Winter is when bears need to rest. Global stock markets are primed to move up

Global stock markets just saw the best week of the year last week while private client allocation to cash and treasury bills still hovers at its highest level since the Great Financial Crisis in 2008/09.

According to data from Goldman Sachs, hedge funds have increased stock short positions for 12 consecutive weeks now, the longest streak in history!

We are entering November and December, the best 2-month period of the year, with data going back to 1950. In a typical year, the US stock market bottoms on 27 October 2023, with tax selling to be over then.

Oil has declined again toward 80 USD despite the winter season and the tensions in the Middle East.

The leader of Lebanon's Hezbollah refrained on Friday from turning the ME conflict into a regional war. However, he warned the United States that preventing a regional conflict depended on stopping the Israeli attack on Gaza. He stressed the possibility of fighting on the Lebanese front becoming a full-fledged war.

Global stocks are rising

The rise in stocks is not confined to US shares. The World Ishares MSCI ETF just broke out of its 3-month consolidation pattern and is poised to move toward the 130 USD and 136 USD levels. This would be a decent 15 to 20 percent rise.

It has also crossed the 200-day and 50-day Moving Averages. Technical indicators such as the "Slow Stochastics" also indicate a year-end rally.

The power of Elliott Waves

According to the textbook Elliot Wave Patterns, the NASDAQ 100 acted precisely as predicted. It completed a complex wave 4 composed of an a-b-c-d-e subwave structure and stopped again at the lower trend channel.

It may now be in the first wave of the final wave 5 of the initial bull wave up (puuh). If wave equality prevails, it may travel to around 16700; see the length of wave 1, which started in January 2023 and finished a month later. Technical indicators such as moving averages, stochastics, and seasonality support this count.

FOMC (Federal Open Mouth Committee) will be speaking next week

It is all about inflation and long-term bonds. Investors have been spooked by inflation since Halloween 2021, when the CPI peaked at 9.1% in June 2022.

It was down to 3.7% in September 2023. Yet some investors are still spooked, fearing that inflation will be elevated for longer and stuck above the 2.0% target of the FED or, even worse - will rebound as it did during the 1970s. The inflation is here to stay camp is wrong. Consider the following:

1. The headline and core CPI inflation rates were down to 2.0% in September, excluding shelter. The PCED inflation rate, headline, and core inflation rates for this measure of consumer prices were 3.4% and 3.7% during September.

2. Excluding rent, headline, and core PCED, inflation rates were down to 2.8% and 3.0% in September - down sharply from their 2022 peaks (7.4% and 5.9%).

The Federal Open Mouth Committee will speak.

It will be a light week for US economic indicators. The FOMC's blackout period is over so many comments will be from the Federal Open Mouth Committee members.

They may be less hawkish after last week's batch of slightly weaker economic indicators. But who knows?

As we suspected a week ago, yields on long-term bonds may have peaked on 23 October. The TLT ETF broke out of its downward channel and confirmed this break out by closing above the all-important trendline (see chart above).

There is robust and decade-long support at current yield levels, and the macro picture does not support an immediate rise of the long bonds toward the 6 percent level.

R2K may have found a bottom

The chart above shows the ugly price performance of the R2K index. The Russell 2000, Russell 1000, and Russell 3000 are three of the most widely referenced US stock market indices produced by FTSE Russell, a leading global index provider.

They are part of the Russell US Indexes, designed to reflect the performance of specific segments of the US equity market. Here's a brief overview of each:

1. Russell 2000 Index: The Russell 2000 Index measures the performance of the small-cap segment of the US equity market. It is comprised of the smallest 2000 companies in the Russell 3000 Index. This index is widely used as a benchmark for small-cap stocks in the United States.

2. Russell 1000 Index: The Russell 1000 Index represents the large-cap segment and comprises the largest 1000 companies in the Russell 3000 Index. It covers approximately 92% of the US market capitalization, providing a comprehensive and unbiased barometer for large-cap stocks. It is often used as a benchmark for large-cap investment strategies.

3. Russell 3000 Index: The Russell 3000 Index measures the performance of the largest 3000 US companies, representing approximately 98% of the investable US equity market. It combines the Russell 1000 and the Russell 2000 indices into one comprehensive index, providing a total market view. The index is reconstituted annually to reflect the changing market and to ensure new and growing equities are included.

While the R2K is in a long-term bear market, which started its final 5-structured leg in the summer of 2023, we should see a corrective move to the upside from now until the end of the year (wave 2). This may stop somewhere between 180 USD and 200 USD, using the Russel 2000 Ishares ETF.

Some of the best stock markets in the world

The S&P 500 Information Technology Sector performed tremendously well (similar to the NASDAQ 100) in 2023. It even reached an ATH in the summer of 2023. It is clearly in a secular bull market, and I like buying any meaningful dip.

I also like the Stoxx 600 index. It shows bull market behavior, too, and exhibits similar price action structures to the NASDAQ 100, the S&P 500 Information Technology Sector, and the MSCI World Index.

In one of the subsequent editions, I will closely examine the difference between the Stoxx 600 and EURO STOXX 50 and cover individual countries, such as Germany, France, Switzerland, etc. I see some big surprises contrary to conventional wisdom.

Stoxx 600: Last week's strong stock market performance has not yet been enough to break out of the consolidation pattern. This would need to be confirmed next week.

Bitcoin on the move

I see Bitcoin entering a new 5-leg bull market. I am not a Bitcoin aficionado. This is purely based on price action. The Bitcoin Spot ETF may well be legalized by January 2024. Many funds will move there if this comes true, driving prices up.

Like with gold, lower rates may also support Bitcoin prices.

I favor buying Microstrategy over buying Bitcoin miners. Compare the price action of Bitcoin spot to the price action of most miners and similarly check prices of gold compared to the share prices of leading gold miners, and you see that buying mining stocks has not been one of the best ideas. I prefer to follow the price action and not ask too much about the why, when, and what about!

Final remark: I favor Microstrategy because they have a decent enterprise software business, plus extensive Bitcoin holdings. This is despite all the "Bitcoin is the new...." talking of Michael Saylor.

I switch to soccer when there is too much Coin philosophy on TV and prefer to listen to Pep Guardiola and his philosophy of why it is possible to replace a 9 (center forward) with a 9 1/2 (playing center forward).