BEAR MARKET? CORRECTION?

As inflation fear abates, investors are worrying about “tapering”. All through
this great bull market, investors never cease to worry. Amazing! It doesn’t help
that week after week, the professional black-crepe hangers keep warning investors
to be cautious. It’s not that these gumflappers really know, but it always sounds
prudent to their readers.
For nearly nine months, pundits have been warning of a correction. This week,
Morgan Stanley is calling for a 10 – 15% correction. These folks don’t realize that
a rotational correction has been taking place and will continue. This is healthy as it
helps to cleanse the excesses and provides a sound footing for this great bull
market to move forward. As mentioned, the Techs have been correcting since
early February, but bottomed in mid-May and have been rallying since. When the
Techs were correcting, the Financials, Industrials, and Materials skyrocketed.
After the big surge, however, they are starting to correct. Meanwhile, the Biotechs
and Pharmaceuticals rallied.
As I’ve stressed repeatedly, investors should focus on the secular trend which
remains powerfully bullish. Despite the sharp gains already achieved and its
longevity, this great bull market will continue to surprise all in terms of magnitude
and duration. This week, Tom Lee of Fundstrat, one of the most astute market
observers, shares my sentiment (see link below).
https://markets.businessinsider.com/news/stocks/stock-market-outlook-sp500-soar-
400-percent-2038-millennials-economy-2021-6-1030497500
The Millennials will inherit the biggest pool of wealth in history. (Those who
are interested in demographics, I strongly recommend Profession David Foot’s
book, Boom, Bust & Echo 2000. David Foot is one of the world’s foremost
demographers.)
Besides demographics (which I am a big fan of), there are numerous reasons to
be bullish. Most important of all is the Fed’s largesse and the numerous fiscal
packages to stimulate the economy
Never in the history of the Fed, has so much liquidity been created and the
numerous stimulative packages being applied. Moreover, the Fed stated repeatedly
that interest rates will stay low to the end of 2022.
 Also, remember what Jerome Powell said in 2018. He said something to the
effect that “we would like to smooth out the wild swings of past economic cycles
by fine-tuning the monetary policy”, the most profound statement that any Fed
Chairman ever made, but nobody heard it or paid attention. Not just words, but he
put it in action immediately. In 2018, when the economy showed signs of
overheating, he raised the discount rate four times in succession, at 25 bps each
time. Anticipating slower growth ahead, the market corrected in the final quarter
of 2018. In 2019, sensing global slowing, the Fed lower the discount rate three
times in succession at 25 bps each time. Not surprisingly, the economy recovered
and the market rallied until the pandemic hit which drove the world within a hair’s
breadth of a global depression. Unusual times demand unusual measures. To head
off the crisis and to meet their mandate, the Fed opened the floodgate using all
means at their disposal to avert a global disaster and once again, they succeeded.
Rest assured, once the economy is normalized, his new monetary policy will be
applied again. Jerome Powell’s new monetary policy ensures a prolonged period
of modest growth and stable inflation which is the best environment for equities for
in that environment, corporations can plan and the P/E multiples expand. .
Also, the supply/demand factors are incredibly bullish. October 10 will mark
the Thirteenth Anniversary of this great bull market. Yet, institutional fund
managers are sitting on a mountain of cash, over $3 trillion. Personal savings are
at a record. Normally, at the top of a bull market, investors are over-invested and
hold little cash. The current supply/demand condition is most unusual. It will
probably take another ten or more years, before investors are convinced that we are
in a bull market.
 Regarding sentiment, whatever the various sentiment surveys show and what
many pundits claim, the record cash on the sidelines does not show euphoria
(which is witnessed at major market tops); the record cash pile is seen at major
market bottoms. Moreover, my wide contacts with investors around the world do
not support the view that the market is in a bubble as worldwide, investors are
concerned and nervous. No one ever asked “how high you think the market will
go?” More frequent questions are, “When will the market correct?”, “How long
will the market correct?”, and “How low?” These are not the questions one hears
at major market tops. At the top of a bull market, euphoria reigns and investors
brag about their “killings” in the market; they are all financial geniuses. The
question asked is “What hot stocks do you have?”
Technically, the long bases completed by many of the key sectors such as the
Banks ($BKX), Broker/Dealers ($XBD), Financials ($SPF), Home Construction
(ITB), Semiconductors (SMH and $DJUSSC), iShares Europe ETF (IEV), and the
Dow Jones Global Index ($DJW), are telling investors that this great bull market
still has a long way to go in terms of magnitude and duration. As mentioned
before, the longer the base, the more durable is the subsequent bull market and the
bigger the upside potential. Many of these have completed bases of ten or more
years. Also, Jerome Powell’s stated monetary policy ensures this great bull market
will continue for years or decades.
How about the correction?
As noted, the market has been correcting for nearly nine months, but in a
rotational manner. Some pundits are calling for a 10% - 15% correction.
Obviously, they are talking about the S&P, but how does that help investors? Will
all stocks drop that amount at the same time? Many have already dropped more
than 15% while others are posting record highs.
To be sure, the risk of a short-term correction has risen. The key reason is that
the explosive growth in the first half of this year will not be repeated as growth
will moderate. Moreover, since October, 2020, many have been calling for a
correction, but I argued that a meaningful correction will not happen until the
various indices and ETFs have met their intermediate upside targets. This month,
many have met their targets and are grossly overbought. Also, in recent months,
Financials, Industrials, and Materials have skyrocketed, but are really stretched and
are vulnerable to a period of consolidation/correction.
 Before anyone decides to jump off the ledge of the building, I am talking about
a rotational correction, not a bear market. The secular trend remains powerfully
bullish and this great bull market will continue for 10 – 15 years or more.
What to do?
Refrain from chasing stocks. It’s never a good idea to chase stocks, particularly
when the market is overbought. Stocks that are overbought, take partial profits and
add back when oversold. On the other hand, accumulate those stocks that are
oversold and show clear signs of bottoming. The important point to keep in mind,
however, is that the secular trend remains powerfully bullish and as mentioned, the
market will continue to surprise all in terms of magnitude and duration.
Accordingly, stay invested and refrain from joining the crowd as everyone is
sitting on a mountain of cash.

LEON TUEY
June 20, 2021

BULLISH SET-UPS

Courtesy: Dave Lutz

 As above chart shows, the latest period saw the largest outflow from tech funds
since December, 2018. Talk about “wrong-way Corrgigans”! Since mid-May,
however, the techs have been rallying (see charts below).
 NASDAQ ADVANCE-DECLINE LINE

The NASDAQ Advance-Decline Line peaked on February 9, but bottomed on

May 12 and has been rallying since. On June 9, its short-term downtrend was
broken. New highs can be expected as the secular trend is bullish (see yearly chart
below).
 NASDAQ ADVANCE-DECLINE LINE – YEARLY CHART

Above chart is a 50-year yearly chart of the NASDAQ Advance-Decline Line

and it was shown in my previous reports. For the first time in its entire history, the
NAAD broke out of a 10-year base which has very bullish implications for the
long-term. As mentioned, any item that breaks out of a long base signals the
commencement of a secular bull market and ultimately, it will reach heights no one
ever believe possible. In my previous report, I also mentioned that the breakout is
a strong indication that strength is broadening to the mid-cap and small-cap issues
on the NASDAQ. Also, the NAAD is tracing out “fanning” downtrend lines which
is technically bullish.
Short-term corrections notwithstanding, the secular trend remains bullish.
Further substantial gains lie ahead.
NASDAQ CUMULATIVE UP VOLUME-DOWN VOLUME

No bear market here.

NASDAQ CUMULATIVE NEW HIGHS-NEW LOWS

No bear market here.

 BULLISH SET-UPS
While everyone if fretting over the correction, the techs and biotech have
outperformed the market since mid-May and are poised to drive to new record
highs. In fact, on Thursday, both the QQQ and XLK closed at record highs.
Meanwhile, as expected, the recent hot sectors such as Financials (XLF), XLB, &
XLI are starting to correct as on an intermediate basis, they are grossly overbought.

NASDAQ COMPOSITE INDEX

The NASDAQ Composite Index has traced out an “ascending triangle” pattern.
An upside breakout is assured. For one thing, the Index has broken out of a long
base in 2016 and is in a secular bull market. For another, as can be seen above, its
Relative Strength has broken a short-term downtrend and since early May, the
Index has outperformed the market. An upside breakout would call for a short-
term target of 15,890 or higher.
 INVESCO QQQ TRUST INDEX

On Thursday, QQQ closed at a record high. A short-term target of 385.00 -

390.00 can be projected.
 FIRST TRUST NASDAQ 100 EQUAL WEIGHTED INDEX

The QQEW has also traced out an “ascending triangle” pattern with resistance
near the 109.00 - 110.00 area. The set-up can support a short-term move to 121.00
- 123.00 or higher.
 INVESCO S&P 500 EQUAL WEIGHT TECHNOLOGY ETF

Since early May, RYT has outperformed the market. Currently, it is testing
resistance near the 287.00 - 289.00 area. Penetration of resistance would call for a
short-term target of 310.00 - 312.00 or higher. Since early May, RYT has
outperformed the market.
 VANECK SECTORS SEMICONDUCTOR ETF

Since mid-February, SMH has been consolidating in a narrow range with

resistance near the 257.00 - 259.00 area. Penetration of resistance would call for a
short-term move to $295.00 - $300.00. Keep in mind that in 2017, SMH broke out
of a long base.
 VANECK VECTORS BIOTECH ETF

On June 7, BBH broke out of a “symmetrical triangle” on huge volume.

Technical measuring implications called for a short-term target of $220.00 -
$225.00 or higher, but much higher long-term as last year, it broke out of a five-
year base. The pullback is normal and healthy.
 FOCUS ON THE LONG-TERM
Investors spend far too much time worrying about the short-term that they can’t
see the forest for the trees. Consequently, they jump in and out of the market
reacting to the daily market gyrations without any idea of the market’s secular
trend. That is no way to invest. In fact, it is the fastest way to the poorhouse and
to have a nervous breakdown.
Most market commentators look at the daily or weekly charts, but few bother
examining the monthly or quarterly charts and the few who do, don’t go back far
enough in time.
Many wonder why I keep showing the very long-term charts. One reason is
that they provide me a long-term perspective. If one only looks at the daily or the
weekly charts and indicators, it’s out of context of the secular trend and given their
volatility, one can’t possibly have any conviction. Another reason is that by
examining the yearly or quarterly chars going back for decades, that enables me to
find stocks/sectors with long bases which the daily or weekly charts cannot.
Also, one of the technical prerequisites for a long, sustained bull market is that
many stocks must trace/break out of long bases (four or more years). Long-time
readers are well aware of the long base phenomenon. As mentioned before,
anything that breaks out of a long base, that always signals the beginning of a
secular bull market. Ultimately, it will reach heights no one ever believe possible
at the time. Since late 2009, I’ve been impressed by the many stocks and
industries that have completed huge bases of ten or more years. I opined that in
my 60 years as a market observer, I have never seen so many stocks in so many
different industries tracing/breaking out of such long bases. Because of the
magnitude and duration of these bases, I concluded that this is no ordinary bull
market, but the most spectacular bull market on record which will continue for
many more years or decades. Particularly impressive are the long bases completed
by the Financials and Technology, the two most important sectors of the economy.
Also, Automobiles and Home Builders have also completed very long bases.
The message is clear. Short-term corrections notwithstanding, the bull market
will continue for many more years or decades. Hence, stay invested. Corrections
should be bought and not to be feared.
Following long-term charts were shown in my previous reports. To maintain
perspective, it behooves investors to examine them carefully.
LEON TUEY
June 19, 201

LONG BASE BREAKOUTS

S&P 500 FINANCIALS SECTOR ETF INDEX

In February, the SPF broke out of a 14-year base which signalled the beginning
of a secular bull market and it will reach heights no one will believe possible.
Short-term corrections notwithstanding, since the breakout only occurred recently,
the bull market is only starting. Hence, corrections are to be bought and not to be
feared. The bullish technical structure of the financials bodes well for the
economy and the equity market.
 KBW BANK INDEX

The KBW Bank Index has also completed a 14-year base which signalled the
commencement of a secular bull market. As the breakout only occurred this year,
the bull market is only starting. For the bank shares to keep rising, the economy
must do well and that is what this chart is telling investors.
 BROKER/DEALER INDEX

In November, 2020, the Broker/Dealer Index broke out of a 13-year base.

Despite the dramatic gains already achieved from its March, 2020 low, the secular
bull market has just begun. Short-term corrections notwithstanding, further
substantial gains lie ahead. It is encouraging to note that its Relative Strength has
broken a 13-year downtrend pointing to outperformance ahead.
Obviously, the beneficiaries of a secular bull market are the Broker/Dealers for
they do poorly in a bear market. The long-base breakout by the XBD lends
support to my long-held view that the greatest bull market is in play and it will
continue for many years or decades.
 NASDAQ COMPOSITE INDEX

As shown in my previous reports, in early 2017, the NASDAQ Composite

Index broke out of a 17-year base and has been heading in a northeasterly direction
since. Also, since September, 2002, the Index has outperformed the S&P 500
Index. Despite the spectacular gains already achieved, further gains lie ahead as
the sector is well-entrenched in a secular bull market. As most tech stocks reside
in this Index, the power and strength of the Index bode well for the equity market.
 VANECK VECTORS SEMICONDUCTOR ETF

Semiconductors represent the heart and soul of the tech industry. In April,
2013, SMH broke out of a 9-year base and in September, 2017, it broke out of a
17-year base. Little wonder that the stock market has been performing so well.
Short-term corrections notwithstanding, further substantial gains lie ahead.
 DOW JONES US AUTOMOBILE INDEX

In June, 2020, the DJUSAU broke out of a 14-year base which marked the
beginning of a secular bull market. Lest anyone think that the surge is all due to
Tesla, Ford, GM, Volkswagen, and Toyota have also skyrocketed. Because of the
overbought condition, the Index has been consolidating. The completion of this
humongous base that further significant gains lie ahead.
 ISHARES US HOME CONSTRUCTION ETF

As shown in my previous reports, in July, 2020, ITB broke out of an impressive

14-year base which signalled the beginning of a secular bull market. If home
construction continues to rise, what does that say about, lumber, cement,
machinery, chemicals, furniture, electrical appliances, etc.? That will have a wide-
ranging benefit for the economy, of course.
 VALUE LINE GEOMETRIC INDEX

The XVG is a basket of over 1,600 U.S. stocks. As note in my previous reports,
in 2017, it broke out of a 19-year base. Given the magnitude and duration of the
base, I concluded that it will head for the moon. Despite the gains already
achieved from March, 2020 to date, the bull market has only begun.
 TSX COMPOSITE INDEX

In 2019, the TSX broke out of an 11-year base which signalled the beginning of
a secular bull market. I opined that it will reach 24.000 - 26,000 plus. The
emphasis should be on “plus”. Moreover, in July, 2020, investors were advised to
“buy Canada” as not only for capital gains, but from currency appreciation. My
view was that commodities have embarked on a secular bull market and the
Canadian market and the Canadian Dollar are closely tied to the price of
commodities, particularly the price of Oil.
Short-term corrections notwithstanding, significant gains lie ahead in the years
to come.
 ISHARES MSCI CANADA ETF

A simple way to partake in the Canadian bull market is the iShares MSCI
Canada ETF (EWC). In December, 2020, it broke out of a 13-year base and has
been posting record highs. Clearly, a secular bull market has commenced and
substantial gains lie ahead. Accumulate when oversold.
 SECULAR BULL MARKET IS GLOBAL
As mentioned in my previous reports, the secular bull market is not confined to
North America, but it is global. Note the long-base breakouts by ACWX (All
countries ex US), Dow Jones Global Index ($DJW), Europe (IEV), Japan, etc.
Others, such as the Dow Jones Europe-Nordic Index ($E3DOW), UK (EWU),
Switzerland ($SMI), Taiwan ($TWDOW), Australia ($AORD), Singapore
($SGDOW), EAFE, EFA, and Vietnam (VNM), have also completed very long
bases

ISHARES EUROPE ETF

In September, 2017, IEV broke out of 10-year base which signalled the
beginning of a secular bull market. After a lengthy period of consolidation, it
broke out again to record highs. Short-term corrections notwithstanding, further
significant gains lie ahead.

ISHARES MSCI ACWI EX US ETF

As shown in my previous reports, in November, 2020, ACWX broke out of a

12-year base. A secular bull market has commenced. Short-term corrections
notwithstanding, substantial gains lie ahead as the bull market has only started.
 TOKYO NIKKEI AVERAGE – NIKKEI 225

As mentioned in my previous reports, the NIKKEI completed the largest base in

the world and concluded that record highs lie ahead.
The foregoing clearly showed that a powerful secular market is in place and the
bull market has only begun. It is global. If investors view the above charts upside
down from the back, they would conclude that the worst depression in history is
upon us. Fortunately for investors, they are screaming bullish. To the bears and
worrywarts, I urge them to examine these charts over and over again

LEON TUEY
June 20, 2021