The first chart below typically is seen in Secular Bull Markets
like post-2013.
We use the EMA200 to avoid over - paying.
Navigating
There are also corrections within the Secular Bulls.
We use them only to choose our entry points.
Flat Spots
The market moves in waves and our way of using the the EMA200
limits them
to a 4-year time horizon
and
includes them in Volatility measurements.
Enter wisely, but do not trade.
Buy At the EMA Trick:
The image to the right shows four approximate straight-line segments, with arrows pointing to the
The segments are numberd #1,2 #3,4 etc.
There are four segments, five corners.
"corners"
showing up after
a run-up in the Price Chart starts
The end is usually triggered by Price outrunning Earnings.
Beware.
or ends.
The straight line segments are
described above where the
This would be the slope of a line touching corners #2 and #4.
Slope ln(1660/1395)/ (2017.4 - 2014.9) = 6.9%/yr.
EMA200
was measured and plugged into the Continuous Interest Equation
using a calculator rather than the Calculator Soup site.
During Secular Bulls, Buy and Hold Stocks.
Collect cash and await a dip to the EMA200.
The EMA200 (Exponential Moving Average) is delayed by 187 days,
and in the process strongly filters out volatility.
Thus it
The slope of the trend is that of a line that just touches two bumps.
In the chart above corners 2 and 4 give 6.8%/yr.
locates
a trend, and if the price is rising, it will lie below the current price
(green line) most of the time.
ASIDE: most "chartists" and brokers use
the SMA200-
avoid doing that too because the EMA gives better R.O.R. measurements.
The EMA trick only works for low volatility
Examples: ZLB.TO, HAC.TO, ZWH.TO, XUT.TO and XST.TO.
situations
such as
...and good equilibrium between price, earnings and dividends.
Secular Bulls as shown above.
Secular Bear markets don't qualify - they have about a 16 year time horizon, and
stocks exhibit savage
That means the warning above to not buy and sell is invalid.
Rotating out of stocks with large volatility measurements
(2nd row) will be wise.
volatility unless they are "safe harbor" things like
...or Canadian stocks which have low P/E ratio.
That may not repeat next time - proceed case by case.
grocers or gold:
These are the ABC phase of an Elliott Long Wave and the last one was 13yr long.
Within these nasty flat spots there are usually two drops of 50% or more.
Secular Bears:
Scary With No Gain
(These Also Result From Price
Outrunning Earnings.)
To the right is the
S&P500 index since 1944, with
The latest one was only 13 years long, starting year 2000.
It seems to have been shortened by Quantitative Easing.
flat spots
(Secular Bears) marked by
Notice that they have two dips because they are an abc phase.
They also coincide with a new generation of investors who pull down
high P/Es.
rectangles
and with ovals for
These are the 12345 phase, which has shallower corrections and
track the EMA200 well.
They are driven by an optimistic generation of investors,
who run P/E up too high.
Bulls.
This can be viewed as an Elliott "long wave", and the Secular Bears
Unlike the chart above, there will be a LOT of volatility.
The EMA200 won't follow it.
synchronise
inflated price to earnings that have
The yellow R.O.R. patches on the calculator will show this.
The difference in rates may only be a % or two, though.
moved slower.
The right hand two periods are a Secular Bear with two
The Internet Bubble of Y2K and the Financial Crisis of 2009.
market crashes,
followed by the first half of a Secular Bull, interrupted by the
Government bailouts have led to inflation and rates are rising.
That suggests some defensiveness even in a Secular Bull.
COVID crisis.
That Elliott Wave ABC phase is NOT amenable to EMA200 methods -
the drops are too fast and last too long; and the 12345 sequence
gets quenched.
A drop of more than 50% is typical in the rectangles,
due to P/E having been driven too high.
The term "Secular Bear" is sometimes used for these crashes instead of the entire Bear.
Quenching
Events:
The failed wave is the 12345 sequence of the previous Secular Bull.
There have been two collapses per Bear - it's an ABC phase.
Failed
Predictability of Bulls and Bears is due to a long Elliott wave.
One could buy and hold the 12345 phase and rotate to e.g. gold for ABC.
Elliott Waves?
To the right is an expanded view of the right-hand third of the S&P500 chart above.
The flat spot contains two drops from about
A drop to one half of the peak; far worse than during Secular Bulls.
Generally caused by collapse of unrealistic P/E ratios.
$148 to $70;
Two such convulsions, marked by pink ovals, are typical during Secular Bears.
To the right is a third one, caused by COVID, which occurred within the current Secular Bull.
It
Also, it only dropped to about 3/4 of the peak, due to continued good P/E ratios.
Secular Bulls are generally like that.
quickly re-joined
the uptrend.
Events
These are often called Black Swans, meaning they are unexpected.
However, Secular Bears are predictable and high P/E is a warning.
like that
quench
The internet bubble from the 1990s Bull Market and the housing bubble
were false narratives.
The COVID crisis is real.
False Narratives.
The middle chart is for the Canadian financial sector. All three events appear
in it, but it continues to rise during the Secular Bear. That is a
Also, during Secular Bull periods one should
diversify across many sectors.
general principle;
when a Secular Bear market is due, one should get out of sectors that are
overheated
and into sectors that have
Also, sectors like Utilities and Groceries exhibit only normal volatilty.
been ignored.
For example the Dot Com
Bubble during the
Just before the beginning of these charts.
1990s
pulled money away from the banks etc.
"Hot" internet ventures exhibited
P/E ratios
that were either very high or negative.
When the bubble burst, people turned to the strong dividends of banks and insurance companies.
Their
Dividends have also outrun price; 8.2 vs, 6.5%/yr recently.
earnings
had grown faster than their stock price and P/E had
Be alert to this indication of a bubble at ANY time.
Investors tend to travel in herds - they follow
others and then panic.
become low.
Thus the price of Canadian banks tracked earnings growth,
ignoring the Secular Bear.
There had also been a bubble in energy companies (chart below financials), and it also
Delayed by about five years.
collapsed.
Then energy share prices dropped for more than a decade. The COVID crisis (third oval) introduced
a very steep drop, and recently it has broken out of the
This crisis quenched the downward part of an Elliott Wave.
It was ready to happen anyway, but was triggered early.
downtrend,
because earning power of oil companies had recovered.
Inflation - Response To Previous Interventions.
In the 2009 Crisis the Canadian Financials took a beating, but
their ETF soon benefited in
two ways: the banks bought up "fire sale"
US assets
and their P/E ratios became more realistic due to generalized panic.
There was another phenomenon; strong government intervention to stimulate the economy
and avoid stagnation in the subsequent COVID panic. The buzzwords were "quantitative
easing" and, after 2019, "CERB" in Canada. In both cases government injections
found their way into the bank's
Goverments also funded dividends,
to the chagrin of Fiscal conservatives.
balance sheets
and too many dollars are chasing too few goods and services.
Quenching Events Trigger Sector Rotation.
The Cdn energy industry and financials make up the bulk of TSE stocks.
At the beginning of the latest
The first quenching event also causes rotation into gold.
Gold producers become lucrative every 32 years.
Secular Bear
the low P/E ratios of Canadian banks
and insurance companies attracted brokers' attention.
(Here the
The growth rate measurements on the calculator.
yellow patches
were out of equilibrium; earnings and dividends had been
out-running price.)
Here is the outcome for the XIU.TO ETF; when excess
growth rate got quenched, money headed into these lagging sectors:
Inflation Conflation - Mushing Price and Money Supply Together.
There are two kinds of inflation, and they are different in kind.
Most people assume that "inflation" means increase in the money supply.
With their audience in mind, writers
They also make it sound scary - people like catastrophising.
predict
the future in terms of "printing presses".
Central Banks, however, view "inflation" as increase in $$$ paid to get goods/services vs. $$$ invested to produce them.
Fortunately for them, the supply of labor has very
low elasticity
now, because of
More people are retiring than entering the work force.
Supply is limited by labor rather than by capital
demographics.
In other words the production of goods and services does not change much when prices rise.
Demand, however, is much
more elastic
if disposable income is not available, prices drop accordingly.
A small increase in interest rates will pull a LOT of money out of disposable income into servicing debt.
Thus disposable income responds very strongly to rising interest rates.
In "Stagflation" times it was just the opposite - high interest rates suppressed supply of goods/services too much. Now it drives people work more to pay off their debts. That means investment in production is not as important as it was in the 1970s.