Welcome to the Bear Market Acceleration Phase

With the major plunges we’ve seen recently, the severity of the daily declines is increasing, just as we had predicted. The next phase of the bear market will turn the bulls into frightened and confused bears.

We have written many times over the past 45 years that in the early part of a bear market you should ignore financial TV because all you will hear after every plunge is that it is a “buying opportunity.”

One of the best-known financial figures on TV said on March 25, 2022, that “the bear market was “over”.  The station referred to that as a “bold call.” Yes, it was bold, but it was wrong. Since that day, the DJI has plunged more than 2600 points.

Below is the weekly chart of the NASDAQ-100, which broke through important support on Friday, April 29th, and has continued to plunge even lower. The long-term aspect of that chart is very bearish. The MACD indicator at the bottom is on a longer-term sell signal.

Another 13% decline in the index is needed for it to get to the next better support (orange line, “A”).

But stronger support is another 9% down from there (blue line, “B”). That would make it a total decline of 21% from here. In other words, longer-term investors shouldn’t even consider buying most stocks at these levels. Eventually, when a deep recession ahead becomes more certain, even the best-performing sectors and stocks of 2022 will be sold.

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The IWM, ETF for the Russell 2000 index, also broke through important support on Friday, April 29th, but by a wider margin than NDX. Since then it too has continued to plunge, falling another 5% through yesterday’s close.

Last week’s choppy market action shows we are in a short-term “whipsaw” environment. One big down-day, followed by a big up-day, followed by another big down-day. These whipsaws kill the very short-term traders as there is no follow-through.

But we would bet that the high-speed computers of HFT and experienced professionals short every rally whereas novices buy each rally.

April turned out to be the worst-performing month for the NASDAQ (-13.3%) since October 2008. The S&P 500 had its worst start of the year since 1939 with its 13.3% loss thus far.

These are huge losses and very negative milestones. However, there will always be short-term bounces. Don’t let those confuse you about the major downtrend.

This is why we recommend not focusing on the one-to-two-day wiggles and instead concentrating on the longer-term trend. That’s where the money is, and as we’ve been showing for the past 6-months, the longer-term trend is down.

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We see the bear market decline accelerating. As our trading services(Smarter Stock Trader and Fearless ETF Trader) members know, we have written that the next market decline would be the most severe since 2020.

In fact, we could see our long-standing prediction of at least one 2000 point down-day in the DJI come true soon.

On Monday, May 9th, 2022, the S&P 500 plunged below the 4000 level for the first time since March 2021. However, we can see it falling even further from here. Over the longer term, the S&P 500 could plunge 191 points to the next support area at 3800 (orange line, “A”), or fall as much as 491 points to stronger support at 3500 (blue line, “B”).

The big question now is if the severity of the next plunge will also cause selling of the sectors that have done so well for our loyal members, like energy and commodities, just to raise cash? Yesterday (Monday, May 9, 2022) we saw the Energy sector get smacked, plunging 8.3%.

The big smart money, such as the best hedge funds, will likely stay with those positions. Eventually, however, they will also dump them in a serious stock market plunge.

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CONCLUSION: Since November 2021, we have remarked about the relentless selling of special stock groups, especially technology. We wrote in our Wellington Letter at the time that it was the most selling we remember ever seeing at the start of a bear market.

Since then, huge selling, disguised by continuous advice by analysts to “buy”, kept the average investor bullish.

We are now at the phase in the markets where optimism shifts to concern, and then to extreme worry about the huge portfolio losses. Everything seems to be set up for a big selling avalanche.

If you followed our forecasts, you not only have been spared those losses but were able to profit handsomely.

We have recommended to our members to ignore any analyst who mentions “good earnings.” They are looking in the wrong direction. In a bear market, earnings are irrelevant because they are a function of the past, whereas the markets look into the future.

We will continue to work hard to continue finding great opportunities for our members and readers.

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