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Short Correction Or Longer Bear Market?

Short Correction Or Longer Bear Market?

Good morning.

This has been the roughest start to a year for equities in decades. The SP500 is down nearly 20% and recently closed below one key benchmark of the 100-week moving average. So the question now is… is the pain over or are we facing a longer and deeper pullback in markets?

In the attached chart for SPY since 2000, I marked each time price dropped below the 100-week moving average (blue line). Here is what you can see:

There are 7 events prior to our current position.
3 of them we corrections that exceeded 20%.
2000 and 2007 were significant downturns of nearly 50% or more.
In each case of steeper corrections, interest rates were rising for more than a year prior to the pullback. (See the blue lines on the $TNX -10 year Treasury Yield) on the bottom portion of the chart. And look where we are now. We have rising rates and a drop below the 100.
In each historic case of short-term, smaller corrections, the Fed stepped in with more market liquidity, lower rates, and easing - including during the Covid Plunge.

So my sense is probabilities favor a longer, deeper bear market than we have seen in years. The Fed has indicated higher rates and less market liquidity going forward in order to stop inflation. We will not see improvements until inflation rates ease, we experience a recession, and/or the Fed slows its speed of interest rate increases.

Our V2 Model does not trade on the 100-week moving average. We do use it as one of our many data points. V2 is up 3 percent this year, while the Sp500 is down almost 18%.

Our V2 Model tracks over 120 asset class ratios on various time frames to assist us in deciding how and when to allocate our holdings. No single indicator, chart, or list gives market clarity. They each give a point of view that we factor into our model. We do not forecast. We follow the math. It has led us to remarkable long-term performance.

If you are not a Member and would like to see our V2 holdings, allocations, history, and changes as they occur I urge you to subscribe below.

You can learn more at thevigcompany.com

Distance=Victory

Chris

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