I want you to look at this chart very carefully. People are having a very hard time understanding the current environment. The same people who only two months ago told you a stock market bottom was in are now the same people telling you everything is fine. The same people who sold after the Fed couldn’t even raise rates a mite because they feared a 6-year recovery couldn’t sustain are now dancing in the streets simply because the Fed is delaying that same anticipated rate cut.
That’s the psychology of the higher market these days.
I’ve shown you this chart before. This is the bear that started in 1937. That arrow could be right where we are right now. For those of you that know my work, yes, I’m the guy that has cracked the intraday time codes on just about everything you trade with great strategies to match it. I believe I’m doing what Gann would be doing if he had access to the incredible computers we have these days. But I’m also the guy who is the stock market historian with a very long memory for these kinds of events. Is anything guaranteed? Of course not, but there are some serious lessons to be learned from this chart.
First of all we are 6 years out from a generational financial crisis just as we were in 1938. For those of you who’ve studied the period that era came to be known as Great Depression II. It was for a buffet of reasons. First of all, Roosevelt took his foot off the pedal for the New Deal. Yes, it was working and Keynesian economics gets a bad name simply because Roosevelt gave in to budget hawks in the 36 election before the economy was really ready.
The other problem of the era domestically was the advent of unions which flexed their muscles with wild cat strikes across the country for the first time. You can compare that to Obamacare which is harming the economy as people are just now getting the bill. I heard a talk show host on Friday tell millions of people his premium for next year is going up $240 per month. That is not $240 for the year, but for a month. I’m sure this talk show host could absorb that blow but for an economy that has depended on the consumer for the past 20 years, it will not be able to absorb such a blow. I could do my whole column on just this aspect of the problem but I’ll spare you.