“Dear Diary…”

Monday, June 13th

• Nothing but “RED” across the board.?
• Capitulation was evident everywhere.
• No place to hide!

Tuesday, June 14th

• A nervous session following Monday’s fiasco.
• Attempts at stabilization were evident however even the slightest bounces were sold.

Wednesday, June 15th

• The big day awaiting the FED’s announcement. The market was pricing a 75-basis point hike, yet nervous trading prevailed up until Mr. Powell was speaking.
• The market rallied hard into the close and a sense of relief came over Wall Street.

Thursday, June 16th

• Any thoughts of a sustainable rally ended on Wednesday’s close.?
• The market opened sharply lower with the DOW registering 700 points right away. Selling persisted throughout the day and if Monday was “capitulation”, Thursday was downright SURRENDER!
• The NASDAQ had now lost a bigger percentage than the COVID collapse.
• Declining volume accounted for more than 94% of the total volume.
• For the session, more than 90% of stocks that make-up the S&P 500 declined for the day. It was the 5thtime in the past 7 days that this occurrence prevailed. Since 1928, such a development has NEVER happened. This was the most overwhelming exhibit of selling in history.
• S&P closed at 3666.77??
• NYSE Stats for the day: 1 NEW HIGH???1092 NEW LOWS

Friday, June 17th

• Selling abated somewhat although rallies were very short in duration.
• Quad-witching day so volatility was expected. Gains were given up quickly as the close approached ahead of the long weekend.

History is always there to provide guidance, yet many choose to contravene it because today is “different”. Indeed, each market cycle has its own unique characteristics but overall, the common denominator that links all cycles is that investors overreact both on the upside and downside. Greed is what steers investors at major tops and despair defines market bottoms. Clearly, what we are witnessing these past few weeks is a market that is being driven by the “Sell now and think later” mentality. The elastic band has been pulled to an extreme, even if this does turn out to be the “Great Bear Market” that everyone has talked about for several years. Even during some of the greatest declines of the past 100 years, the market did provide relief, a necessary ingredient if the prevailing trend were to continue. The ensuing rally (and it will happen!) is key and will determine whether the secular advance has indeed ended or will continue forward for a few more years (which has been our hypothesis). Remember, the time to buy is “when you don’t feel like buying!”, and this we believe best defines the current predicament of investors.

Case Studies

What if indeed this does turn out to be the beginning of the next secular decline? How will it play out? Is the S&P going to decline straight to ZERO? Are US Treasuries headed to the garbage bin? Let us assume for a moment that truly, the secular decline has begun. The next question that needs to be addressed is will this be a decline that mirrored the Great Depression (1929-1932) or the Financial Crisis (2007-2009)? Let’s not forget the Inflationary 70’s that produced even a more punishing market decline, not in absolute points but in real terms and in time (1968-1982).

Both the 1929-1932 and 2007-2009 collapses took place in a deflationary environment. The 2007-2009 decline was halted with the aid of the central banks, basically in order to save the existing financial system. In other words, instead of allowing the natural market forces to play themselves out and empower the market to discard the chaff from the wheat, the “chaff” was allowed to continue breathing which resulted in the excesses we had to contend with until recently. Of course, many will debate this issue and although it is relevant with how we proceed forward longer-term, the emphasis here should be to see how the indexes reacted during those declines and look for any similarity with today’s picture.

1929-1932

Source: www.stockcharts.com

2007-2009

Source: www.stockcharts.com

The first phase of the decline in 1929 saw the DOW lose 48% of its value and the first notable rally was able to retrace 52% of this loss. The major losses took place after the market had violated the initial low. The rest as they say is history!

For the 2007-2009 period, the first phase of the decline was much milder with the S&P losing 20% from its high but then registered a countertrend advance that recouped more than 57% of its losses. Once again, it was when the initial lows were broken that the real damage took place.

Source: www.stockcharts.com

Currently, the S&P is off 24.5% from its highs. Slightly more than the 2007-2009 period. A 50% retracement from current levels will take us back towards?4200 -4300, an area that is quite important technically. It will be very important to not only see how prices react at those levels but equally significant, what the underlying indicators have to say.?

Being bombarded daily with how “awful” things are, we realize it is impossible to think objectively. The above scenarios are there to show that even if our hypothesis is wrong, we do expect the market to provide us with the opportunity to re-assess. For the moment, our work continues to argue that after the market finds a bottom, we expect eventually to breach the highs on the S&P 500.

1968-1982 – A more probable scenario!

As stated, we still believe the secular bull to be intact, but should we be entering a prolonged period of declining prices, we are of the opinion that it will mimic the inflationary 70’s. It was a period with several up and down cycles, with no meaningful net gains. It was gut-wrenching for the buy and hold crowd (by the end of this period this group of investors had become extinct) and very profitable for those willing to step aside when conditions warranted. The chart below depicts that period.

Source: www.stockcharts.com

If indeed we have started such a scenario, the current decline is probably best compared to the initial decline off the 1968 highs. The 1970 bottom did eventually lead to higher highs on the S&P but were once again given up during the ensuing 1973-74 bear market. The sideways price movement over the 14-year period accompanied with the high inflation, did eventually produce some of the most compelling valuations ever seen on Wall Street.

IDEA of the WEEK

Gold is back on the menu “boys and girls!”

Gold has left many hearts broken over the past few years. If one would have predicted today’s inflation numbers coupled with the dangerous geopolitical environment a few years back, gold at $2500+ would have been a “certainty”. Yet, here we are, stuck between $1800 - $1900, and going nowhere fast.

If there is one thing gold has taught us over the years is to never turn our backs on it for that is precisely when it can awaken! Can this be the time that we finally get the upside resolution we have patiently waited for? A “trigger” is all that is needed to ignite some serious money to come into the foray and we believe we are “oh so close!”. Our internal work remains “positive” with a number of short-term trading models triggering “buys” this past week with the miners. Given the overall equity market nervousness that prevails, we may still be a couple of weeks away from an “explosion” higher, but once traders begin to sense some stability, look for this sector to quickly explode higher. The risk/reward is clearly with the BULLS here!

Managed Portfolios

A difficult week, indeed, with practically nowhere to hide as the general equity market has remained “unforgiving”. We continue to look for that “elusive” rally that will enable us to determine with much more clarity the “next big move”. We remain confident that our bullish expectations will play themselves out, but should we deem it necessary to switch positions we will not hesitate. For that to happen however, we will need to see a significant failure during the next rally phase.?

Higher rates have started to put pressure on the US economy. Oil's decline of $7 coupled with energy stocks falling more than 15% this past week are a good indication that the markets are beginning to anticipate the abatement in inflation. We should begin to see some relief with the official inflation numbers over the next few months and given the market’s ability to discount the future, it is this piece of “good news” that should trigger the next rally.?

We purchased Amazon for our Global Balanced portfolios. After falling 60% from its peak, we initiated our first purchase ever of Amazon.?

Flashback

Market declines of the current nature are not rare but what is rather infrequent is to fall so quickly coming from an all-time high. The intense selling pressure that we witnessed this past week however is extremely rare with only a handful of dates historically to compare. Here are some incredible statistics compiled by SENTIMENTRADER:

1)??????The selling pressure on Monday was one of the most overwhelming bouts of selling in 90 years. The S&P 500 futures were down big on the open and never got closer than 1.5% from its previous close. This also happened on the previous Friday as well. An unheard off situation.

Source: www.sentimentrader.com

2)??????The 3-day average of NYSE Up volume dropped below 7% for only the 2nd?time in 60 years.?

Source: www.sentimentrader.com

3)??????The number of S&P 500 Technology stocks that are down more than 20% from a 252-day high exceeded 90%.

Source: www.sentimentrader.com

There is certainly no lack of anecdotal evidence on how unique and extreme the current decline has endured. Suffice to say, “extremes” over the past few years have become the norm and although by definition an “extreme” does imply a “stretch”, eventually (usually in short-order) things do assume their “natural” course. We expect this time to be no different.

Summer officially?begins on June 21st, something tells us the weather is not the only thing that will be HOT!

Have a great week and hope all of the dad’s out there had a great Father’s Day.?

?

Warmest regards,

We thank you for your confidence and your loyalty. We look forward to speaking and seeing you soon. In the interim, please do not hesitate to contact us with any questions or concerns.

Warmest regards,

Al Fiumidinisi

Senior Portfolio Manager

514 392-7607

Kosta Dariotis

Senior Portfolio Manager

514 392-7606

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