This Bear Market Is Just Getting Started
Editor's note: The market's price action is giving us a warning...
Between out-of-control inflation, a bear market in tech, and volatility running rampant, investors have plenty to worry about. And while some stubborn bulls are clinging to the hope that the market will turn around, Ten Stock Trader editor Greg Diamond says they're making a mistake. According to Greg, things will only get worse from here...
Greg is an expert in what's called "technical analysis" – a branch of trading that involves studying past trends and human behavior to objectively determine the market's next move. And he believes the recent sell-off is only the start of a lengthy downtrend...
In today's Masters Series, originally from the April 25 Weekly Market Outlook for Ten Stock Trader subscribers, Greg explains why he's bearish on bitcoin (no matter what anyone thinks)... discusses why the rally in industrial stocks might be over soon... and details why that's an early warning sign for the broader market...
This Bear Market Is Just Getting Started
I'll probably receive some hate mail for saying this...
But if that happens because I'm honest about what's happening in the market, then so be it.
As I often tell my Ten Stock Trader subscribers, I have no bias. I call it like I see it.
Technical analysis allows you to do this... It keeps you honest about what's happening and not what you want to happen.
It's why I believe everyone, no matter your level of investing expertise or strategy, should understand at least some aspects of technical analysis.
As I'll detail today, the price action right now is very bearish. Price action guides us all, whether you want to be honest about it or not. The market doesn't care about what any of us think or want. It's going to do what it's going to do – all you can do is react.
Quite frankly, this bearish outlook is no surprise. I've been warning my subscribers since last fall that 2022 is the year the stock market will likely top out.
So whether you like me or not... and whether you agree with me or not... I'm going to outline several things that tell me the bear market in stocks is set to take a giant tumble.
Let me explain...
I'm not going to start with a stock or an index.
Nope, I'm starting with bitcoin.
Yes, bitcoin is in a bear market. I know, here comes the vitriol. But again, I call it like I see it...
Bitcoin made its high in November 2021. Since then, as I noted on the chart, it's down 60% as of this week.
Now, bitcoin is volatile... and we can expect these types of moves.
While that's true, look at what else this price action lines up with. Here's Nvidia (NVDA), a semiconductor stock...
Here's Advanced Micro Devices (AMD), another semiconductor stock...
Both Nvidia and Advanced Micro Devices hit their highs in November 2021. And BOTH dropped more than 40% from that high. So here's my point...
Bitcoin is incredibly correlated to technology stocks. And these stocks are in a bear market right now. Unless that correlation breaks, bitcoin isn't an inflation hedge... and it's not a hedge against bear markets in stocks, either. It's a sign, at least in my opinion, that capital is fleeing to safety.
Stocks and bitcoin are in "risk off" mode.
Now, maybe this correlation will break down in the months or decades ahead if there's a new monetary reset... Or maybe we'll see some breakdown of the current system, where bitcoin becomes the new U.S. dollar or some version of that. And if that happens, stocks and bitcoin will diverge from each other.
Fantastic.
I'm no fan of powerful central banks and the unelected bureaucrats who run them. I'd welcome what bitcoin has to offer in terms of decentralized money.
But that wish list aside, right now – if we're just focusing on what's happening and not what we may want to happen – the price action is highly correlated with stocks. And that's all it is right now.
So this correlation adds to my conviction that stocks will continue to decline.
Certain stocks have held up quite well this year, despite the volatility. Two stocks I'm watching specifically are construction giant Caterpillar (CAT) and agricultural-equipment manufacturer Deere (DE). Both rallied back to or near new highs over the past few weeks.
This may be coming to an end. Take a look at the following chart. You can see that Caterpillar had a big price gap down last month...
A price gap refers to a gap between one day, week, or month on a chart. These gaps can accelerate moves in stocks.
The start of the downtrend can really get going this week with such a big move down.
And there's a similar setup in Deere...
Not only was there a big gap down in Deere, but this was coming off a "fifth-wave top" last week. That's referring to Elliott Wave Theory – the idea that stock prices move in a series of five "waves" (more on this tomorrow).
In Elliott Wave terms, five waves mark the end of a move (up or down). And in this case, the rally was completed, and the sharp sell-off confirms that the high is in place.
Let's zoom out and look at a long-term chart of Deere...
As I noted with the black dashed lines, Deere traded in a nearly yearlong consolidation – or range – before making its final high into late last month. Note the negative divergence on the relative strength index ("RSI") at the bottom. As Deere made a new price high (the red line on price), the RSI did not. That set up negative divergence and was a warning that the rally wouldn't hold.
So we're likely seeing that some stocks that held in (where some bulls could hide) are now catching up to stocks that have been in bear markets since last fall... like Nvidia, Advanced Micro Devices, and many other technology stocks.
That means stocks like Caterpillar and Deere are just starting their bear-market moves.
And that spells trouble for the rest of the market. This bear market is going to accelerate in the weeks and months ahead.
Good investing,
Greg Diamond, CMT
Editor's note: Subscribers who followed Greg's advice in early 2022 could have locked in gains of 111% in five days, 65% in two days, and a 39% gain in only 24 hours. And as tech stocks plummet, he's issuing another urgent warning...
In short, Greg says a major turning point on May 25 could spell disaster for your portfolio... or position you to double your money 10 different times. With this critical date fast approaching, there's still time to prepare – but you have to act quickly. He's sharing all the details in his latest briefing. Get started here.