Stock Market Crescendo to soon Reach Finale
The crescendo for the stock market is building and will soon reach its finale. The S&P 500 closed at higher highs for every day of this week, its best week since November 2020.
My recently discovered greed accelerator (see my article “DNA Discovery Confirms 2021 Perilous Peak & Secular Bull High for S&P 500”) which has preceded every Perilous Peak since 1881, indicates that greed is alive and well.
Based on the two findings below from my empirical research and quantitative analysis my conviction is extremely high for the S&P 500 to steadily decline throughout 2021 after the next double digit correction from the high occurs.
- 4th Perilous Peak and 5th Secular Bull High since 1881
- beginning of the first Secular Bear since 2000
All investors need to become educated about the difference between a Secular Bull and a Secular Bear Market as soon as possible.
The last time I considered my conviction level to be as high was in 2007. In this case, my prediction was for the collapse of the US’ five largest brokers. In my Equities Magazine’s September 2007 article, “Have Wall Street’s Brokers been Pigging Out?”, I emphatically warned to the readers to sell their holdings in Bear Stearns, Lehman, Merrill Lynch, Goldman Sachs, and Morgan Stanley. The snapshot below is from a page in that magazine.
Due to a high level of conviction, my December 2007 column, “Brokerages and the Sub Prime Crash” reiterated my emphatic warnings to sell the shares of the five brokers. By the end of 2008, the Great Recession had occurred and three of the five brokers were no longer public companies. Lehman Brothers filed for bankruptcy. Morgan Stanley and Goldman Sachs were the two which survived and only because they were rescued by Mitsubishi Finance ($9 billion) and Warren Buffet ($5 billion), respectively. From September 2007 to their 2008 lows, Morgan Stanley’s shares declined by 84.5% and Goldman Sachs by 70.9%.
My unrelenting conviction in 2007 as to the impending peril for the five brokers was the direct result of the deep empirical research that I had conducted in 2001 on Enron’s financials as well as the financials of hundreds of other public companies which had gone bankrupt unexpectedly from 1990 to 2000. The five brokers were diagnosed with the same condition that Enron had prior to its unexpected bankruptcy in 2001. Enron’s fall from grace was stunning for the following reasons:
- At 10/18/01, all 15 of Wall Street’s analysts rated Enron a “buy” and when it filed for bankruptcy in December 2001, there was only one sell rating.
- Fortune Magazine had named as “America’s Most Innovative Company” for six consecutive (1996-2001) years.
- Most importantly, as depicted in the chart below, Enron’s EPS was at an all-time high when it filed for bankruptcy.
I was compelled to conduct deep empirical research on the Financial Statements of public companies as a result of Enron’s demise. This led to my discovering Enron’s death knell, the flaw in its Financial Statements. This research led to the development of two algorithms which identify extremely unhealthy as well as those healthy public companies which have low relative valuations and share prices:
- EPS Syndrome (EPSS) – to predict bankruptcies for seemingly healthy public companies which are highly recommended by Wall Street analysts. A list of the companies which went bankrupt after an EPSS diagnosis, along with diagnostics for the five brokers, and a video about the EPSS are available at BullsNBears.com’s Perfect Shorts.
- OPS Rankings (OPSR) –ideal for finding the gems among the coals after a market has crashed or corrected significantly. In 2002, OPSR identified several dozen dot coms which had valid business models and which had survived the 2000 crash. They included Amazon, Yahoo, and eBay in Q4-02. The chart below depicts Amazon’s pre-2000 crash and Q4-2002 highs. Forbes 7/30/03 “Markowski Goes with the Flow” by Elizabeth MacDonald, now anchor on Fox Business TV Channel covers the performance of both algorithms.
My conviction level for the BBT algorithm, arguably my most valuable, is also very high. The BBT evolved from my conducting deep empirical research of prior crashes and significant corrections. The BBT, which was originally developed to predict significant corrections and crashes, predicted the 2016 Brexit Crash. After being converted into a trend trader, BBT produced a gain of 204.4% vs. the S&P 500’s 36.6% for the three years ended December 31, 2020. Most importantly, as depicted in the chart below, the BBT produced gains for the S&P 500’s two worst quarterly declines. The BBT gained 34.5% for Q4-2018 and 56.1% for Q1-2020 versus the S&P 500’s losses of -14.3% and -21.1% respectively.
The discoveries and algorithms listed below are derived from the deep empirical research I conducted during the period of November 4, 2020 through the end of January 2021. The recent math-based findings, which conclusively quantify a market peak, are on par with the EPSS, OPSR and BBT algorithms.
- Bullish Sentiment Anomaly (BSA), November 2020
- Bull Vix Algorithm (BVX), November 2020
- Perilous Peak, January 2021
- DNA for Perilous Peak/Secular Bull high, January 2021
- Greed Accelerator, January 2021
My conviction level that the fifth Secular Bear Market has begun is as high or higher than my conviction for the demise of the five brokers as well as that of the Brexit Crash. Both predictions were 100% algorithm-based. Thus, my conviction is for the following to occur for the S&P 500:
- to close lower at end of 2021, as compared to 2020 close
- to decline to a lower low in 2022
- to decline for a third consecutive year in 2023 and by a minimum of 32.2% from its 2020 peak
- to not reach its Secular Bear market low until 2029, at the earliest
- at Secular Bear market low will have declined by a minimum of 48.2%
- to not reach its 2021 high until 2034 at the earliest and 2045 at the latest
All investors and especially those who are above the age of 50 years, due to time required for new record high, need to adjust their investment philosophies to protect and then to grow their assets. Investors must also prepare to change their financial advisors.
The chart below depicts the performance of the Fidelity Magellan Fund, considered to be one of the world’s best-managed mutual funds during the 1982-2000 Secular Bull and the 2000-2009 Secular Bear markets.
The chart below depicts the performance of the Fidelity Magellan for the 2000-2009 Secular Bear and 2009-2021 Secular Bull markets.
The bottom line is that both of the above charts depict the following:
- The stock market has secular (long term) upward and downward trends. Secular Bulls are followed by Secular Bears and then by Secular Bulls, etc. For a video about all Secular Bulls and Bears since 1920 click here.
- The majority of all investors including professionals and financial advisors can-not even maintain the price of a fund or the value of a portfolio during a Secular Bear market.
For a portfolio to grow during a Secular Bear market requires that a Secular Bear investing strategy be deployed. A Secular Bull investing strategy loses money during a Secular Bear. The 1:44 seconds video below is about Alpha Tack which provides Secular Bear market investing strategies and also referrals to experienced advisors who utilize such strategies: