Michael Oliver Says “The QE-Sponsored Bull Market in Stocks Is Over”

Less inclined to believe in the power of government manipulation, at least longer term, is my good friend Michael Oliver, author of Momentum Structural Analysis. What action would cause Michael to change his view that the S&P is starting a significant bear market? Here is what he said on September 20.

SP500“Where would we admit that we are wrong? At what price level? Answer: 2135. Why that number? In the January 8th, 2015, report we predicted that the peak for this year, which would involve a new price high, would be at 2130. This was based solely on a projected long?term momentum resistance level. The S&P500 traded marginally over 2130 in May and then dropped sharply.

“Then in July, price raced back up over 2130 by a few points and again was halted cold. The subsequent drop in August (into the 2040s) convinced us that the predicted high and the annual momentum resistance at that level did in fact stop the bull market. And major damage done by the decline since then argues that you probably won’t see those numbers approached again. The bull trend since 2009 (price chart on left has produced a staircase pattern of higher highs and higher lows. Even the sharp low last month at 1867 didn’t take out the October 2014 low just above 1820.

Our annual momentum studies (one example on left) also produced the same positive trend pattern of higher highs and higher lows. That positive trend integrity was intact ? until this year. And with the recent drop, not only did the ac?on produce lower lows (lower than the low readings of 2014), but the recent drop came from a lower momentum high, as noted by the arrows.

“Any prior bullish trend structure on this and other long?term momentum charts is gone! Our conviction that a bear market is underway derives from many such long?term metrics. Lastly, it should be noted that this long?term momentum chart’s behavior is now no different than it was in 2000 and early 2008 ? i.e. in the initial phases of those major bear markets.”
Another Opinion from Gary Savage

I was a guest on the Al Korelin Show along with technical analyst Gary Savage. Gary said he thinks we have pretty much seen the end of this “correction” because he seems to be pretty much buying the idea that McHugh is suggesting, namely that the establishment will do everything possible to keep the stock market from declining. Gary’s technical work has caused him to believe we have seen the peak in a seven-year bull market for the dollar and as such commodities and precious metals should be bottoming out and heading higher. And when it comes to gold, Gary is about as bullish as anyone I have heard from of late. He thinks we will be on to new highs in the gold markets before this move is over. It will be fueled by massive money printing and a decline in the dollar.

Turning back again to the views of Michael Oliver, he is in agreement with a turn positive for commodities and gold and he is also in agreement regarding the dollar. Regarding gold, Michael is already 75% committed and when it rises just a smidgen above $1,200 he expects to fully commit to his maximum gold allocation. Of course, as noted above, Michael is not in agreement with Gary regarding the stock market.

What about Relative Value?

Whether the equity bears are right or Gary Savage is right remains to be seen. I tend to agree with Oliver that “in the long run,” market manipulation will be defeated. Trouble is in defining the “long run.” Perhaps the best way to look at investing is on the trends of relative value. And here again Michael Oliver is of great help. And when we compare gold to stocks, it looks as if gold is now gaining the upper hand. Michael Oliver’s September 26 missive showed that gold’s value relative to the S&P 500 has now risen above its 40-week moving average, and its momentum has penetrated resistance level over the past two years after gold/S&P bottomed in July of 2013. From this letter’s perspective, which is betting on both a bear market in stocks and a bull market in gold, I hope McHugh and Oliver are right. But in any event, the sun seems to be starting to shine for gold bulls. Nothing is more fundamental to the performance of the stocks recommended in this letter.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.