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Caution Advised! This Face-Ripper Rally Is Temporary

Kurt S. Altrichter, CRPS®
Kurt S. Altrichter, CRPS®
  • Our short-term signal flipped Green on October 3rd and we have seen a nice little bear market rally since.
  • This bear market rally could still have some legs.
  • Beware of FOMO and dumb money echo chambers.
  • Q4 earnings could bring the market back down to new lows.

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Click HERE for the full analysis below.
Missing the bottom on the way up won’t cost you anything. It’s missing the top on the way down that’s always expensive. - Peter Lynch
Caution Advised! This Face-Ripper Rally Is Temporary
The market has been trading up for the last two weeks, and I would expect this rally to continue for roughly the next 2-4 weeks. Our short-term signal flipped green on October 3 and has remained green since then, and historically, this signal usually lasts about 6-8 weeks.
In addition to our short-term signal being green, market conditions are telling us this rally could continue over the next month.
Over the last week, the total market cap of cryptocurrency increased by over $100 billion, more than a full month’s worth of the Fed’s Quantitative Tightening.
The utilities sector is the most “bond-like” sector in the equity markets and that is why it is classified as a defensive sector. Action in the utilities sector is still very ugly and has outperformed the market over the past six months. Valuations, which have been essentially disregarded throughout this cycle, could finally be unwinding. This sector currently trades at 20 times earnings, far higher than historical averages.
A rising price ratio chart means the numerator is outperforming (up more/down less) the denominator. As seen below, a falling price ratio means underperformance.
Lumber has picked up some momentum over the last month and has come down a little bit, most likely from being overbought. Lumber prices have risen about 12% from their valley at the end of September, suggesting that some of the worst market news may have been overdone. Long-term expectations should probably be low. The housing market is still rapidly rolling over, and high mortgage rates are pricing out a lot of new home buyers.
However, the overarching trend is still clearly down, and the markets will likely re-test the lows set in September. I expect Q4 earnings to be a lot worse than Q3 earnings, so we could expect to possibly see new lows in December and January.
Cash is king at this stage of the cycle, and we are sitting on roughly 75%-80% cash.
Patience is paying off and will likely continue to pay off. This bear market will end; we just don’t know when.
The bond market is having the worst performance it has had in over four decades.
A lot of investors thought government bonds were safe. Well, they are safe if you own actual bonds and hold them to maturity, but if you own 20-year treasuries, you are down almost 37%, and it looks like they are going to continue to slide. We currently do not own any bond funds.
The reason why I bring up a possible continued rally is so you don’t get caught up in the dumb money crowd. The dumb money crowd buys at the very top and sells at the very bottom.
Remember, in 2000, we had four bear market rallies of over 20% until we finally made a bottom.
Before you get influenced by the dumb money crowd, consider these four stats:
  1. 85% of countries are on track and are expected to have declining growth in two of the next three quarters. (i.e. for most of the world, growth and inflation are slowing).
  2. Every country but one globally has rising Credit Default Swaps month-over-month, with the average increase being +19% (i.e. the market is saying risk is rising).
  3. 83% of central banks are raising rates into declining economic conditions (FYI: raising rates into a slowdown = very bad).
  4. There is $13.4 Trillion of foreign dollar denominated debt (i.e. debt that has to be paid in US Dollars, with strong U.S. dollars and weak local currencies).
It’s not exactly a bullish set up, is it?
The VIX ended last week at 25. We still need to see this blowout to 45+ as no bear market in history has…(click below for the full analysis)
Click HERE for the full analysis.
Outperformance is achieved through the avoidance of major market crashes.
Best regards,
-Kurt
Schedule a call with me by clicking HERE
Kurt S. Altrichter, CRPS®
Fiduciary Advisor | President
8400 Normandale Lake Blvd, Suite 920, Bloomington, MN 55437
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Kurt S. Altrichter, CRPS®
Kurt S. Altrichter, CRPS® @kurtsaltrichter

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8400 Normandale Lake Blvd, Suite 920, Bloomington, MN 55437