies, “the jig is up.” We want to short the S&P / TSX Toronto Stock Exchange 60 Index Futures or the iShares MSCI Canada ETF (EWC) right here – and if you’re going to do it, we suggest a full position now. (charts follow below)
In the globe’s latest maelstrom – US / Russia / Ukraine – Bitcoin, the asset purported to be the answer to every question, has quietly weakened and is notably underperforming its arch enemy, gold. The chart here shows Bitcoin relative to gold and it looks to us like a top / distribution phase in favor of gold. We’re looking for Bitcoin to get back to 30,000 and then break below there and we continue to expect gold will make a new all-time high.
S&P / TSX Composite Index (cash) – Monthly w/ 12-Month MA & Monthly MACD
The Monthly MACD in the lower panel is at its greatest ever overbought reading and is cresting (please notice the green barred histogram has been weakening for months). What follows is not admissible in stats class, but it is in portfolio management class – the last two times the S&P / TSX recorded extreme overbought readings, like it is now, and momentum crested and rolled the index dropped -50% both times. That is not a forecast, we’re merely making an observation. However, we still want to short the index (via futures) or the EWC right now.
Here’s a weekly chart for the EWC w/ 40-Week MA and Weekly MACD
The EWC has been carrying a negative momentum divergence for 36 weeks as momentum peaked in June 2021, and has been deteriorating since, and it did not confirm the November 2021 high, either. We think the EWC has a debt to pay for the 36-week negative momentum divergence and we believe it works back to its post-COVID late 2020 breakout level at 30.
Downside targets for the S&P and NASDAQ are in the charts that follow.
Meanwhile, the monthly chart for NASDAQ has topped and it makes our 10000 target seem a little less hyperbolic.
The chart below is “value-y” in nature in that it includes the S&P Industrial Sector (S5INDU), the Russell 1000 Value Index (RLV), the Fidelity Growth & Income Fund (FGRIX), the T Rowe Price Value Fund (TRVLX), the Vanguard Windsor II Fund (VWNFX), and the Bridge Builder Large Cap Value Fund (BBVLX). These indexes are all painted with the same brush and all are distributing, rolling, or topping. Appropriate ways to short a representative “value-y” ETF include the XLI (Industrials) and / or the IWD (Russell 1000 Value ETF).
It’s true the market has been deteriorating internally for more than a year and it’s also true this deterioration has accelerated since mid-November 2021 as it’s carried the indexes along with it. But the stock that epitomizes the market’s troubles is, without doubt, Meta Platforms / Facebook (FB). It continues to bother us – a lot – that “nobody” seems to be that bothered that FB lost ¼ of a trillion dollars in market cap in one day! To say that FB was mispriced might be the biggest market understatement of all time. Not only did $250 million of market cap evaporate in one day, but in 11 trading days since it has only finished in the green twice while losing an additional 13%. And it still carries 46 buy ratings and only 3 sell ratings! Complacency is still king. We think FB can get to 150.
