1947 Long Grind?

I can’t help thinking of the markets today as being in the midst of the 2008 post Bear-Sterns rally which started in mid March, topped in mid May, fell to new 1yr lows by July, then fell off a cliff in September. We have the banking contraction going on right now, so a similar track is a possibility.

I also think of the long, grinding bear market post 2000. That combined all-time highs in tech with a Fed rate-hiking cycle.

Right now, the market looks markedly different than both of the above. Here are some charts:

One big and obvious difference between today’s market and the previous bear markets is the relationship with the 50 week and 200 week trendlines. In both 2000 and 2008, the S&P 500 quickly fell below the 50 week trendline, which then acted as resistance until after the market bottomed. The 200 week trendlines acted as initial support in both 200 and 2008, but was pierced within a year and never came back until long after those bear markets were over. The post 1990 Nikkei acted pretty similar to the post 2000 S&P 500 with heavy resistance at the 50 week MA for nearly 3 years.

Today’s market tested the 200 week MA last October, never quite reached it again, and is now consolidating over the 50 week MA. You can scroll back on the S&P 500 and see a number of similar patterns in past market corrections, but the vast majority re-test all time highs within a year. Currently, all-time highs are in late December 2021, which is 16 months ago.

The first market I see similar to that one is the fierce correction back in 1987:

As you can see, the movement of the 50 week and 200 week moving averages fits our current market pretty well. Still, 1987 was a sharp drop with a quick recovery whereas our current market has that grinding drop more reminiscent of the mid 2000’s.

Scrolling back, the 1981 Volcker bear didn’t recover the 50 week MA until the bear market was done in the midst of a monster rally. The declines in the 1970’s don’t quite seem to fit our pattern either. Here’s one that’s pretty close:

Another proxy that’s fairly close but a bit more sinister in 1947:

I’ll leave my search there – I actually really like this one. A lot of people have been talking about parallels with the 40’s, with the high levels of debt forcing rates low as inflation spikes and wages are muted.

As for my investment strategy now, I like having some hedges on the short side, and I added to them this week by joining Warren Buffet and a bunch of Senators that went bearish on TSM. All of my puts are long-dated though, as well as my TLT calls.

I also have covered calls sold on all the miners I can. Except DNN, which is kind of my lottery ticket Uranium stock where I’m holding a bunch of long-dated calls (half Jan 2024 and half Jan 2025).

It’s certainly a crazy market out there. Breadth is getting more bearish as the S&P 500 drives higher. More and more money is flowing towards “passive” ETF funds which almost all allocate enormous amounts to AAPL – and record share buybacks are here again as well. These leading stocks may be highly valuable at the moment, but with so much money crowding into fewer and fewer traded shares, they will become more and more volatile – to the upside as well as the downside. With the Fed tightening cycle gone mad, the credit reduction by regional banks, and the debt ceiling ahead, I certainly woundn’t want to be long those things right now.

Here are my latest allocations:

• HEDGES (5.8%)
  • TLT Calls (3.6%)
  • LEN Puts (0.9%)
  • AAPL Puts (0.9%)
  • TSM Puts (0.5%)
• PRECIOUS METALS (42.4%)
  • AG w/ cc (6.2%)
  • EQX w/ cc (5.0%)
  • MTA w/ cc (4.7%)
  • SILV w/ cc (4.6%)
  • LGDTF (3.4%)
  • SLVRF (4.4%)
  • SAND w/ cc (2.6%)
  • MMNGF (2.6%)
  • SSVFF (2.5%)
  • BKRRF (1.7%)
  • RSNVF (1.7%)
  • DSVSF (1.4%)
  • HAMRF (1.6%)
• URANIUM (21.6%)
  • CCJ w/ cc (3.8%)
  • DNN (3.1%)
  • DNN calls (1.5%)
  • UUUU w/ cc (3.5%)
  • UEC w/ cc (3.0%)
  • UROY (2.8%)
  • LTBR w/ cc (1.8%)
  • EU (1.5%)
  • BQSSF (0.6%)
• BATTERY METALS (12.1%)
  • NOVRF (5.9%)
  • SBSW w/ cc (4.4%)
  • EMX (3.2%)
  • PGEZF (1.9%)
• US CANNABIS (8.7%)
  • GTBIF (1.6%)
  • VRNOF (1.5%)
  • TCNNF (1.2%)
  • TRSSF (1.2%)
  • CRLBF (1.1%)
  • CURLF (1.1%)
  • CCHWF (0.6%)
  • AYRWF (0.5%)
• OTHER (5.9%)
  • DOCN w/ cc (2.0%)
  • XRP (3.9%)
• CASH (0.3%)

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