Pablo Ruiz or Pablo Ruiz Picasso (born October 25, 1881, Málaga, Spain—died April 8, 1973, Mougins, France), Spanish expatriate painter, sculptor, printmaker, ceramicist, and stage designer, was one of the greatest and most-influential artists of the 20th century and the creator (with Georges Braque) of Cubism.

The enormous body of Picasso’s work remains, and the legend lives on—a tribute to the vitality of the “disquieting” Spaniard with the “somber…piercing” eyes who superstitiously believed that work would keep him alive. For nearly 80 of his 91 years, Picasso devoted himself to an artistic production that contributed significantly to and paralleled the whole development of modern art in the 20th century.

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Friday:  4:00:

Daily     LOLR   STS

Down    Down  Up

2/5        3/4      7/0

Breadth: 1063/216

NYMO: -20 Rising/NYSI Falling

NAMO: -20 Rising/NASI Falling

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Change is difficult for humans to process. The most challenging adjustment is the death of someone or something we dearly love.

2022 saw the end of a Primary Bull Market and a Secular Bull Market.

Psychologists will tell us that:

Persistent, traumatic grief can cause us to cycle (sometimes quickly) through the stages of grief: denial, anger, bargaining, depression, and acceptance. These stages are our attempts to process change and protect ourselves while we adapt to a new reality.

2022 was a year of denial of the death of the Bull Market. 2023 will ultimately be the year of acceptance and capitulation. We will address that second part in next week’s article.

Last week we discussed the fourteen stages of emotions that produce the ever-repeating cycles of the market:

And we suggested that:

“As an exercise, we suggest that the reader review the above and answer this question:

Where on that continuum are we NOW?”

Below are those 14 stages in the above diagram defined:

1. OPTIMISM – It starts with a hunch or a positive outlook leading us to buy a stock.

2. EXCITEMENT – Things start moving our way, and we get giddy inside. We begin to anticipate and hope that a possible success story is in the making.

3. THRILL – The market continues to be favorable, and we can’t help but start to feel a little “smart.” At this point, we have complete confidence in our trading system.

4. EUPHORIA – This marks the point of maximum financial risk and maximum financial gain. Our investments turn into quick and easy profits, so we begin to ignore the basic concept of risk. We now start trading anything we can handle to make a buck.

5. ANXIETY – Oh no, it’s turning around! The markets show their first signs of taking your “hard-earned” gains back. But having never seen this happen, we remain ultra-greedy and think the long-term trend is higher.

6. DENIAL – The markets don’t turn as quickly as we had hoped. There must be something wrong, we think to ourselves. Our “long-term” view now shortens to a near-term hope of improvement.

7. FEAR – Reality sets in that we are not as bright as we once thought. Instead of being confident in our trading, we become confused. At this point, we should get out with a small profit and move on, but we don’t for some stupid reason.

8. DESPERATION – All gains have been lost at this point. We had our chance to profit and missed it. Not knowing how to act, we attempt to do anything that will bring our positions back into the black.

9. PANIC – The most emotional period by far. At this stage, we feel like we are at the mercy of the market and have no control. We are clueless and helpless.

10. CAPITULATION – We have reached our breaking point and are selling our positions at any price. So long as we can get out of the market to avoid more significant losses, we are content.

11. DESPONDENCY – After exiting the markets, we never want to repurchase stocks. Wall Street is not for us and should be avoided like the plague. However, this rare point marks the point of maximum financial opportunity.

12. DEPRESSION – We drink, cry, and pray. How could we have been so dumb? We think to ourselves. Fundamental traders are born here, learning from past mistakes. Some start to look back correctly and analyze what went wrong.

13. HOPE – We can still do this! Eventually, we realize that the market does have cycles (shocking). We begin to start analyzing new opportunities.

14. RELIEF – The markets are returning positive, and we see our prior investment return. We regain our faith (although small) in our ability to invest our money. The cycle starts all over again!

We’ll begin today with a look at the first four stages, which took 1982 to 2000 Secular Bull Market from SPX 101 in 1982 to over 1600 in 2000.

That cycle began with OPTIMISM in mid-1982 as inflation was abating, then moved to the EXCITEMENT by the late eighties and into the nineties. By the mid-nineties, THRILL became the prevailing emotion that drove decisions.

Most here will remember the “dot-com” EUPHORIA of the late nineties as traders “partied like it was 1999.” Because it was.

And we all know what followed:

The first year of the above period, covering September 2000 to September 2001, mainly was (just like the most recent year) all about DENIAL.

This is normal. Human emotions drive markets, and humans do not accept change lightly, especially death.

Ultimately as markets moved through 2001 and 2002, the trend drivers evolved to these: FEAR, DESPERATION, PANIC, and CAPITULATION.

Let us now consider the Secular Bull Market from the March 2009 SPX low of 666 to the January 4, 2022 high of 4818.62:

That cycle began with OPTIMISM in March 2009 as the Fed inflated the money supply at the fastest pace in history, then moved to the EXCITEMENT by the late teens as profits soared. By the early 20s, THRILL became the prevailing emotion as new traders (“apes”) flocked to markets in search of new riches.

Then came the “stonk EUPHORIA” of 2020-2021 as apes “partied like it was 1999 on steroids,” and speculative excess soared to heights never before seen by the NYSE.

The extremes of 2020-21 will fill history books in the decades ahead:

Answering The $Billion Question

2022, much like the year 2000 into early 2001, has been a year of DENIAL. We all watched as this persisted through the entire year 2022:

The terms “Bear Market” and “Downtrend” were replaced by “volatility.”

And spoken or not, this “volatility” was treated as “transitory.”

The most oft-spoken terms this year were “pause” and “pivot.”

The question most asked of pundits on CNBC was, “Do you think we’ve bottomed?” This was followed by, “What would you be buying?”

Next week’s article to be entitled “2023: Acceptance & Capitulation,” will cover the period that will look a lot like the 2001-2002 period, except that the declines will likely be far more intense:

We will comment on overnight futures activity at 9:15 AM.

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