Wednesday, January 12, 2022

More Evidence the Bull Market Is Ending

By Greg Diamond (View Archive)

Editor's note: Today in Empire Financial Daily, our colleague Greg Diamond from Stansberry Research is back...

On Monday, we shared insights from Greg about what the movements of two bellwether stocks could mean for the market's direction in 2022. Today, Greg shares more details about why he thinks all is not well under the hood of the market...

Fear and greed are important aspects of market analysis...

These factors can be hard to quantify. But sometimes, they can also be so obvious that you just can't ignore them.

Take this recent exchange I had with a friend, for example...

Friend: Hey Greg, do you have any fun stocks you'd recommend to me?

Me: What are "fun stocks"?

Friend: I normally just buy exchange-traded funds, but I also like to throw a few thousand bucks on a stock just for kicks... Random stocks are just fun to see if they take off.

Me: We need to talk. Let me call you back next week.

When I eventually called him back, I explained to him how dangerous this can be.

Thinking that stocks are 'fun' or that 'stocks only go up' is greedy, yes...

But also, whenever someone is choosing random stocks – well, that's worse than greed. That's complacency.

On Monday, I outlined the similarities between the market right now and the crash back in 2000. The conversation I had with my friend instantly reminded me of another story one of my former bosses told me... I'll never forget it, because it makes me laugh every time I think about it.

In early 2000, my then-boss came home after work and found his wife on the computer. He asked her what she was doing...

"Charting," she said.

"Charting what?" he asked.

"Stocks. One of my colleagues at work told me how to do it."

"You just called the top, honey!" he replied.

She was charting stocks... She had never traded stocks ever before that time. He wasn't trying to be a jerk. But when someone who has hardly looked at the stock market before suddenly learns how to "chart" stocks from a friend, that environment is sure to turn ugly.

He knew the top of the market was in... and obviously, he was right.

When we look at this type of behavior, it's not to poke fun at inexperienced investors...

We all have to start somewhere... It should be a learning experience. We all have a learning curve and our share of failures when it comes to the market.

For our purposes right now, though, this is about understanding human emotion – and understanding the popular mindset at different levels of the stock market.

We'll likely see more examples like the ones above as stocks continue their march higher... These mindsets usually signal the end of a bull market. History is full of them.

Today, I want to continue from where I left off on Monday with two more stocks I'm watching in the long term...

These stocks don't indicate that all is well for the markets heading into 2022...

One of the stocks we looked at on Monday was Caterpillar (CAT). Historically, this stock is a leading indicator of the strength or weakness of the economy. When it diverges from the major indexes (like it's doing now), it's a bad sign.

What's even more concerning is that Congress passed the trillion-dollar infrastructure deal in November, and Caterpillar still can't keep up with the major indexes. Money should be pouring in to building projects... And the fact that a stock like Caterpillar can't keep up is concerning.

Another stock I like to watch is FedEx (FDX). While it's in a different sector than Caterpillar, it also tends to show strength or weakness in the economy. Take a look...

FedEx topped out in May 2021 and has been in a downtrend since. Notice the stock is also below the important 200-day moving average ("200-DMA"). The downtrend and the 200-DMA are forming a significant resistance level (the green circle), which means FedEx could have a bit more upside before hitting this level.

But look at the relative strength index ("RSI") at the bottom of the chart. It's at overbought levels within a downtrend. This is not a good sign from a long-term perspective.

Now, perhaps you're thinking that the recent supply-chain issues and a lack of workers could explain why the stock is down. Those are fair points, but I don't care about why a stock is down. I only care that it is down relative to all the major indexes, which is usually a bad sign.

Now, let's turn to the tech sector...

These stocks are soaring, so all must be well, right? Not so fast...

One of the biggest semiconductor companies on the planet is really struggling. I'm talking about Taiwan Semiconductor Manufacturing (TSM), which makes most of the chips for phones, computers, and cars. Take a look...

As you can see, Taiwan Semiconductor rallied with everything else and actually led the way in 2020 – it skyrocketed off the March lows, rallied a whopping 230%, but then topped out in February 2021. It hasn't had bullish price action since and has fallen behind.

Again, similar to FedEx, I know the chip shortage and possible tensions with China are most likely affecting the stock. But that doesn't matter to me...

A major stock that rallied with the tech sector throughout 2020 topped out in February early last year, and still can't keep up with the rest of the sector when it should be leading. That's a big warning sign, not a sign of confidence.

The bottom line is, I'm seeing these stocks that should be rallying with the major indexes (which are at new all-time highs) – but they aren't. And history tells us this is usually a bad sign.

Caveat emptor... Let the bulls beware.

The market's behavior right now means that trouble is coming... and much sooner than most investors realize.

I believe 2022 will see the start of a massive crash that could lead to the longest bear market since the 2008 financial crisis.

Tomorrow night, at 8 p.m. Eastern time, I'll reveal the exact day that it could happen. I'll also show you exactly how to play it... for the chance to double your money on 10 stocks, over and over again... without buying a single share.

Reserve your spot for this free event right here.


Greg Diamond
January 12, 2022

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