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“What has been will be again. There is nothing new under the sun.” Ecclesiastes 1:91

“What happens today has happened before and will happen again.” Livermore

“Rather than love, money, or fame, give me the truth.” Henry David Thoreau

“Excesses in one direction will lead to an opposite excess in the other direction.” Robert Farrell

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Answering The $Billion Question

The Opportunity of a Lifetime

Tipping Point for the Ages

Sudden Psychology Shift Signals Grave Danger/Spectacular Opportunity

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Tracking Account Valuation- 3,197,444

Intermediate-Term: ~ Downtrend

LOLR Trend: ~ Downtrend

Open Positions: 15% TZA, 15% SPXU, 10% SQQQ, 5% UVIX, 5% VXX, 50% Cash

Stops: TZA – 24.92

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Friday 4:00

Daily     LOLR     STS

Down    Up        Down

0/7        2/5        2/5

Breadth: -1115/-1585

NYMO: -30 Falling/NYSI Falling

NAMO: -33 Falling/NYSI Falling

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King Solomon, renowned for his wisdom and authorship of the biblical book of Ecclesiastes, aptly proclaimed, “There is nothing new under the sun.” This timeless statement reflects Solomon’s profound understanding of the human experience and the cyclical nature of life. Solomon recognized that throughout history, humanity had encountered the same fundamental challenges, aspirations, and patterns. While the world may appear to evolve with each passing generation, Solomon believed that the essence of human nature remains unchanged. His wisdom encourages us to look beyond the illusion of novelty and continue to serve as a guiding light, reminding us to seek wisdom from the lessons of history rather than solely chasing after the allure of the new.

Thousands of years later, Jesse Livermore, a legendary trader, and investor, made a profound proclamation early in 20th century America that “What happens today has happened before and will happen again.” Livermore’s statement captures the essence of market cycles and human behavior within financial markets. Recognizing the repetitive patterns and tendencies that emerge in investments, Livermore emphasized the importance of studying history to gain insight into the present and future. His proclamation serves as a reminder to learn from the past, anticipate recurring patterns, and make informed choices to navigate the complexities of the ever-changing financial landscape.

Today’s striking example of Solomon’s ancient admonitions and Livermore’s 100-year-old observation of human nature as it drives market behavior is the recent manifestation of a new “simple answer” to safety, success, and wealth at the center of investors’ focus and ambitions.

But for perspective, let us first look back to the 1970s.

The “Nifty Fifty” refers to a group of 50 popular stocks highly favored by investors in the 1970s. These stocks were known for their strong growth prospects. They were considered “one-decision” stocks, implying that investors believed they could buy and hold them indefinitely without worrying about their performance. The Nifty Fifty stocks were regarded as the highest quality and often characterized by steady earnings growth, stable dividends, and dominant market positions.

Some of the most prominent names among the Nifty Fifty included Xerox, IBM, Coca-Cola, McDonald’s, Disney, Polaroid, and Procter & Gamble.

During the early 1970s, the Nifty Fifty stocks became highly popular among investors, and their valuations soared to extreme levels, with many trading at price-to-earnings (P/E) ratios far above the market average. Investors were willing to pay a premium for these stocks, believing their growth prospects would continue indefinitely.

However, in the early 1970s, the stock market experienced a significant downturn, resulting in prolonged economic uncertainty and high inflation. The Nifty Fifty stocks were not immune to the broader market decline. The excessive valuations of these stocks made them particularly vulnerable, and many experienced extreme price declines.

The downfall of the Nifty Fifty was particularly significant during 1972-1974 when the stock market experienced a Primary Bear Market. The Nifty Fifty stocks plummeted as investors liquidated stocks en masse.

The legacy of the Nifty Fifty stocks serves as a cautionary tale for investors. In a Bear Market, no names can be depended upon as “safe havens.”

Friday, your author capsulized his experience with the “nifty fifty” in 1972-1974, observing margin account traders from the vantage point afforded the head margin clerk’s desk for one of the most prominent brokerage offices in the country while still a college undergraduate in psychology and economics.

That experience ignited a lifetime fascination with observing how trader psychology, not economics, is the final arbiter of stock prices over time. For example, he watched one Merrill Lynch margin account fully loaded with those “safe” nifty fifty names evaporate from $1.8 Million to just $50,000 in the 1973-4 Bear Market in the wake of forced margin call liquidations before the compliance department closed Fred’s account (his real name) permanently. Fred has moved on to a better place these days so he won’t mind that we relate his sad but true story so that others may avoid his fate.

Those top-quality “one-decision” benefactors of safety, unlimited superior portfolio performance, and unbounded wealth have reemerged in 2023. This time, the 1970s “Nifty Fifty” is known as the 2020s “Magnificent Seven.” [hyperlinked}. These seven are Apple, Alphabet, Amazon, Microsoft, Meta, Nvidia, and Tesla.

Below is the year-to-date chart of the capitalization-weighted S&P 500, and beside it, the S&P 500 Equal Weighted Index:

 

Please note the difference. While SPX moved out sharply to a 2023 new high in June, the equal-weighted 500 (all of the same 500 names but each weighted at 1/500th of the total) fell FAR short. Why?

This was because 90% of the advance to a new 2023 high for the capitalization-weighted SPX 500 was just those seven issues: Apple, Alphabet, Amazon, Microsoft, Meta, Nvidia, and Tesla. The remaining 90% were failing badly.

Please do NOT misunderstand what we are saying about the outlook from here. We are NOT saying that Tesla, Nvidia, and Amazon will immediately underperform the market or crash to new lows in July and August; far from it.

We are saying exactly what history has shown over and over for as long as markets have existed. As we enter the next phase, as was the case with the nifty fifty, the railroads in another era, and the autos in still another:

The “Magnificent Seven” are not immune to the broader market decline. The excessive valuations of these stocks make them particularly vulnerable, and most will experience extreme price declines, especially during the sharpest phases of decline in the months and years ahead.

The downfall of the “Magnificent Seven” will be particularly significant during 2022-2024 as the stock market experiences a continuing Primary Bear Market. Those seven names will plummet with the rest as investors liquidate stocks en masse.

The legacy of the Nifty Fifty stocks serves as a cautionary tale for investors. In a Bear Market, no stock names can be depended upon as “safe havens.”

“In the wake of the posse’s arrival, both saints and sinners are caught in the same net.”

As Val Kilmer put it in “Tombstone,“ “Oh, make no mistake, it’s not revenge he’s after; it’s a reckoning.” ~ Doc Holliday 

In the short-term, markets are oversold, and we expect they are ready for a 1-3 day bounce, maybe a sharp one, even if they open down Monday morning. Following that bounce, we look for the decline to accelerate sharply.

We will examine and comment on the overnight futures in the AM.

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