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May 29, 2022 | A Bear Market Prospectus

Rick Ackerman

Rick Ackerman is the editor of Rick’s Picks, an online service geared to traders of stocks, options, index futures and commodities. His detailed trading strategies have appeared since the early 1990s in Black Box Forecasts, a newsletter he founded that originally was geared to professional option traders. Barron’s once labeled him an “intrepid trader” in a headline that alluded to his key role in solving a notorious pill-tampering case. He received a $200,000 reward when a conviction resulted, and the story was retold on TV’s FBI: The Untold Story. His professional background includes 12 years as a market maker in the pits of the Pacific Coast Exchange, three as an investigator with renowned San Francisco private eye Hal Lipset, seven as a reporter and newspaper editor, three as a columnist for the Sunday San Francisco Examiner, and two decades as a contributor to publications ranging from Barron’s to The Antiquarian Bookman to Fleet Street Letter and Utne Reader.

As the bear market runs its course in the months and years ahead, it will be punctuated by sharp and sometimes spectacular rallies to convince investors the worst is over. That is how Mr. Market will trap most of them into sticking with stocks until the bitter end. For only when the last bull has thrown in the towel and mass capitulation takes stocks down to levels practically unthinkable now can a floor be created for the next bull market. The first such bear rally started in mid-March and lasted for two weeks. It was not particularly impressive because it didn’t have to be: a mere 15-percenter would have pushed the S&Ps to new record highs. The rally failed well shy of that benchmark, however, before a punitive relapse set in. Stocks appear to have bottomed last week, but not before piercing a Hidden Pivot support that should have held if the current rally is going to achieve new highs.

Last week’s commentary was skeptical that the rally would retrace fully half of the downtrend since the bear market began on January 4. That would equate to a top near 4300 in the S&Ps. Using the recent low at 3807, there is now a technical basis for a more confident and precise forecast. Specifically, the S&P 500 appears bound for a minimum 4305.50, basis the June E-Mini contract. The futures look all but certain to reach that number, given the way they impaled the ‘midpoint Hidden Pivot’ at 4056 toward the end of last week. Less certain is that the rally will end there. Indeed, if it blows past 4305, that would suggest Mr. Market has nastier plans for bears who may have overly enjoyed the April/May plunge.

Not Quite Impossible

Will the rally achieve new highs? I strongly doubt it, although my skepticism is based on the flimsiest of reasons – i.e., that a global recession/depression has begun that would make new highs in the stock market extremely unlikely. But not impossible. And if new highs are what Mr. Market requires to set a hook that traps everyone, bulls and bears alike, into going down with the ship, then that is what will happen. A run-up exceeding the January high would turn mere permabulls into raging bulls, and permabears into short-covering madmen. It would require only a marginal new high to cause this ultimately ruinous sea change in psychology. Crazier things have happened in the wacky world of Wall Street.

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May 29th, 2022

Posted In: Rick's Picks

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