The price action in financial markets has largely ignored fundamentals all year so far.
Prices have pretty much been dictated by narrative and by technical analysis.
Well, what are those telling us to expect from here for the remainder of the year?
For answers, we turn to technical analyst Sven Henrich of NorthmanTrader.com, who is freshly returned from a sabbatical in the Scottish highlands.
Follow Sven on Twitter @northmantrader or on YouTube @NorthmanTrader Or on his website at https://northmantrader.com/
Sven Henrich 0:00
Purely technically speaking, I have a hard time making a bear case at this particular juncture I can I can make a corrective case that leads for a pullback in September, October, maybe with a volatility spike. You know, if the VIX goes above that monthly trend line that I mentioned, stays above it. Yeah, then then things could change very quickly. You know, but it hasn’t happened. And the technical position of this was was very impressive.
Adam Taggart 0:34
Welcome to Wealthion. I’m Wealthion founder Adam Taggart. The price action and financial markets has largely ignored fundamentals all year. So far, prices have pretty much been dictated by narrative, and by technical analysis, well, what are those telling us to expect from here for the remainder of the year? For answers we turn to technical analysts spend Henrich of northmantrader.com, who’s freshly returned from a sabbatical in the Scottish Highlands spend. Thanks so much for joining us today.
Sven Henrich 1:06
Hi, Adam. Great to be with you. Yeah, Scotland was great. And I was I was very lucky to the weather was awesome, which is rare in Scotland. So that’s great to hear.
Adam Taggart 1:14
Scotland’s actually the first trip I ever took myself on, like with my own money at 70. And I went out there for a couple of weeks all on my own, it was wonderful, beautiful place. I don’t know if you left a couple of pounds behind in Scotland’s fan, but you are looking trim my friend.
Sven Henrich 1:32
It’s been a process this last year decided to get in shape and actually had a running injury in May. So I’ve been hitting the gym for a few months, but getting back into running as well. So I just sitting too much time on screens, it’s not good for you. So every day I try to find time to scoot out, get out in nature, do my thing.
Adam Taggart 1:52
Joel, I gotta say it’s impressive, not only how it looks, but the fact that you’ve done that without having been able to lean on running to drop the pounds. I work out every day and you shared your percentage body fat with me. And it’s I’m like, double where you are brother. I mean, that’s really impressive.
Sven Henrich 2:11
Yeah, I mean, I you know, it, it’s a bizarre thing. And well, one thing I’ve done also is intermittent fasting, I usually don’t eat until four or five in the afternoons. shift in my diet quite a bit now with the with the gym, done a lot of protein and so forth. But, you know, it’s weird, you can retrain your body. Because we’re all you know, especially with the type of foods you eat, you know, there’s so much junk out there, processed food that just spikes your blood sugar, and then you’re left with these cravings. And then you, you know, if you’re dealing with stress, maybe you’re sticking your head into the fridge too many times during the day just adds up. And if you don’t move, then all that’s up with it. The intermittent fasting just works great, because it it I just realized you don’t really get hungry. I mean, your body adjusts and you know, your your system calms down. And yeah, feel great. That’s that’s the point of all.
Adam Taggart 3:05
This is a whole other topic we should have at some point, folks, we’re gonna dive into the the market stuff in just a second here. But I will say and I talked about this a fair amount with Lance Roberts, who’s on every week with me in the market recap because Lance used to do a lot of mixed martial arts and ran off some gyms and has a real strong base and fitness as well. But it is amazing. If you really want to change your body composition. It’s amazing the role that nutrition and diet play. I mean, really, if you want to change how you look, it’s literally like over 80% diet. More Absolutely. The fitness, the fitness stuffs really important. But But yeah, the diet.
Sven Henrich 3:41
Yeah, I mean, I’m like, I’m not running six hours a day to make things work. It’s all about balance. But the diet is the key ingredient. And it’s amazing to me how much we subconsciously become slaves to the habits and again, the food composition. And once you can free yourself of that. It’s just a completely different ballgame. So I’m enjoying it.
Adam Taggart 4:07
Well, good on you. Your inner Viking is become your outer Viking here. It’s very clear to see now great, great work. All right. Well, look. Lots of questions here for you to spend. And I know we did a little talk in the pre recording here. You’ve got some, I think, really interesting observations that that might surprise some people here we’ll talk about in just a moment. To kick things off there. Let me just ask my general question I like to kick these interviews off with what is your current assessment of the global economy and financial markets?
Sven Henrich 4:40
Well, it depends on who you want to believe, I suppose. I mean, according to the Atlanta Fed with just the greatest economy ever, right? Three GDP forecasts at 5.6% just ticked down from 5.9%. The St. Louis Fed has a similar type GDP now model out there like minus 0.07% Though they’re all over the map, and but the fact is we’re not in the recession at this moment. China is in bit of trouble. And I think that’s something that we may want to address at some point as well during the discussion. Clearly they’ve, they’ve stepped away from the standard type of stimulus that we’ve seen in the past. But their growth figures of slowing heart, commercial real estate, everything else is is, is challenging in the US, I would argue, you know, we’ve talked about lag effects from aggressive rate hikes. And I think they’ve kind of surprised everyone, and bit in the sense that they haven’t really hit as dramatically as maybe one would have thought by now, I’ve always said 12 to 18 months. So we’re still kind of in this window. I see it having impacts in some areas, but in others, not really yet. And I’ll give you a couple of examples here. One is the fact that it’s been cited quite a bit this summer that a lot of us consumers are sitting on extremely low rate mortgages. And we’re coming out of unique experiment on 1314 years of free money and low mortgage rates. And so people have locked in these rates, which has some interesting ramifications and new dynamics for the housing market in the cycle, because the incentive to sell the house is just simply not there, because who wants to lose their cheap mortgage and buy a new house with a much higher mortgage. So the housing market got very much supply constrained, which is a massive problem for anyone else that wants to buy a house because they can’t afford it. And so the Fed in a way has, you know, created a monster here, because he supported the mortgage backed securities during the COVID years, just piling into a supply constrained housing market back then already. And now prices have not come down the way they probably should have at this point. So that the housing market is kind of dead. In that sense, it’s kind of in a weird equilibrium. But as long as as long as people can hold on, and that’s quite a lot of millions of people sitting on low mortgages, they can weather the storm a bit longer than you would think the same is also true for corporate debt. You know, corporations are very smart to lock in a lot of cheap rates. Now, it’s true this year, next year, and 2526, the maturities are coming on the line, and they’re gonna have to also refinance at higher debt. But the impact hasn’t really been felt yet dramatically. And typically, this is what you see, which then causes margin pressure, and that’s leads to layoffs. And so in that sense, maybe you’re looking at a bit of an unusual runway in terms of how these lag effects filter through the economy. So I think we just need to be all where have that and then thirdly, you know, seen a lot of talk about excess savings been drained. Right, from the from the post COVID, checks and everything else. So there’s a lot of concerns what what what, what, what happens to consumers with the excess savings strange. And then, of course, you know, the student loans coming back. So there’s a lot of doom and gloom on that, which is, I think, justified because we don’t know exactly how this will impact the consumer. But there’s a counter to that as well, which is, in the last year and a half, we saw nothing but negative wage growth. And
Adam Taggart 8:42
when he was eight months of it, just FYI, yeah, absolutely massive,
Sven Henrich 8:45
and, you know, a never seen anything that dramatic. Right. But, you know, partially maybe driven by the fact that we had these year over year anomalies anomalies with with the post COVID access. But still, it’s typically when you see negative wage growth, that pervasive that dramatically, you’re in a recession, right. But now something interesting is happening. Right, right, as the excess savings are coming off the so called balance sheet here, if you will, real wage growth is turning positive. Quite a bit, actually, as inflation is coming down and wage pressures have moved wages up quite a bit. And all sudden the consumer may be able to handle that transition better than anyone would expect. Obviously, this is predicated on inflation continuing to come down and if you look at oil prices, screaming back up, the dollar going back up, there’s there’s definitely risk factors out there that you know, on the service side, that may keep you know, the Fed and the Higher for longer game for a while, right? Until something breaks, right. But the point is this there is maybe potentially this runway to support equities for quite some time. In fact, I can maybe highlight one chart here in this regard. And it’s the one year chart. You know, the one year is massively higher visa vie, anything we’ve seen since 2008, or 2009, right? I mean, it’s it’s been low for four years. But if you look at this in context of the past cycle here, the 50 year chart, just you know, he’s a bit of history for everyone, every single time except one, okay, we’re talking about, I think, eight or nine incidences here. Every time the one year, gets to a point where the peaks and then rolls over from its peak markets actually doing quite well, historically speaking, which kind of surprised me as well, right. And, you know, for example, obviously, we know about the famous fed pause in 2006. And markets mate went on to make new all time highs in 2007. That was a period of about a year and a half, two years, actually, before, things turned really gnarly. In 2000, there was more imminent, but markets still made new highs. And then of course, you go back to the 80s, and 90s, and so forth, there was really only one incidence was, which was early 1980s, where you had a rollover, and that was bad for markets, because then that 8182 period, but even in the 70s, if you look at that other inflation period, you know, and when the two year rolled over, markets flew higher. And I think that’s kind of a historical segue, where you’re going to have to say, Okay, what does this mean for this cycle? You know, given what I’ve outlined on the economy, maybe there is a runway for markets to do the unexpected, which is scream, Hi, I’m just, I’m just putting it out there.
Adam Taggart 12:11
It’s so interesting. And since we’re looking at this chart, I’ll just interject for a second. So you know, we have people saying, Gosh, look at look at the yield of the T bill, right. Like, like, you know, the equity premium is really low. I think it’s the lowest it’s been and so like, 20 years, or something like that I think I heard recently. So there’s a lot of people saying, hey, money’s gonna start fleeing, understandably, fleeing the stock market, for the safety, the relative safety and attractive risk return offering that bonds offer specifically safe sovereign bonds. But what you’re saying is, as the historical data doesn’t really necessarily say that’s the case, or if so, it acts with a pretty big lag.
Sven Henrich 12:55
Yeah, and, you know, maybe I’m speculating, I’m off base here, which is always possible. But, you know, I’m wondering if I’m looking at this chart here now, and I see yields coming down, well, then the incentive to hold yield based instrument diminishes, and then money goes back into the stock market.
Adam Taggart 13:13
Right, right. Is that what it is? Maybe it’s peaking. And as it comes off, that money rushes in the stock market for some period of time sending stocks higher
Sven Henrich 13:20
period of time until, you know, the ultimate break, when it doesn’t really rolls over. That’s when you have the recession, right. I mean, this is when the Fed cuts rates and so forth. I’m not I’m not saying it’s, it’s an ultimate positive. But I’m saying in setting this up in terms of potential runway. That gives markets still, maybe six months, year and a half, who knows I’m not. I’m not a wizard here. Calling for timing. I’m just observing the historical reality here is that in eighth note nine instances, this was initially very bullish market stone, before things roll over into her recession. I think we, I think we just need to be humble of the about the possibility that this could still happen here as well.
Adam Taggart 14:09
It’s very important morning for those that are expecting an imminent rollover in the market. So you’re saying this is a fairly consistent data series that shows that we just don’t necessarily see it under these conditions historically, that because the one year is such a short duration. It’s pretty, it’s pretty correlated with changes in the Fed funds rate, right. In other words, when when the Fed hikes or lowers the Fed funds rate, the one year moves pretty quickly with that, right.
Sven Henrich 14:39
Yeah, I mean, just look at 2006 2007 Once a peak that was, that was when the Fed had paused his rate hike cycle, right. It just didn’t do anything until it was forced to in 2008. Right when everything fell apart. Yeah. So the one you actually held fairly steady, but in that timeframe, Liquid markets debt has kept going up. Yeah. And it’s really not until you got a massive break in the labor market. And, you know, going back to the corporate debt, you know, as long as as long as they can, you know, manage their their margins and refinancing is not a massive issue for them quite yet. And demand is holding up, ie positive wage growth. visa vie. You know, the other factors may we mentioned, in terms of student loans or excess savings. Again, these got to look at it in terms of runway. And markets like to run until they don’t, right, so, and I hate to say this, maybe the next chart I need to bring up and just kind of give everybody kind of a head washing and I’m not trying to upset anyone, I’m just trying to be as stoic and analytical about all this as I can be, but it’s basic s&p season. Now, the chart, which is absolutely mind boggling in context of everything that’s going on this year, because, you know, we’ve been looking at this not in terms of percentage moves, but in terms of directional pivots. And it’s, it’s amazing how just relevant remains to this day. I mean, look at this very basic March, bottom, right, then a rally into May, and then chop May, June, that’s kind of what we saw, then a massive rally into July, which we have this year, right, we had a massive rally into the end of July. And then then it called for a modest pullback in August 6%. That’s what we got on the s&p, and then a rally back into early September, guess what, that’s just what we saw. And if you just look at this chart, and nothing else, what it suggests, and my view on these things is, you know, they they work until they don’t, but as long as they work, they’re irrelevant, right? And if you look at this, you can make the case okay, well, maybe into mid September, we’ll see another big squeeze. That may or may make new highs visa vie July, whatnot. And then we’re gonna see some shakiness, you know, visa vie, September, October, and then guess what this thing is gonna get bought into year end. Which is then when I’m looking at this on a basic level, and then dig into the market, how the market has been acting here, during July, August, I find it really interesting is that this this August correction was very unique in a particular sense. I wanted to walk you through a couple of charts to highlight that, because it’s, it’s quite fascinating. And it’s got me thinking, Okay, so first of all, let me just highlight one chart, which is
Adam Taggart 17:57
real quick. Before we go there. I just want to make sure it’s probably obvious, but I want to make sure folks understand this chart, we’re looking at here the seasonality This is a composite over the past 20 years of s&p behavior, right. And what you’re saying is is 2023 is playing out practically, exactly according to this average trajectory. So
Sven Henrich 18:20
yeah, and it’s not that the percentages I don’t find particularly helpful in this chart, what I find helpful and have found helpful so far this year, is is the directional pivots. For example, we had a peak in February. And for us, when we looked at the signals at the time, that was, you know, we’ve been bullish coming out of October, and then we said, Okay, we’ll test a short. And and that worked. And then it said, bottom in March, well, guess what happened? I mean, you can make you can scratch your head about it. Obviously, this was one of the banking crisis happened. And they they intervene with a BTF P program. And that was the bottom and markets boom, back massive rally, right. And that continued into July. So these these pivots have been working like a charm so far this year. And it’s, you know, it’s so basic potted works. And it has been it works.
Adam Taggart 19:15
So I just want to underscore based on this, if the correlation holds for the remainder of the year, there’s a very big pivot. That’s should come in October, and basically have the market run to the end of the year, which for you know, the many people who are worried by a lot of the macro stuff that you mentioned at the beginning of the discussion here, and are thinking Well, surely this markets long in the tooth is gonna roll over. You’re just waving a flag and saying, Hey, may be but the seasonality correlation has been holding really tightly. And if it does, prepare yourself, this thing may just run higher into the end of the year from mid October.
Sven Henrich 19:54
Yeah, I mean, we, we can look at this chart all year long, and we’ve can just keep visiting it on on key pivots and say what our main philosophy on this one is, well, we can argue with it, or we can make money off of it right. And so as long as it tracks, consider it relevant and of interest, right. And the next test right now was here in August coming off a July peak. And it played beautifully. Because by the by the end of August, IT system is going to be a big bounce into month end. And now what it basically says we’re going to be chopping here in the first part of September, maybe with a little pullback here and there, but then into epics mid month, see another squeeze higher, and then we see right, so that that’s just that’s not even a technical chart. This is just the basic seasonality chart, you know, no other no other value added to that it’s just a market is repeating all this very conspicuously accurately I you know, I’m not arguing with it. I’m just saying that’s, that’s what’s been happening. You’re just
Adam Taggart 21:02
saying it is what it is. Right? Is that like to remind people? Yeah, we, you know, we this, the whole reason for this channel is to help us look at all the data that we can and try to get a best sense of where the puck is headed. Sometimes that puck goes in directions that we, you know, logically might not want it to go right. But as we we remind people, we have to deal with the markets, we have to trade the markets we have not the markets we wish we have right and you’re just saying good or bad. This is how the script has been unfolding all year so far.
Sven Henrich 21:33
Absolutely. And let me move trump the market discussion to some observations about this particular pullback in August, and how it unfolded in how it then fit in with the rally into the seasonal chart for early September rally. I’ll start with one basic one that probably all of us have questions that point some point this year. And that’s the VIX. If you can pull that one up, you know, for us, for for many of us, I think we all kind of considered the VIX to be dead ever since the zero day option. Trading has begun and even last year, and I kept pointing out that with successive new lows in the s&p, the VIX just kept making lower highs. And I remember in October, a lot of people talking about the VIX, you know, you don’t have a bottom until the VIX hits at least 45 This sudden the other and that’s all historically true, but it just simply didn’t happen. And we have one little spike this year during the bank crisis. And it didn’t even quite hit the trendline and then just got pumped. And not only did it get thumped consecutive consecutively in these recent months, it broke the uptrend from 2017 has been a consistent uptrend. So if you have for any of us who are expecting, you know, the resurgence of volatility, you are sorely disappointed. I mean, you know, making all making fun of vix crush Fridays and this stat the other but the fact is volatility we’ve moved into a low volatility market regime. And so all of us were kind of saying, Okay, well, maybe the VIX, you know, I know there’s a lot of people who doubt you can chart the VIX anyway. But you know, we’ve, my perspective, proven that differently year after year after year, but frankly, we were challenged on this as well. And so when the August correction happened, there was a big test in our minds whether the VIX was still technically relevant. And that was on the lows August 18. My wife who’s always tracking the VIX, she sent me a chart to share with clients and it was fascinating on the day of the lows, the VIX was approaching that broken trendline and that was kind of the moment we’ve said, Okay, this is now a show me moment. Is the VIX still relevant? Is it not? And if it’s relevant, then technically, it would reject that trendline now I actually posted those charts on my my Twitter feed as well. And guess what? The VIX hit that trendline so precisely so cleanly and then just got absolutely monkey hammered down. So, you know, I can argue with it, anyone can argue with it, but the fact is, that’s what it did. I mean, just it just tagged it and got rejected hard and you know, we’ve been rallying ever since from from that August 18. Flow has been pretty impressive. Now, having said all that, you know, on Friday, it’s closed around 13. You know, do I feel comfortable saying the VIX is gonna stay low here in September and October? No, I’m not. I would probably expect some volatility come back in but I think the main message of this chart now is the big bull Bear Divide line is that trendline for bears to really break test market, you need to get above that trendline and stay above it. Otherwise you got nothing. You have absolutely nothing. I mean, this this was a big test for this market. And if you wanted to see who was in control, bang, bulls, because volatility again, pulled off of that trendline. amazing to see.
Adam Taggart 25:22
Wow. And I’m just curious, Ben, because I know folks are going to ask this. We’ve talked about it a little bit in the few previous videos. It was the start of this year, right where zero data exploration options started trading is that
Sven Henrich 25:39
last year, it was last year, it was actually last year and maybe correlate that with the lower vix ever since right? The low is in the VIX.
Adam Taggart 25:47
Yeah, I mean, do you think that that is playing a role here in the Depression, the VIX, and if so, how big of a role.
Sven Henrich 25:54
I have no doubt that these zero day options compress intraday market action, for example, the program nature of it, especially on Fridays, is is all inspiring, you just, you know, we can look at, you know, all kinds of macro things, but we also need to be aware of what’s going on in the market structures, what’s driving markets, what’s technically relevant, and I hate to say it, but this, this has made a difference in terms of how markets act. But what we have seen also, this year with the summer rally, I would argue, is not unlike what we’ve seen in the past six years. In fact, if you pull up a chart, my rally chart, I’m gonna give everyone a head washing here, including myself, because I looked at this and you know, it, it’s kind of eye opening. Over the last six years, we’ve seen seven what I would call stupid rallies. Okay, let me define what I mean by stupid rallies, these are rallies that go on and on and on and on, and anyone’s trying to feed him is gonna get run over or it’s gonna get frustrated. And for the purpose of this chart here, I’ve just highlighted some key phases. For example, 2017, when we had the tax cuts, what do you see every, every week, the s&p is tagging the upper weekly Bollinger band, basically, the weekly five, Ema holds its support, and it just goes on and on. And on. We got we saw that in 2018. Obviously, we saw that with the Fed flip flop in 2019, we saw that when they expanded the balance sheet and 2020. Then of course, we had the COVID crash. And we all know what happened after that, the dumbest rallies ever. And even last year, you know, during this bear face, if you want to call it that, you know, you have these intimate and counter rallies. But this rally here this summer looks pretty much the same as what we’ve seen in these previous years. And if you look at the red boxes, bears, sorry to say, your timeframe. your play time is significantly shorter.
Adam Taggart 28:10
It’s nasty, brutish, and short. Right.
Sven Henrich 28:14
It’s it’s all you get, I mean, even even last year, I mean, the supposedly the biggest bear face since 2009. You know, the red boxes were pitiful compared to the size and length of these blue boxes. I mean, we just came out of five months straight up, what do you think would happen if the market went down for five months straight, that just be revolution or bloodless doesn’t happen? I mean, even even the biggest rallies that come and some of them have, you know, then ultimately corrections, because the market just bars itself into just ridiculous readings and technical extensions. And then you get these pull backs. Some are more shallow, others are more dramatic, but just look at the COVID crash. Adam that how tiny is that red box? It’s incredibly skinny.
Adam Taggart 29:07
Sven Henrich 29:08
it is very skinny. So you have the biggest crash? What since 1987. And it’s over in a heartbeat. Right? And then of course everything melts right back up and we know why intervention city I’m just saying this is this chart. You know, I’ve been I’ve been dealing with these rallies on the sell side a few times. And it’s a no that’s why I’m saying you tops up processes bottoms are events but I’m just saying that the the entire market structure for years has been favorable to these really intense rallies that go on and on and on. And, and pretty much force either capitulations And then of course, you know when when people do want to short, you know, they’re gonna be forced to cover release soon again. It’s just there’s just the time of actually holding a long term short is simply not there. You got to be reactive to the signals. And obviously what’s what’s happening on policy front, in fact, not to depress every bear to hell, but we should put up the yearly chart. Okay, if you can do that, guess how many really red candles that have been in the last 82 years. 2221 yearly red candles, okay. And 16 out of these 22 were in context of simply one year events that either dipped below the five EMA the yearly five EMA or held at the five EMA. Okay, and then ended up rolling further out of this ad two years in basically the messages since World War Two, we’ve been in this just insane bull market in 82 years, they’ve been only two periods to where the s&p showed two or more years of down in a row that was in the 1970s. And that was with the tech bubble crash. And I highlight a few kind of other periods here which are fascinating to me. One is COVID biggest crash since 1987. And guess why that was never a down year. It just dipped below the five EMA and unhealed to support the global financial crisis, which was brutal was massive. One down year, that was it. It was just literally one down year which are 2008. The bottom was made in 2009. And then we ripped back above the yearly five EMA and is held every single time since 2020. To the big bear market, guess what bottom yearly five EMA held. Okay, the 1987 crash, we all know about the 1987 crash, it was so dramatic guess what it did? It just tanked the yearly five EMA. And that was a bottom. That was it. So I hate to say it because you know, I’ve been on the train a number of times myself, but this is kind of my No, my my bears are idiots chart. I hate to tell you this, the odds of getting consecutive down years is just really low. You know, because markets just simply go up 75 80% of the time, if you look at the stats, and of course since the age of intervention, they’ve really made sure we never dropped below the five year mark. Yeah. And if we do they get saved. You know? So I mean, this is the history now, you can argue whether you cannot, you know that that’s that’s what it is, you know, the These times are really rare. And so in that context, what just happened last year, was just like one of these other 15 prior events where you had a one yearly red candles, and then the market just moved higher. And if you put that in context of the seasonality chart, it can happen, right? Just be aware of that.
Adam Taggart 33:22
This reminds me of the old Peter Lynch saying and for those who don’t know who Peter Lynch was, he was a very successful money manager in what 80s and 90s running the Magellan Fund. But he said, there’s been more money lost my people basically staying out of the market or placing short bets in preparation of the next market crash than we’re actually lost in the next market crash. Right? Because, you know, people are playing for a probability that you’re saying, if you look at the data, it’s actually a much smaller probability. Right? You just don’t get that many down years to begin with. And you certainly don’t get that many back to back down years.
Sven Henrich 34:05
Yeah, and I have to be intellectually honest with myself as well, which is, like, look at last year was from from a bear perspective, you can argue it was fantastic, right. But then I look at what we actually did it because we were always looking at both directions. And June lows, it said By August, October lows it said by that’s what the technicals were saying and despite having caught a few nice shorts, you know, more money was made on the long side last year than on the short side, which I find fascinating because when you do have these bear markets, you still get these rip roaring bear market rallies, right. I mean, we saw it from June into the August high so it was absolutely brutal again, on the counter trend side. So again, that was a point where it just didn’t make sense to stay short, because you just got All your gains evaporated it bears always have to be kind of paranoid and, and really flexible. I’m not saying there’s not times to short. But as I showed with that earlier chart about these mega rallies, it’s a really frustrating process. And these rallies can just absolutely drive you mad. And then when either is short or downside in markets, as I show with a chart as well, the time window is really limited, you know, and that’s why I kind of want to go into what just happened in August, which I found incredibly fascinating. In terms of how that unfolded, So may the first chart that show there is bpnd x, it’s kind of a bullish percentage indicator, on on on the NASDAQ. It is one of many single charts we we watch on a regular basis. And that one had me kind of head scratching, because in August, if you look at the top line, it’s the RSI the relative strength index, it came down to the lowest level, most oversold level since October of 2021. That wasn’t extreme reading, it was more extreme than anything that we saw in 2022, which was a much more price, aggressive range, wider range type market, you know, with the s&p down 6%. All sudden you see the most oversold reading in in nearly two years. So you kind of scratch your head. And this is like you know this is not really a place you want to be staying short. Right? This is the place you want to start looking at buying. And and you know, just looking at the structure, how the decline unfolded on the bottom part of the chart, you know, it was basically a falling wedge, also what we saw in October of 2021. And basically what that chart did, then obviously the it didn’t the rally counter rally that followed, didn’t stop until the RSI went back to 72. Now I can’t say if the same thing is gonna happen here again, but I’m just noting the similarity. The other thing that happened, which is actually a lot more dramatic, was if you look at the NASDAQ oscillator, the volume oscillator chart, because that was mind blowing. If you can pull that up, it had reached an oversold reading of a level that we hadn’t seen more than I think seven times in the last 1012 13 years. And it was extreme. And you ask yourself, okay. Alright, let’s let’s have our limited data set actually goes back to 2006. To start we had in 2010 2012 2016, that kind of thing. And each time in an A being a major bottle. It was not a time to short, I guess you can argue in 2010 at shopped around in that lower price range for a little bit. But basically, it got down to a level of minus 130. Extremely rare reading. You know, we saw it once last year. That was a buy. We saw it in a few times. In these previous years each time it was a buy. The baffling thing here on this one was the VIX because typically when you see an oversold reading like that, you see a big vix spike. And we didn’t see that, right? Because the VIX just tagged that trendline I mentioned earlier and rejected that was it. So from if you look at this, it’s kind of weird to say that a 6% pullback resulted in such dramatic oversold reading it readings in there’s actually one chart that may explain a little bit as to why. And that’s the asset manager index. That’s, that’s a classic kind of a maybe centum engage in terms of how rallies unfold. You know, in July, I was putting out this coming correction North cast where I talked about some of these extreme readings on the overbought side. And one of them was talking about I put a tweet out on this that the asset manager index just massively piled in into levels we haven’t seen basically since the 2022. Top. I mean, this, this is what these big stupid rallies do. And they force asset managers to pile in the FOMO. The capitulation, that that was that was the warning sign because we just got really overbought again on negative divergences and they piled in. But what’s fascinating to me is, you know the 6% pullback On the s&p, look how they barfed out of their positions, they got to the lowest exposure in all of 2023 by the end of August. And that typically ends up to be a major contrarian signal. Why? Because, you know, if they’re expecting a big massive correction, or bear market, and it’s not happening, and then they’re forced to pile back in, that’s your basic performance anxiety. But considering the dramatic nature of this turnaround, I’m actually amazed that the s&p only dropped 6%, you would have thought it would have dropped a lot more than it didn’t. And so I guess we all have to ask ourselves why that is. Right. It should have in the second point, I guess I would make here is that now they’re still not fully positioned again. So if everybody’s expecting a big September, October correction, but it’s not happening. And then you have the context of the seasonality chart, if that still plays, they’re forced back in,
Adam Taggart 41:11
you get like a big short squeeze, or just everyone who’s been on the sidelines has to start jumping back in to chase the performance.
Sven Henrich 41:18
That’s, that’s the danger. So I’m, you know, I can’t predict this, obviously, but I’m just noting the behavior. And you see them piling back in here at the end of the month, because they have to. So a lot of that is happening. And I want to highlight this also in context of BP SPX, which, like this asset manager index was really interesting in terms of the July August timeframe, so to make you jump hoops here with these charts, but I think they’re really important to noodle through. BD SPX actually did something very unusual on both ends of the spectrum. And that is in July, when everyone needs to asset managers piled in the RSI got to the same level it was before the 2020 COVID crash, it was extreme is like the most overbought RSI I only seen in these two timeframes, very impressive data. So that was a massive warning sign in July and hence expecting some sort of correction. But then the the velocity with which this then dropped to the most oversold rating since 2019. Was just as impressive because again, it was it was more was sold and it was edit anytime in 2022. Again, this is where your charts is screaming, you can’t stay short, then the rally is coming. And what’s also interesting is that we never got to below the 100 Ma, we dropped below the 50 ma but the 100 ma held in and so now it gets really weird, right? Because I did the study and I put out this North cast called mega bull. And and I was looking at the nine mole, which is another chart you should have a look at the Nymo got also very oversold in August, he got close to a minus 100 was like minus 93 minus 94. And several things to say about that. Nine was there’s another oscillator technical signal. And typically the way I look at it is the best lows come when the Nymo makes a higher low visa vie the s&p making a new low. That’s called a positive divergence. But it’s not always necessary. Okay. So we had quite a few of these readings last year during this bear face got into minus 80s. We got in September, I guess we got to minus 120. In March during the banking crisis, we got to about minus 110. But this might not minus 94 reading in this context is maybe just you can say well, it’s kind of the same range, no big deal. But actually, it turns out is a big deal, at least in my analysis, because it happened in August, which is really unusual. And we’ve seen corrections in August before. But you see extreme negative bio readings in August. I found to happen. Oddly enough every four years. It happened in 1999. It happened in 2003. It happened in 2007. It happened in 2011. It happened in 2015 and happen as I mentioned before in 2019. What are all these years, these are presidential pre election years Every single one of them. And I’m like, really? I mean, going back to seasonality chart, like right now, maybe we’re just all part of a script, unconsciously. Because you really don’t find August readings on Nymo. That low. I will say there was one exception, which was 2014. And Marcus just rallied like a bastard into your end. But every single one of these going back to 1999, while presidential pre election years, what happened with a normal reading like this? We got a bounce into September, basically what we’re seeing now then you got another pullback in September, October, similar to the seasonality chart, some of these years, made a basically created a retest of the August lows, some made a higher low, some made a marginal new low. And that was it. That was it. Basically, they all were by every single one of them. Now, I’m not saying these are longterm, necessarily good news market structures, because in 1999, we know what happened, right? We made new all time highs and in March 2000, and ultimately, recession came and Hellberg lows in 2007. You actually ironically, there was no September October pullback. There really wasn’t there were like a couple of down days here. And there. Anyone that was expecting a big fat correction. In September and October. They got slammed with new all time highs in October, right? Before things rollover. Okay, so markets sometimes do unusual things, and even 2019. Right, we just chopped around for a little bit, and then this rally into year end as well. So I’m just, I’m just highlighting these explore historical examples, to say first unusual to see an August Nymo reading this low to get oversold readings on BP n dx, BP, SPX and so forth, of extreme natures, that we haven’t seen in years, which is kind of bizarre, given the context. And so now we’re finding asset managers not fully exposed in the market still oversold. And what does that mean? Right, I that that to me, tells me that seasonality chart I mentioned earlier certainly has potential to play out until something breaks. And I want to on that note, I want to highlight one more chart in terms of this rally junk junk been watching this all year long, it’s one of those important health measurements sticks for what’s actually going on in markets and the economy. It’s high yield credit right? And junk was dealing with resistance quite a bit last year and in February of this year, you can see those those green circles very clear resistance and every time we rejected from there you see how close the s&p tracks with junk it’s been going on for the last couple years very, very clearly correlated. And then something odd happened it was in in during the June July rally when junk didn’t really participate. To me that was a warning sign right I said well this this rally is doing its thing but we don’t have confirmation from high yield so that tells me we should expect a correction that kind of fit the whole picture of correction coming mode but also said that the time that when the correction then does unfold and we got to watch signals very clearly and see what they tell us in junk was one of those signals because bears at that moment had every excuse an opportunity with the dollar rising with the yields going back up to break the uptrend in high yield credit. And guess what it didn’t I mean look at that pink line is the uptrend of junk from October of last year it tagged it perfectly bounced from that not only bounced from there but made a new high for the year. What does that tell you? You know, if you’re expecting a big bear market move of any sort you need to see that uptrend breaking with vigor. And it didn’t happen. Which surprised me I have to say it surprised me but we were watching this the whole entire process and I said I just I just don’t see it. I just don’t see it breaking
Adam Taggart 49:49
question. I have been biting my tongue not to get into macro while you’ve been going to the TA but junk is now the highest it’s been since April. All of 2022 Yep. And yet interest rates are, you know, vastly higher than they were back then. What’s the rationale for piling into junk now?
Sven Henrich 50:17
You know, I’m not trading it. So I can’t give anyone any advice, what they’re doing or not doing. I’m just observing the price action. Yeah, I, that you mentioned high yields. You know, we did 10 year yields got to the levels of last year, September, right. That was, that was when a 10 year was screaming, that’s when the market was tanking. And we just had a big massive retest of that. And you would have thought that the market would be more concerned about that. ie the one year yield being so high, but it’s not. It’s we’re far above, from where we were in October, obviously. And so in that sense, the market has been taking all this in stride. Now, you know, if something were to massively happen, and these things scream higher than Yeah, I would expect any bullish conviction to get severely tested. And maybe that’ll maybe that’s the trigger for September, October, corrective type move, as we seen in all these other presidential pre election years. But the fact that you now not do not see the same reaction, as you did last year, says something, doesn’t it? I mean, that’s talking about market pricing things. And the other one’s kind of odd was the dollar, I mean, we had a very consistent correlation. And as of late, the dollar was screaming higher. And that pressured equities into August. And then the dollar got very overbought, and all sudden pulled back. I didn’t bring a chart for that. But it pulled back to the 20, Ema and markets rallied with it. And this morning, you know, the dollar had to rally again, again, related to China, as well. Weakness in China, and yet markets are kind of brushing it off and went down a little bit, but nothing, nothing dramatic, you would have thought with a new high in the dollar for the year. You know, we would see major volatility haven’t seen at this point. Which kind of brings me to, you know, a couple of really polar opposite examples. Okay, so one is staying on this kind of bullish theme. I’m looking at a couple of international equities the footsie in UK is is a good one to look at. Because the footsie obviously, being based in the UK is struggling the most with inflation in the Western world. Because obviously, they also have Brexit related issue and so forth. Growth has been not great at all. But I’m just looking at this technically in the footsie was baffling right off the bat earlier from the the lows in 2022. Because it actually went to make an all time new high here and 2023. Like, why in the world is it doing that? And since then, you know, has been pulling off. And it’s been shopping in this wide range of lower highs and lower lows. Well, before you know it. You can make cases a big ass bull flag. You know, it’s not confirmed, it’s not broken out. But look where it’s trading.
Adam Taggart 53:46
You’re beginning to look like why now,
Sven Henrich 53:48
it’s starting to begin to look like one, which makes me kind of question a lot of things. Yeah, the DAX made a new all time high this year as well. And now it’s jumping around as well. I’m just putting this in context of this year and seasonality chart. Now China that that’s just been awful, right. I mean, the if you put up the Hang Seng. And not to be all rose colored here at all. But here too, I can maybe make the case of the unknown factor. Because everybody’s negative on China these days. Right. And I I’m not particularly, you know, convicted on this pattern at all. I’m just noting it and I’m kind of watching it because it looks all rather dreadful. But China got hammered hard, obviously in the last few years. They are in a lot of trouble. But they’re also under a lot of pressure to make things better. Right. And if this plays is an inverse, which I don’t have any confirmation This is completely speculative on my part, but if this were to play So what do you think is gonna happen to markets in general? Right. Now for
Adam Taggart 55:07
those that might be listening on a podcast and not seeing the screen here, span has marked up the recent action of the Hang Seng, and it looks like a potential head and shoulders, inverse head and shoulders pattern, which means if it completes, you would expect the Hang Seng to really rock it higher once this formation is complete.
Sven Henrich 55:26
Yeah, I mean, like I’m, I’m somewhat cautious on this pattern myself, because the right shoulder is a bit lower than the left one. But I’m noticing it’s holding support, kind of in this general area, they do have a under the gun to do something and they started cutting rates here a little bit, you know, they’re trying to cut taxes here a little bit. But none of that has so far really propelled things high. But we’re talking about the second largest economy in the world. And, you know, I would not be surprised if that ultimately they did not something more dramatic. That is just, you know, it’s out there. I mean, this could also easily invalidate in in with a September October correction is pattern, I’m just putting this out as a potential one. That that could blow anyone’s mind in terms of how the price action could have fallen to next year on on this right. Now. I don’t want to be all rose colored glasses here I can I can make a couple of very interesting observations, I think in terms of the various sites. So before you guys, you know, accuse me of being a perma bowl, let me highlight a couple of interesting charts. One is the DJ w as the global that has been very clean this year, as well. And what it shows is a massive rising wedge that actually broke in August. And what we’re seeing at this particular point, with this rally into September, we’re seeing a backtest of that wedge. You can you can see it. I mean, just the trend lines in months, it just did that. So you can maybe make the case well, maybe this is our on the tail end of his canceling my head and shoulders broke the trend. And that suggests is off maybe something really bad could happen. Possible. I mean, I’m I’m keeping an eye on on that one as well. In fact, it’s going back to what I mentioned about all these presidential pre election years with the night negative Nanaimo reading in August being so bad. There was another famous presidential pre election year, which was 1987. And that’s kind of fascinating to look at just, you know, again, anilox, they work until they don’t. But if you look at 1987 visa vie kind of what we’re seeing at this particular moment in time, you’ll notice some similarities here in context of the price action. The first thing to notice here is that of course, then we had also big rally into the summer. And then an August kind of September type of correction, that stopped before the daily 100. Ma, and then bounced from there. And when that bounce occurred, you know, people were getting bullish again that there was no new high that came at that moment. Okay. And it tagged the upper daily Bollinger band and then rolled over. And you can argue that’s kind of what we’re seeing right now. Right? I’m not going to call for crash, crash crashes, a super rare but when it happened, and it happened, as we saw with these with the previous chart on the stupid rallies and the limited timeframe for bears, guess what 1987, as I’ve mentioned before, was a really quick event that stopped at the yearly five EMA and that was the law. Which if you look at it the context of where we are, I don’t know what will trigger a crash. Let’s say the dollar goes wild. Let’s say there’s a geopolitical event, you know, all along so would get stopped out obviously. But then you basically looking at buying again, why? The flip side of everything the Fed has done in the last year and a half. I think people largely forget that. It’s kind of in the background because everybody expects fire for longer. They have an awe inspiring amount of ammunition to cut rates again If and to stimulate.
Adam Taggart 1:00:04
I mean, a lot more altitude now.
Sven Henrich 1:00:07
Yeah, I mean, imagine, let’s just for argument’s sake, we get a 1987 like crash, because it’s so similar and maybe something freaky happens. I don’t know. But let’s say it happens. What do you think is gonna happen? Everything is out the window inflation is done when you get a massive crash and bloods done. Right. That’s, that’s when everybody freaks out. And then then the intervention we saw in March with the banks is just going to be Childsplay, by the way, which is still ongoing. On bank front.
Adam Taggart 1:00:37
The BTP, I think is still at a record high balance right now. Yeah, 100 7
Sven Henrich 1:00:41
billion, you know, yeah. Yeah. So I can trade a crash, I can predict one, you know, I see that similarity in the chart. Let’s see how September evolves, it may just disappear, as well. And of course, 1987 the crash came from New all time highs. We’re not at New all time highs right now. There’s tons of differences and anything I’m just saying, if the worst comes to worse, and we have an 87, like, type crash, guess what? We’re just going to hit the yearly five EMA, again, which was which currently sits around 30 919 87. That was the low for years to come. Actually, it’s never been touched since. Right? So that may still end up in being a massive year under release. But my guess my larger message is here. Basically, basically on what I see with everything is that if bears are lucky, and they get a larger pullback and September on October, there’s massive support into 40 240 100. You know, going back to the February highs going back to he AMA’s, weekly 50 and may even the 200 ma or the weekly 100 Ma. If if these oversold readings that we saw in August, I met with levels like that in September October guess what they’re screaming that be screaming positive divergences on the on the technicals. So, you know, I just, purely technically speaking, I have a hard time making a bear case at this particular juncture. I can I can make a corrective case. That leads for a pullback in September, October, maybe with a volatility spike. You know, if the VIX goes above that monthly trend line that I mentioned, stays above it. Yeah, then then things could change very quickly. You know, but it hasn’t happened. And the technical position of this was was very impressive. And then I want to throw in one final point here. And this has nothing to do with technicals has nothing to do with macro. It’s kind of a human factor. Because we do have a presidential election next year.
Adam Taggart 1:03:12
Our interview with Sven will continue over in part two, which will be released on this channel tomorrow as soon as we’re finished editing it. To be notified when it comes out. Subscribe to this channel if you haven’t already by clicking on the subscribe button below, as well as that little bell icon right next to it. And be sure to hit the like button to while you’re down there. Also, if you haven’t yet heard tickets for the Wealthion fall conference have recently gone on sale. They’re now being offered at the early bird price discount of nearly 30% off the standard price. alumni of our previous conferences get an additional 15% discount on top of that, to lock in these low prices while they last go to wealthion.com/conference. And if the challenges that spent as detailed in this interview, have you feeling a little nervous about the prospects for your wealth? Then consider scheduling a free no strings attached portfolio review by a financial advisor who can help manage your wealth. Keeping in mind the trends, risks and opportunities spins mentioned here. Just go to a wealthion.com and we’ll help set one up for you. Okay, I’ll see you next over in part two of our interview was Sven Henrich