Last week CAPIS held its July research briefing, featuring JC Parets, Founder of AllStarCharts, a Pennsylvania-based technical analysis publication for hedge funds, mutual funds, financial advisors, family offices, and other investors.
Click here for a video of the research call
Paret’s presentation addressed the following topics:
Bear Market Has Been with Us for Some Time (7:16)
• JC Parets opened and pointed out that stocks have made fresh lows for the last 34 weeks. In his mind, this constitutes an ongoing bear market despite not meeting the traditional definition of a bear market – where the S&P index drops a minimum of 20%. “This is a relentless global bear market.” (7:42)
• The current bull market has been in place for the last 17 months as evidenced by the 2022 YTD performance of the bond market and S&P. (8:15)
• Bear markets take time and this one is “long in the tooth.” (9:28)
• The US Dollar has been the safe haven trade as evidenced by the charts due to its negative correlation versus equities. Traditional inflation hedges such as Gold, the Japanese Yen, and Treasury bonds have not performed as well. “Gold is not a safe haven. “It’s the Dollar.” (10:15)
Where is the Bottom? (13:50)
• Parets says the DJIA peaked in 2021 and now the average stock price is off approximately 30%, while the average Nasdaq-listed security is down between 20% to 40%. The S&P 500 (SPX) needs to hold support around 4100 for several weeks for any sustained uptrend. (14:10)
• Both the DJIA and Nasdaq also need to find a support level and maintain it. Until then, AllStarCharts says the “mean reversion trade” is the best approach to navigating the current market. He says the best stock trading days historically have been in bear markets – so opportunities exit. Dollar weakness is key. (17:00)
• Traders and managers should invest for the intermediate term (weeks, months, or quarterly), according to Parets. (19:10)
• Crypto and financial stocks are at their highs – like the highs seen during the 2018 cycle. (21:08)
• According to indicators such as the CRB Commodities Index and Treasury TIPS, inflation has already peaked – April 2022. (25:50)
Things to Watch (27:05)
• Watch market breadth indicators – they are on the upswing but need to hold for a sustained uptrade. “We are in a mean reversion moment.” (33:49)
• The US Dollar trade – be on the lookout for weakness. A collapse or retreat of the dollar can be a sign of market recovery but “we need more stocks to go up.” Check for fresh highs. (35:37)
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