Bonds To Get Beat Up? | Focus on Stocks: August 2024

It looks to me like it's time for the bond market to take a breather, if not have a pullback from now into late October.

We can sum it up with the cycle projections from Chart 1. I have highlighted, in red, the down leg of the 450-day cycle. Since 2000, there have been 12 occurrences of this pattern/wave. 70% of the time, prices have gone lower.

Those are good odds, but let's examine past examples to get a sense of what to expect.

In Chart 2, we see just how close price followed the projection or road map. Traders would have had this path to help time their short selling. It looks nice, but ...

Going back in time, price followed the pattern. Not always though, as we see in Chart 3 from 2014-2016. Traders got sideways moves, not immediate declines. Of course, bonds were in a big bull market then, which is something we should consider. Also, note the end of the down wave has led to some great bond market rallies.

A final point is that the Presidential Cycle is alive and well and working in the bond market. It suggests a decline that will start in the latter part of July and last until late October.

Stockcharts.com to the Rescue

With my tools in StockCharts.com, we have pretty much the same view of the future. Chart 4 shows my cycle forecast in red and my true seasonal in blue. ETF stock traders can use the iShares 20+ Year Treasury Bond ETF (TLT) to gain exposure to the 30-year bond contract.

The Death of the Dollar Craziness

There is an entire publishing business based on promoting the idea that the US dollar is about to collapse. It may have begun with Harry Schultz. Then along came William F Rickenbacker's "Death of the Dollar" best seller ... in 1969 ... assuring readers the US dollar was toast and would no longer be the currency of the world. Twenty years ago, James Rickards, and Martin Weiss hopped on the dollar death train.

Last week, a YouTube post titled "The End of the US Dollar; What You Must Know" got over 1,100,000 views. Other videos sporting this notion have over 2,000,000 views.

Of course, the Bitcoin boys have only added to this madness with their own echoes of the dollar's demise. For over 50 years, this crowd of crazies have been telling us the dollar will collapse.

It hasn't. They have been perpetually wrong. They are flat-out crazy.

The image above is an example of this well-orchestrated campaign. Peter banged the drum over a year ago, saying, "The death blow for the dollar is coming," just when it began a 12-month rally. Earlier, Peter stated, "All of this is setting the stage for a major decline in the dollar in 2021, and it's not going to end in 2021. This is going to be another multi-year bear market in the dollar."

It's not just Peter. It's a tribe of these guys that have been consistently wrong. When will they learn? Never. It is their religion.

Here is the proof ... a chart of the US Dollar Index in green overlaid with inflation in red. There is a lot Peter could learn here.

When the dollar crashed in early 2000, inflation did as well. In Peter's mind, the crash should cause inflation. The facts are not in his mind. That is all I can say. How about the rallies in the dollar in the late 1990s and 2020s? That's when inflation picked up—the exact opposite of his thesis. To think they let this guy on national TV!

This month, I want to show you the truth about the dollar, with even more to come next month. First, you need to know there are two primary cycles for the dollar. The shorter one is about 520 days. The longer one usually comes in close to 5.9 years. We will look at the last 40 years in 10-year increments.

Chart 6 takes us back to 1986. You can see how these two cycles interlope with each other. Generally speaking, major buy points for the US dollar have come at the 5.9-year cycle lows (the blue line). The red line is a 520-day cycle.

In Chart 7 we continue to see how these cycles pan out. But above all, keep in mind the dollar, despite its ups and downs—like 2002 to 2003—never collapsed as the crazies predicted. This was the era when the dollar doomsday crowd crowed China would conquer the world.

As time marched on, we see from Chart 8 that in the next 10 years, the US dollar came back to multi-year highs. The crazies were wrong again. The cycles were generally good times to establish positions.

Here we are, up to date. The projection calls for another important US dollar low in early 2025, with an intermediate-term rally later this year (red line in Chart 9).

Finally, I present an "up-close and personal" view of what cycles suggest for the immediate future. Use Chart 10 as your guideline. Cycles say we are much more likely to rally this and next year, than decline.

Next month, I will fine-tune this and show you what causes the US dollar to move, looking at its relationship to gold, bonds, and crude oil.

The final straw in the death of the dollar "camel's back," is comparing the US dollar to the euro currency (see chart below). The US dollar is represented by the red line and the euro is represented by the black one. The dollar bears would have had better used their time banging away on almost any currency except the US dollar.

Check out charts of the Chinese yuan and other currencies to see which currency has reigned supreme. It's been the dollar and will continue to be. The US dollar, like any currency, will fluctuate, but it is not even close to losing its role as the world's currency. Do you really want to hold Chinese yuan, Brazilian reals, or Indian rupees? Ronald Reagan said it best: "The greatness of America is still in front of us."

Health Is Not Wealth

Yes, you can instantly lower your blood pressure. What I am about to share is a trick that can also be a lifesaver.

First, here is the trick. I just took my blood pressure; it was 129/87, with a heartbeat of 60. This was in mid-morning after 2 cups of coffee. Then I used the trick which is to massage the area just below my ears where you find the carotid artery. Use some pressure on this entire area. I massaged it for about 30 seconds. Following that I took another reading, and the numbers dropped to 109/79 with the same pulse!

That's quite a change. If you want to impress your doctor, you can use this little trick, but that's all it is ... a trick. It does not reflect your real blood pressure.

Where I think the trick has real value is if you or someone else has a sudden and dangerous rise in blood pressure. This can be used to bring it down instantly while awaiting medical help.

I am certain you are aware of the studies showing the better you sleep, the better you feel, and the longer you live with a lower incidence of Alzheimer's disease. If you are not aware of the data do a quick google search.

Promoters have pushed various things to help us get to sleep and sleep better. I have tried Valerian, Kava-Kava, Tryptophan, mediation, Melatonin, calcium, and just recently, a highly touted combination of magnesium and L-Theanine that carried an equally high price point. At least for me, this did not work.

Sure, you can take something like Sominex (Diphenhydramine), which is the same as Benadryl. The problem is some research shows they increase the risk of Alzheimer's disease.

When I traveled the world lecturing, I would often be wide awake from one time zone when it was time to go to sleep in the time zone I just landed. Sleeping was hard until I learned to take a real warm (almost hot) bath. After that, falling asleep was easy. I'm pretty sure a sauna or hot tub would do the same thing.

I have found melatonin to be a great sleep aid with other benefits. This pituitary gland hormone also helps manage cortisol and blood pressure levels. Lots of research shows it reduces depression symptoms. A meta-analysis of 19 studies of children and adults with sleep disorders showed it reduces the time to fall asleep as well as increases the quality of that sleep.

I like Source Naturals' sublingual Melatonin orange flavor 2.5 mg. But that's just me. As always keep in mind I have no training in any of this. I research, test, and try. What seems to work for me may not work or even be good for anyone else.

Satchel Paige said it best; "Keep the juices flowing by jangling around gently as you move..."

Researchers followed the records of people over age 80 (61 percent women) for an average of five years and found that those with the most healthful lifestyle (no smoking, regular exercise, and varied diet) were most likely to live to be 100 years old, be free of chronic diseases, have higher physical and cognitive function, and have far less mental illness.

Bad Health Leads to Good Wealth

Lots of studies now show obesity and dementia go hand in hand. Those who are obese in later life have a much higher incidence of dementia and perhaps Alzheimer's disease. We have become a nation of overweight people. That means we need to be on the lookout for companies that help with obesity, but even more so for dementia solutions. Keep your eye and bank account open for such companies.

A Decline in Interest Rates May Not Be Bullish

In Chart 12 we see the last 30 years of the Dow Jones Industrial Average (green line) and the Fed Funds rate (black line).

There have been three large drops in the Fed Funds rate and shortly thereafter genuine world class bear markets followed.

Yes, this flies in the face of 99% of market prognosticators' hopes and talk. There have been other times in the past with similar results. Cuts have not always meant bear markets, but they are often enough to put us on guard.

Why? Well, think about it ... why does the Fed lower rates?

To help the economy. This means when they lower rates, something is not right with GDP, etc. Will it be different this time? Maybe, but if other measures of the economy are crumbling, stocks will follow this path. I suspect you can buy the rally of the first cut, but I suspect the second cut in rates would let the bears out of their caves. Don't get too carried away with Jerome Powell and his messaging.

What triggers Fed cuts in the discount rate?

I have looked at so many indices to see if there is anything these guys key off of to start cutting. Yes, I looked at inflation, the old TED Spread, cycles (not bad), short-term rates, the curve, and Unemployment and found nothing with any consistency.

Then, about a month ago, I noticed that every time 10-year notes have 2 consecutive declines while Fed Funds had been up, they come down. Happenstance? Perhaps. The record, though, shown next, is very good.

I found the same basic relationship going back to the 1970s, which tells me this is one indicator we will want to monitor.

Another Holiday Trade

Our 4x4 July 4th trade paid off in spades, and now comes another powerful holiday bias to the upside. Again, a tip of the hat to Art Merrill's work in the early 1960s and my dear friend Yale Hirsch, who also pointed out this bias in the late 1960s. This is a trade with legs.

In the last quarter of a century, the S&P 500 E-mini contract has rallied 80% of the time before the Labor Day holiday, which is coming up soon on Monday, September 2nd.

The first Labor Day was celebrated in New York City on September 5, 1882, and was started by the Central Labor Union in New York City. In 1884, it was moved to the first Monday in September where it is celebrated today. Labor Day, essentially a Union Holiday, was set in stone as a National Holiday on June 28, 1894, when U.S. Congress deemed it a national holiday. There is a lot of market history on this one.

Here we see the results of buying X days before the holiday.

The best is to get long 9 to 11 days before the holiday.

I like buying 11 days before as the drawdown (using a $2,500 stop here) is less at $5,000. Plus, we get higher accuracy and make more money. With that in mind, I tested how many days to hold the trade.

While the highest accuracy (92%) comes with a one-day hold, the accuracy stays the same the longer you hold. But profits double, reflecting the power of this trade. A five-day hold looks pretty good. The test, as with all of these trades, is to hold for X days, then exit on the first profitable opening. The only question left is, can we use a closer stop? Let's find out.

This is just a test of what stop to use with buying 11 days before the holiday and holding for five days. What we learned is we can use a closer stop; $2,100 does better than the original $2,500 stop we were working with.

If you are not a futures trader, just use any ETF that represents the overall market averages. I like the SPY or QQQs. Next is a chart of how the trade worked last year.

Don't expect last year's trade in 2023 to be like this year! Last year was one of the best. If you take this trade in an ETF, use the lowest low of the last five days as your stop loss point.

Market Timing

My working thesis has been that Nvidia is the lynchpin of the current market. It leads, and the rest follow. With that in mind, let's take a look at what cycles and seasonals suggest for NVDA. This should give us a clue about the overall market timing.

In Chart 15 we see the daily cycle forecast in red with the seasonal in blue. They are both holding hands here in anticipation of a rally at this time; right now.

As I read the chart, that is a short-term rally lasting until about August 22. Then we go down into September, when, about mid-month, NVDA should be joined by all the averages in a spirited up move.

That's the leader of the pack view backed up by cycle projections for all the broad-based averages.

In Chart 16, we see the cycle projection for the broad-based S&P 500. The pattern is similar to the one in Chart 15, i.e., a rally now, then down into a mid-September low. As this average uses 500 stocks and is not overly weighted by the Magnificent Seven, I think it gives us the overall best view of what's to come. The red line is the shorter-term cycle projection, while in blue, you see the longer-term view. This says it all: a rally, then a significant buy point.

Below, you see a chart of the Dow Jones Industrial Average with an overlay of the Williams True Seasonal indicator.

Last but not least, let's take a look at cycles for the Nasdaq.

Interesting ... it's pretty much the same thing. A cycle low in mid-September (red line) in phase with the longer-term cycle in blue turning up.

Individual Stocks

Which of the hot stocks will heat up again? While no one knows for sure, I do know for sure that the best odds will be found in the select few that hold up the best on declines.

From top to bottom you are looking at TSLA, META, GOOG, and CRWD. The red line starts at the lows seen last June. In just a glance we see TSLA did not go back to those old lows, while CRWD blew through them. So far, META and GOOG are battling to stay above that important price point, with META doing the best job.

The judgement call here is (as the long pattern holds up) favor buys in TSLA, then META.

The chart below shows three more stocks.

In Chart 20, we see that AAPL and MSFT have held up better than NVDA. Hopefully, you understand this. It will help you select the winners. It is a simple and elegant technique. Stay with strength. PANW, as an example, has been a strong stock.

My work suggests not much more than a good bounce here, not a good buying opportunity. This bounce is what we forecast in the last Family Meeting. Hence, I am making no specific recommendations. Those just itching to trade should re-read what is written above ... and find the stronger stocks.

In Closing

First of all, make sure you catch this midmonth family gathering on August 22nd at 2:00 PM Eastern Daylight Time. In that meeting, I will show a new way to predict crude oil prices ... very exciting.

In the September letter, I will focus on a powerful sell signal for short-term traders in the S&P 500 Index (which will work for the SPY). Yes, it's one of those +80% ones. I will also focus on the projected September stock market bottom.

Good Luck and Good Trading,

Larry Williams

If you have questions for Larry that you'd like addressed in future postings, please email familygathering@stockcharts.com.