Romulus Report: With markets indecisive, let patience be rewarded

Special to WorldTribune, December 7, 2021

MARKET Watch

by Romulus at Grok Trade

It is said that bull markets climb a wall of worry. If that is true, today’s wall is high and steep.

Photo courtesy of positek.net

The list of current concerns is like taking a trip to Walmart or Target—a nearly unlimited number of choices. As President Biden prepares to announce a diplomatic boycott of the winter Olympics, Chinese-American relations do not seem to be heading in a positive direction. Combine that with coming actions from the SEC to de-list several China based stocks, it is reasonable to expect more downward pressure in Asian equities in the near-term.

The new omicron variant out of South Africa is leading to another spike in Covid cases, and a spike in fear from global investors. Patients are showing mild symptoms from omicron so far, but scientists say that a more virulent strain could develop from omicron soon.

Federal reserve chairman Powell picked a fine time last week to finally admit to what I’ve been saying for several months. The inflation picture is not transitory. Companies can change prices, but they have a much harder time taking away wage hikes after they’ve been implemented. The higher pay scales are here to stay.

And then there is Putin. He is loading the Ukrainian border with almost everything he’s got.

My Name is Romulus: Let’s beat Wall Street!

We also have market action itself, which has been bearish since the recent November 8th highs. Major US indexes are down anywhere between 5.2% (S&P 500) to 13% (Russell 2000), and some foreign exchanges are down even more. Have you seen Turkey since Thanksgiving? Off 24%. Bitcoin crashed 40% in less than a month. Price action has been weak, to put it mildly.

As I said, lots to worry about. If you are thinking about trading in your hooves and horns for fur and claws, however, now might not be the perfect time for the switch.

How often have I talked about generally staying away from the extremes (on both the positive and negative side), and finding that sense of balance in our trading actions? Stocks don’t typically reverse course from bull to bear (or the inverse) on a dime. Evidence of the coming change reveals itself over months, leaving astute investors plenty of time to prepare. While there is always the possibility that this time is different, that phrase normally ends up looking extreme a few months after the fact.

U.S.-China relations are not strong right now, but they certainly have been worse. Does anyone remember the Korean War? Biden is considering a rollback of many of the Trump enacted tariffs against China. This event will not get talked about as much as the Olympic boycott, but it will have a large and positive impact on business in both countries. In addition, as Chinese stocks de-list from US exchanges, Hong Kong and other international trading centers are ready to receive them. Most of these stocks will not fall into the ocean forever.

Covid is getting old. The mild symptoms from omicron prove that. Covid will be around for decades, but it will never strike the global population with the same severity that it did last year. International business has adapted, and so have consumers. The worst of Covid is behind us, and it is overly fearful to believe otherwise. 2022 will demonstrate this in a much more obvious fashion.

Shortly before the central bank gathering in Jackson Hole in late August, I said the bankers were behind the curve. This means their policy stance at that time was too accommodative and that their claim of transitory inflation was nuts. Things have changed in the last three months. Inflation has increased and the fed is talking tough.

Something else has changed more recently, though. Oil prices are down 25% from late October. Supply chain problems, wage hikes and wide spread wealth affects contributed to this higher inflation, but $85 a barrel oil was the biggest culprit. The inflation reports in January and February will show decent slowdowns from the rates of October and November.

In addition, no matter how hot inflation is now, I was never one to believe we are embarking upon a return to 1979. The global economy is too dynamic and technology is too omnipresent (both have deflationary traits) to invite a price rising environment like that again. At least in the developed nations. The 10-year yield can certainly move up over the next two years, but it will not go above 5% in the next few years, and possibly ever.

It is true that bear claws have left serious marks on the charts of everything lately. The selling was fast as fear raced into trading accounts all over the world. On November 26th, the Volatility Index (VIX), often referred to as the “fear index,” experienced its 5th highest single day jump of the last 30 years.

I just read a great article on CNBC interviewing market analyst Keith Lerner of Truist in which he outlined a powerful bull market case for the next 12 months. I am not trying to sugar coat recent market losses, nor am I in an analytical echo chamber, only seeking out evidence that supports my beliefs. Due to the fact that the price highs on November 8th were confirmed by new highs in key internal indicators I follow, there is a very low probability that those highs marked the beginning of a new bear market.

Keep in mind, bear markets are usually preceded by months of deterioration, and bull markets are typically preceded by several weeks, at least, of internally improving conditions.

The short-term is likely to remain volatile and unpredictable. I plan on selling some positions into this recent bounce in order to raise a little cash. Before putting that money back to work, I will wait for another day or two like last Thursday — a strong rise on heavy trading.

Remember:

Wealth, like Rome, cannot be built in a day. But, like Rome, it can be lost in a day.

Watch for future announcements from Romulus about profitable market moves, important indicators, and major market swings. For trading education, mentoring, or to beat the markets with Romulus’ trading group, contact [email protected] or go t0 www.groktrade.com/romulus.

Related: Romulus Report: No more FOMO, prepare for the bearSeptember 21, 2021

Related: Romulus Report: Lessons from history about market drops September 10, 2021

About the author:

In his real-life existence, Romulus started on Wall Street in 1994 and traded for a hedge fund for 13 years. Since 1994, he has called every major market top ahead of time and profited from them, including the break of the Dot-com bubble in 2000, the market crashes of 2008 and 2009, and the Covid crash of 2020. For the past 12 months he has been working with investors and traders to actively manage their portfolios by growing wealth, not risk, as a teacher and mentor working with Grok Trade, a stock trading educational company in business since 2007.