Bonds & Notes Negative as Stocks Prepare for 1 – 2 Year Sell-off.
Outlook 2022/2023 – Parallels
11-29-21 – History rhymes; it does not repeat. The same mistakes might be made (’those who do not learn the lessons of history are doomed to repeat them’) but the actual events are different… often dramatically so. That does not, however, change the overall principles, cycles, or societal shifts that take place at key intervals.
I stress that principle to preface the following postulation. This conjecture is not implying that the same things – or even close to the same things – are likely to unfold. It is only conveying that some similarities or parallels are expected… and are already unfolding.
Sabbath of Sabbaths
A cycle of 49 – 50 years has been discussed before. Its origin dates back to (at least) the Old Testament and the book of Leviticus when Israel was being given a set of parameters for how to govern the land they were entering. One of the primary ‘rules’ had to do with agriculture and the principle of allowing the land to ‘rest’ during each 7th year.
That principle has been revered and applied right to the present day (in forms of organic farming) and provides the soil the necessary time to replenish depleted minerals and related elements. That principle extends beyond just agriculture.
After 7 of those 7-year periods, an additional year of ‘rest’ was necessary – a year of Jubilee – for the nutrients in the land and soil to replenish more thoroughly before being farmed again. The 49th and 50th years were critical and were when that principle of ‘jubilee’ was exercised – in society (debt, etc.) as well.
That 49-year (and 50-year) cycle has been evident in many markets. Two prime examples – that are actually not in precise sync with each other – involve the US Dollar Index (versus other currencies) and Gold (versus the US Dollar). More on those in a minute…
1973 – 1974 Redux?
The discussion of this 49 – 50 year cycle is laying the foundation for a related discussion – hypothesizing that 2022 – 2023 could possess some similarities (rhyme… NOT repeat) to 1973 – 1974. Several major events of 1973 – 1974 already possess potential parallels setting up for 2022 – 2023. They are:
— Aftermath of drawn-out military conflict.
— [reserved for subscribers]…
— Dramatic sell-off in stocks.
— Societal shift reflected in Roe v Wade
— Dollar/Gold analysis
Vietnam & Afghanistan
In a prime example of ‘rhyming’, the recent conflict in Afghanistan consumed two decades and was abandoned by the US in late-2021. Similar to the signing of the Paris Peace Accords in Jan 1973, the ensuing years (2022 – 2023 and beyond) could lead to many unintended consequences in that region of the world.
There are many parallels between the two conflicts, not the least of which is the time that both consumed (longest two conflicts in US history), the unpopularity with a large percentage of the US population, and the political and military ‘disgrace’ that was amplified by the termination of these conflicts…
Stock Sell-off
With the culmination of multiple long-term cycles in 2022 – including a 40-year low (1942) – low (1982) – high? (2022) Cycle Progression – the stage is set for a significant stock sell-off.
The 7-Year Cycle of Stock Crashes (20 – 35% or greater declines that culminated in 2016, 2009, 2002, etc.) recurs in 2023 and creates a 2-year period that could rhyme with 1973 – 74.
Supreme Court Shuffle
The Supreme Court realignment of the past ~5 years has ushered in a period when pro-life forces feel emboldened to challenge one of the most divisive and consequential rulings in modern history. Whether or not that results in any dramatic changes, the battle is likely to highlight the polarization of present-day American society…
It is possible the Dollar Index sees wide swings in 2022 – ‘23, a bit like 1973 – ‘74. The more intriguing part, however, will be if Gold is able to mount another serious advance in 2022 – ‘23…
Stock Indices fulfilled upside objectives – in time and price – surging into Nov 4 – 9 and setting another multi-week peak. That was projected to be the interim high between a preceding peak in early-Sept ’21 (2 months prior) and a projected peak in early-Jan ‘22 (2 months later). In between, weekly cycles were/are portending an intervening low in late-Nov/early-Dec (depending on the stock/index)…
As described all year, the expected 1Q ‘22 peak could be another divergent one with some stocks/indexes setting higher highs while others set equal or lower highs. That is reinforced by the price action, and price objectives met, during the surge into early-Nov. By reaching key upside price and wave targets, some key indexes projected ‘a more substantial sell-off’…
By spiking to new intra-year highs (fulfilling its weekly trend and monthly trend patterns) AND fulfilling its Elliott Wave objective AND attaining this multi-year upside target, the Russell 2000 ushered in the time for a sharper decline in Nov ’21… and potentially longer after completing its wave structure…
In the same month the Russell 2000 was fulfilling that synergy of upside targets, the NQ-100 peaked right at its multi-month upside target (~16,700/NQ) and reversed lower…
Another (leading) index also fulfilled major upside objectives in Nov ‘21 – related to a potential wave ‘5’ surge and culmination. In that case also, the attainment of a major upside target reinforced the potential for a larger-scale decline…
As explained last month, the DJTA bottomed in late-Sept and projected a new impulse wave higher (’5’). The May – Sept ‘21 decline was the largest correction since 1Q ‘20 and its longest correction since 4Q ‘18 (all linked by the 16-Month Cycle). On Oct 15, the DJTA closed back above its weekly 21 High MAC and reinforced those bullish signals. That spurred a surge into Nov. 2 when the Transportation Average was the first index to fulfill upside objectives and signal that a multi-week/multi-month correction should follow…
The most important takeaway from stock market action in Nov. ‘21 is that many significant stocks and indexes have fulfilled 1 – 2 year upside targets – on multiple levels – ushering in a potential topping process that could stretch into 1Q ‘22 (when the stronger indexes – like the S+P 500 and NQ-100 – could set their final highs as other indexes diverge).
They have also completed wave structures that augur a significant correction. Even the NQ-100 is reflecting waning strength…
1Q ‘22 Review
1Q ‘22 (most synergistic in Jan/Feb ‘22 and ideally in Jan ‘22) is the convergence of a web of 16, 8 & 4-month cycles AND the latest phase of the most consistent cycle of this century – the 3.25-Year Cycle.
That cycle was last involved in creating the Dec. ’18 low and projecting an overall advance into 1Q ’22 – when the next phase should invert and time a 1 – 2 year (or longer) peak. That would fulfill a 3.25-year low (1Q ‘09) – low (2Q ‘12) – low (3Q ‘15) – low (4Q ‘18) – high (1Q 2022) Cycle Progression.
As the markets have been moving toward 1Q ‘22, repeated corroborating factors have emerged. A multi-week peak in early-Sept ‘21 was projected and increased the likelihood for a multi-month peak in Jan ‘22 (4-month high-high-high Cycle Progression).
After that was fulfilled, focus turned to early-Nov ’21 – when another multi-week peak was forecast. It has now been fulfilled and increases the likelihood for a multi-month or multi-quarter peak in Jan ‘22 (2-month high-high-high Cycle Progression).
And that would also dovetail with the 2-Year Cycle that was detailed extensively in 2018 and again in 2020. Both times, it created peaks… 3 – 6 month & 6 – 12 month (and even 1 – 2 year) traders and investors should have been lightening up on long positions in early-Sept…
Bonds & Notes bottomed on Nov 23/24 as Bonds retraced 50% (in time) of their preceding rally and prepared for a rally to new highs. That low also fulfilled the latest phase of a ~30-degree high-high-high-low-(low) Cycle Progression that has timed turning points on the 20th – 23rd of each month.
At the same time, Notes dropped to new 12 – 18 month lows (and to the lowest level since Feb ’20 – basis a continuous contract) in sync with their negative weekly 21 MARC indicator. That allowed them to fulfill a 34-week high (Aug ’20) – low (Mar ’21) – low (Nov 22 – 26, ’21) Cycle Progression and set the stage for a multi-week bounce…
On a broader basis, Bonds & Notes are steadily validating the overall outlook for 2020 – 2023 in which interest rates have been forecast to slowly rise in response to developing inflation and other factors.
The Bond peak in July ’20 perpetuated an uncanny 4-Year Cycle that timed multi-year highs in July ‘12 & July ‘16 and preceding lows in mid-2004 and mid-2008. That cycle projected that interest rates would slowly rise (and Bonds fall) in 3Q ‘20 – 3Q 2022, possibly extending into 2023.
Longer-term investors and hedgers could have been liquidating long positions in Bonds & Notes and selling on intermediate rallies in 3Q/4Q ‘20… and should have added to short positions in Aug ‘21.” TRADING INVOLVES SUBSTANTIAL RISK!
Bonds & Notes entered the next phase of a projected 2 – 3 year decline in July/Aug ’21 – when a new selling opportunity emerged in line with cycle highs. That should lead to a convincing decline into ~3Q ’22 that is likely to begin weighing on equity markets in 1Q ’22 – when a powerful convergence of cycles portends a 1 – 2 year (or longer) peak in stocks. Bonds & Notes should drop into at least 3Q ’22 (1/2 of 4-Year Cycle; with Oct ’22 representing a 4-year low-low cycle)… and ultimately (likely) into 2Q ’23… with stocks now set to decline in tandem.
While inflation has been forecast to see a second surge into 2022, Bonds, Notes and Stock Indexes are now poised to drop in reaction to that. Many stock indexes have fulfilled multi-year upside targets (‘5th of 5th of 5th wave’ peaks) and are on track to set a final set of divergent highs in early-Jan ’22 before multi-year and multi-decade cycles portend a major decline. ‘Crash Cycles’ also kick in in 2022/23 (a ~7-Year Cycle that last timed sell-offs and lows in 2001/02, 2008/09 & 2015/16).
2021/2022 was expected to usher in a dramatic shift in multi-decade cycles (40-Year & 80-Year Cycles) – timing everything from War (late-2021 into late-2025), Climate (Drought Cycles peak in 2021/22 and shift to Deluge Cycles in 2022/23), Agriculture (80-Year Cycle shifts in 2022/23), Currency Wars (2021)… and Interest Rates. The final year(s) of a 40-Year Cycle of Drought (into 2021/2022) could sustain commodity inflation into 3Q/4Q ‘22… keeping negative pressure on Bonds.
Refer to latest Weekly Re-Lay & INSIIDE Track publications for additional details and/or related trading strategies.