Transcription
Hey everyone, and thanks for jumping back into the equity verse. Today, we're going to talk about the S&P 500 is now down 9% from the highs. So, we're going to talk about what likely comes next.
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I am recording this video on Friday before the close, and by the time you see this video, it's going to be a few days later because I'm going to be traveling a lot of next week. So, just know if you're looking at the video and it doesn't really seem like the price is matching up, it's just because I'm recording it at an earlier time.
Now, a few weeks ago, and by a few weeks, I guess I mean almost a couple of months ago, we put out this video, right? And what it said was stocks to drop 10% soon. And you can see that the price was at around 6,900. It was the same week we had put in an all-time high. This was the week of the last week of January, early weeks of February. So, we said that the market will likely drop 10% soon. And I want to talk about what happens next.
Right now, the stock market has already dropped about 8 and a half, almost 9%. Maybe by the time you watch this video, it will have already dropped 10%. But I want to talk about what I think is going to happen in the short term. Maybe show some of the longer-term views. But let's first talk about the short-term implications of what is actually happening.
What I expect to happen is I think the market will likely form a low sometime in April before developing into a counter-trend rally. We went through the same process with Bitcoin. It's just that Bitcoin did it sooner. And essentially, what happened is Bitcoin broke down. It then eventually back-tested the bull market support band, and then it went down even more. Okay.
Now, while the S&P 500 has wicked back to the bull market support band, it hasn't really had a durable counter-trend rally. I think you will likely see the stock market drop a little bit more. I think it'll probably drop a little bit more than 10% before then likely bouncing back up and potentially back-testing that bull market support band.
Now, here's the tricky thing. While I think what makes the most amount of sense would be for the stock market to drop into early April and then back-test the bull market support band and then go down, there's chances that it plays out differently than that, right? There's a chance that maybe we just go ahead and get a 20% drop now. But there's also a chance that you actually see this come back up and sweep the highs before coming back down.
The reason why I think it makes sense right now to suggest that the stock market will remain bearish into the first half of April. From there, I think a counter-trend rally is likely to develop, and then we can talk about the strength of that counter-trend rally once it's underway. That is where I am right now on this.
I want to give you guys a couple of things to look at. One of the things is like, why have I been bearish? Like, why did I put out a video in February saying that the stock market would even get this drop to begin with? Well, that's a good question, and the main answer is, if you look at the stock market against gold, you can see that in fact, the stock market was breaking down against gold back in February. And the recent counter-trend rally that we saw over in Bitcoin and some of the weakness over in gold, all it did was allow the stock market to back-test where it broke down from against gold. It did similar stuff back in 2008. If you go back even further, you'll see this is the same valuation that the stock market broke down against gold back in 1973.
So, what I think is the most likely outcome is to watch for the stock market to extend its losses against gold and then perhaps get a counter-trend rally against gold before going even lower. Okay.
Now, the reason why the timing is so difficult to know how high the counter-trend rally will go is because there's so many different examples where it plays out in completely different ways. If you look at 2022, you know, we went down and we just had counter-trend rallies back up to the bull market band and then went lower as the year went on. You can see that pretty clearly in 2018 when we had the same administration in the United States. What you'll notice is that the stock market put in a high in the early part of the year, just like it did over here. It then had a correction where it dropped about 12%, but it ultimately found this low right here in the month of April, about 12% down, rallied to all-time highs, and then had a bigger drop going into late 2018. So, it's not impossible for things like that to happen.
The other thing to remember is the stock market divided by the money supply. This is the more longer-term bearish chart, but it would be a shorter-term bullish chart if this continues to play out. And I'm sure you guys are aware of what I'm going to say because I've said it a thousand times. I truly, truly hope this fractal breaks because if it doesn't, it wouldn't be a good thing. But if you overlay this with what happened in 1996 through the dot-com era, you can see it kind of, everything still kind of lines up, right? You had your correction we had back in late 2023 with rising yields, that corresponded to the correction we had back in like in 1996, 1997. And then the 20% drop we had in '98 corresponds to the tariff drop in 2025. And then the current drop right here corresponds to a drop we also had back in 1999 before going back up, sweeping the highs, and then for everything came crashing back down.
So, in that case, back then when the market dropped, if this is where we are, we just had that top, and that top ended up being about a 14 to 15% drop before rallying back up. It swept the highs and then eventually came down.
So, what I would say is this. It's so hard to know how this is going to fully develop over the next few years. There's always a chance that the business cycle just ends this year, and maybe the stock market rallies to the 21-week EMA in May, and then we get a big drop, and then we sort of reset the business cycle, and all is fine. If, on the other hand, we drop and then bounce back up and then kind of sweep the highs, you could get a more protracted drawdown later on as the unemployment rate potentially starts to creep up in future years.
Now, I don't want that outcome to happen. I would prefer that the next counter-trend rally yields a lower high, but as someone who's been in the markets for a while, like I know it's not impossible for the stock market to sweep prior all-time highs when in fact you are near the end of a business cycle. You could already argue we swept this first high right there, kind of like what happened in 2021 going into 2022. But I do not want to sort of deny how things played out in 2018. And I don't really want to deny how it played out in 2000 and also 2008, where you had in 2007-2008, which you'll remember, is that the stock market set a high and then it dropped about 12%, rallied back up, swept the high, and then sold off into the financial crisis.
So, I want people to be aware that when the next low is likely formed, and my guess is in April, it's going to be difficult to know the strength of that rally, but I would think that a rally will likely materialize sometime around then, just so that it keeps people guessing, right? Whether it goes back up to the bull market band and then drops, or whether it goes back up, sweeps the high, and then drops, that's difficult to know. But I think where I would say is that the market will likely drop again after the current low is in, regardless of whether we sweep the highs.
Those are my views. If you followed along, you know, it's not easy putting out videos calling for 10% drops in the stock market because timing the stock market is very, very difficult. But we put this out the week the market topped. And since then, the market is now down almost 9% from those highs. So, we're nearly at that 10% drop. I could see it extending a little bit further, maybe like 10 to 15%. Then you form that counter-trend rally. And then once the counter-trend rally starts, we'll then talk about what are some realistic expectations, what's going on, and then try to sort of finish up this business cycle as quickly as we can.
I hope it does not drag out for two or three more years. I hope it just ends. But we have to work with what we have. And, you know, I don't control the markets. You don't control the markets. None of us have a crystal ball. We're all just doing the best we can. I'll try to show you what I think's happening along the way. And at times, I'll try to talk about the path. But I'm only going to talk about the path when I actually have some conviction on it. There are times where I'm just, I don't know, right? Like, and that's okay to admit that I don't know sometimes where the market's going to go because it's really difficult.
But I will say that an April low seems about right. Two reasons. One is the low we had in 2025 was also in April, right? So, April 2025, why not April 2026 for a low to be set? And then going back to the dot-com comparison, we had the first low we had in October of '98 that corresponds to your tariff crash last year. And guess what? That next low that we had was October of '99, exactly one year later. So, I'm looking for the stock market to form a low again sometime in April of 2026. Look for a rally after that, and then we'll talk about whether that can lead to a lower high or a higher high.
Remember, if it goes to a higher high, I think it'll only be a sweep. It likely will not be anything sustained. And the components of the S&P that are allowing that all-time high are probably different than the components that allowed the all-time high back in December. You'll see rotations between sectors, more defensive positioning that allows the S&P to go up rather than expecting for a lot of the tech stocks to all make new all-time highs. You could see rotations within that could allow the market to then get that counter-trend rally back up to the upside.
But in general, when you think about the stock market against gold, you know, after it broke down in 1973 and in 2008, there were no all-time highs after that. So, I don't want you to marry the S&P M2 valuation. I much prefer the S&P gold valuation. And with the S&P gold valuation, there were no all-time highs after it broke down, right? You can see it right here. Look at '73. No highs after it broke down. And of course, in 2008, no highs after it broke down.
So, I would say look for a lower high, but don't commit to it a ton. Like, you know, I would say look for a lower high, but be open-minded for a sweep of the prior high. And if you can do that, then I think you can at least be positioned correctly for how the rest of this bare market will play out.
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