On this week’s show, Karl describes the recent bounce in the stock market and why based on history the stock market could continue higher after a pause.
Karl Eggerss: Hey good morning everybody. Welcome to the Eggers Report. It’s your investing playbook. Thanks for joining me. Appreciate it. We got a jam packed show today. We’ll tell you a little bit about us. We are a registered investment advisory firm. My name is Karl Eggerss. I am the President and CEO of Eggerss Capital Management and we do a little bit of everything. We do some financial planning. We do some investment management and we also do some education. The point of this podcast is to educate you and tell you what’s going on in the markets, tell you what we see going on all in an effort to make you a better investor. Our telephone number 210-526-0057. If you need any help, eggersscapital.com where we post everything on there. It’s a free subscription as well. If you know somebody that might need some help whether it’s financial planning, it could be investment management.
And speaking of financial planning, there was an article this week discussing that the Social Security Administration for surviving spouses, so when you’re a surviving spouse you have different benefits right? You can take your spousal Social Security. You could take your own at 70 and 82% of duly entitled widows and widowers were not told that they had a higher retirement benefit available to them. So this is why it’s important to work with an advisor who knows Social Security. We’ve had some clients we’ve discussed Social Security with and as we’re talking to them they have talked to Social Security. They have talked to other advisors and they still got wrong information. So we tell them hey here’s the way the rules really work and they’re like, “Wow I didn’t know that.” There’s 30 or 40 or 50,000 extra dollars on the table potentially that they might have left on the table if done incorrectly. So that’s what we do on the financial planning side of things, education planning, help with 401(k)s, those things and run retirement scenarios to help people feel confident about whether they can retire or not.
And then on the investment management, look really the times like what we’ve been through the last couple of weeks is really when we earn our keep. When you have a bull market that’s running away you put it in something and let it go. But when you start to see these movements, this is when you take advantage of things and there’s a fork in the road. Either people panic and sell or they have dry powder and they don’t take advantage of situations that present themself. A week ago we were sitting here with a market that had looked like it was going to bottom because we had a big reversal a week ago Friday, right? Remember we were down 600 and some odd points on that Friday. We reversed, finished up about 370 something like that. So we had 1000 point swing and so it felt like and we actually bought some more that day but it felt like that was a good bottom. At least temporarily.
Since that time, we have seen the market really continue higher and the market has had a pretty good week. You’ve seen 4 1/2% gains really for the week. And so where are we now? We’re at some really interesting technical levels and some of these things kind of play out sometimes very similarly where they bounce back. We’re at a point right now where you could see people that did … let’s say people that were out of the market and then bought the low and now they’ve made some money. They may take profits and park that money back on the sidelines. Now later in the show we’re going to have Casey Keller, our Chartered Financial Analyst come in to discuss this pattern that we’ve seen. We’ll start the pattern from November of 2017 until now. Why that pattern is really important because it could tell you where the market is going forward. So I’ll save that for a little bit later in the podcast. Stay tuned for that. That’s really important information.
So we did have this kind of run up right into the end of the year in anticipation I believe of the tax cuts. Then what we started to see is a little bit of weakening. Not a surprise. And then we got the hotter wage data. Uh, oh, what if inflation is a problem? The Fed kind of said yeah, we’re planning on raising rates, right? And the market started going and throwing a tizzy. The speed of the drop was I think increased due to some of these financial products which we talked about last week. These inverse volatility ETFs that doubled, triple, all the stuff and a lot of them blew up. That caused more volatility. That caused short covering of the VIX which meant that VIX went up really high which caused panic selling. That was an opportunity.
Now, once we saw that, some things got really oversold. I posted on Instagram if you want to follow on Instagram or Twitter @karleggerss is the Twitter handle. @etfcharts is the other Twitter handle. We’re on Eggerss Capital Management on Instagram. We posted an hourly picture and said look there is a positive divergence developing. As the market was falling we said this is a technical setup we like here. And you’ve gotten that big bounce from the lows. So you need to pay attention to those types of things.
Where we go forward it’s interesting because everything the market was scared about a week and a half ago, too much inflation, rising rates, the market seemed to embrace this week, right? We had hotter CPI. We had higher inflation and yet the stock market embraced that. Interest rates went higher touching almost 3%, 2.95 on a 10-year coming back down on Friday. But the good news that scared the market last week, the market embraced it this week.
So what else is causing this? Is it just time to sell? So it wouldn’t surprise us to maybe see the market hang around this area. Technicians would probably say maybe we even go test the lows. Not a fun thought to think of but do we test the lows and then bounce? I don’t see that happening in this time. I think if a gun to my head what would I be doing, I think we’re still buying. I think that we maybe settle down in this range for a while as the market really sniffs out what the Fed’s really going to do. Is the Fed going to flinch and not raise rates three or four times this year?
We’ll see but the bottom line is economy’s still good. Some people calling for a slowdown saying okay the best is behind us. We’ll see. We’ve got lumber prices that have doubled in the last couple of years at an all-time high. Home sales blew it out of the water on Friday. So there’s still good stuff going on and it’s justifying higher interest rates. How fast they rise is what spooks the market. If they rise too fast, it chokes off. It’s a governor if you will to the economy.
And so what things look good right now? You can see the stuff that’s balanced it’s really interesting. If you look at steel stocks actually are at a new high so they fell from high to low steel stocks fell about 12%. But from the low last week, they have jumped 16% so they are actually at a new high. Now there’s some technical stuff that maybe suggests they may not continue but there is some very cyclical things jumping. Home builders were very strong this week. Some of the strongest things were steel. Copper was up big this week. Emerging markets. Biotech. Railroads. Aerospace and defense. Technology. Those are not things that would be up in a slowdown we’ll call it.
The things that were down this week were bonds. Bonds were actually flat this week. Actually not a lot was down. What was down was volatility believe it or not. Volatility was down quite a bit. So we still seem to … the market seems to be saying yeah the economy’s still pretty good. We just got spooked. It needed a pullback and the pullback was exaggerated by the fact that we have all these financial products, the tail wagging the dog. That’s what we think.
Look, don’t let people scare you. What’s happening right now is people are trying to use fear tactics and say that was the biggest drop ever for the stock market when it was not the biggest drop. It was the biggest point drop. But the Dow at 26,000 is different than the Dow at 10,000 or 5000. Of course it’s a bigger point drop. Percentage drop, it wasn’t. So we’ve seen many 4% drops in our time. We’ve seen 4% up days in our time. So don’t look at the points. A 10% correction is normal. A 15% correction would be normal. The speed of this one doesn’t happen all the time. And again we know why. So that was a little different.
And so we went from an all-time high to a 10% correction a really short amount of time. That’s not generally how bull markets become bear markets. Could we be at the first part of a bull market becoming a bear market? Sure, it’s got to start some time. But what if it takes several months if not a couple of years to develop? What if we have a stock market that made that high, reversed, comes back, maybe it touches the old high over the next couple of months. Maybe it even goes to new highs but we see some deterioration underneath the surface? What if the FENG stocks don’t participate? Now we start to get this kind of slow rolling over situation. That’s when you become much more defensive.
We had been building a little bit of cash nothing major in our strategies coming into that. And then we obviously used some of that cash to be buying some things during that. And so that’s why I ask you sometimes and I did last week. Are you buying or selling into that? Because if you sold into that, at this point was the wrong move. If you bought into it at this point, it was the right move. But it tells you what kind of investor you are. And I don’t think this sell-off the last couple of weeks was one that should change your overall allocation. We mentioned that last week. Mention it again now.
A 10% pullback is not enough for me to say hey you were a conservative investor before, what an opportunity this is. Go change your whole allocation and get more aggressive. That’s not what this was about. This was about the money that you have dedicated to stocks, you should be using that cash to go buy those stocks. If you have half your money in stocks and half in bonds or safer stuff, then that shouldn’t have changed in our opinion.
So yes we were buying but it wasn’t a situation of hey Mr. Client, this is a once in a lifetime opportunity. Right? That’s what really ’08 was. You could argue 2011. There’s been times to really shift an allocation because it’s just too good of an opportunity. A 10% drop in going back to where we were in November, that’s not really … you didn’t change your allocation in November, why change it now? So that’s kind of a wrap up there.
All right as promised we have Casey Keller, our resident Chartered Financial Analyst in studio with us. And the last few weeks we’ve been talking about the stock market and how some of the things we’re seeing are kind of unprecedented. This rally that we’ve seen and then this sell-off coming from a all-time high to a 10% correction, the fastest in history even percentage-wise and then we’ve had this bounce back the last couple of weeks or last week. That’s been very fast. But as you go back and look at research, maybe it’s not as unusual as we would think. So we brought in Casey Keller today to discuss something here that we found and we want to share with you. Casey, welcome back to the podcast.
Casey Keller: Glad to be here. Thanks for having me.
Karl Eggerss: So, what we’re going to talk to people today about and it’s rather interesting and it’s something that perhaps some people may say that’s bunk. And I think if you were to do all the research it’s really interesting. This actually came from Tom McClellan who has a long family tradition of charting and putting on top of the stock market charts with other things. So for example, he may go back and look at a chart of oil 10 years ago and puts it on top of today’s Dow Jones and it’s extremely correlated.
One of the things that he’s talked about in the last few days is rogue waves. Like actual waves in the ocean and sometimes the patterns that those things take on are extremely and eerily similar to stock market patterns that we’ve seen in the last few years. And when you see these patterns, it can really give you some insight into where the market may be going. So, before you tune out, stick around. This is really interesting stuff.
So give us a brief synopsis of what a rogue wave is in a descriptive format because obviously people aren’t looking at what we’re looking at. You can go find Tom McClellan’s research on this. You might just Google Tom McClellan rogue wave and you can see the article we’re actually discussing. Just came out a few days ago. But talk to us about a rogue wave.
Casey Keller: Sure, yeah, the rogue wave as he describes it is essentially a wave pattern. So imagine you’re out on the beach just looking at waves and they’re coming in pretty persistently at the same height above sea level just coming in. And all of a sudden every once in a while in nature you’ll get a rogue wave where a wave will come up much higher than the other waves and-
Karl Eggerss: Which isn’t, that’s not the unusual part.
Casey Keller: But when it comes up and it peaks, it will trough. It’ll kind of like create a trough below sea level. It’ll suck the energy out of the ocean or create a trough in the water where it’s pulling from it and it drops. The trough in the wave is just is low as it was high above the sea level.
Karl Eggerss: Yeah so most of the waves are kind of going along and then you have this rogue wave they call it, that is way above all the other waves what’s normal. But it doesn’t just go back to normal. It actually creates like you said a trough so now it’s below normal of sea level. So you picture sea level as this horizontal line and you got these waves kind of peaking, peaking and all of a sudden you have this real big one and then it comes crashing down and actually creates this trough and then you get back to normal. Right?
Casey Keller: Exactly, yeah.
Karl Eggerss: Get back to the sea level. So what is to bring it to, and we’ll obviously explain this, but to bring it from what is the sea level analogous to in the stock market?
Casey Keller: The trend of whatever prices were before. Or whatever they were doing. So you could look at it and just say over the past two years, what has been the trend line of the market? That would be the sea level.
Karl Eggerss: Yeah.
Casey Keller: So obviously it’s not a flat line but-
Karl Eggerss: So for example if the stock market let’s just say for grins to use a clean number. If the stock market’s been going up at 10% rate the last two years, you can draw a line it stayed pretty much within that band and gone kind of straight up. It was clear that after starting in November, we started to get word that the president wanted to try to get a new tax law signed into law by Christmas he kept saying that. And as it looked like it was going to happen, went in to Congress. It went to the House and it went to the Senate and then back. It was like hey this is going to get done. The market seemed to take on a different trajectory.
Casey Keller: Trajectory.
Karl Eggerss: Right, so the market actually starts going up at a different trend line than what it has been going up. So in other words if the market was going up 10% on this trajectory and all of a sudden you can picture the lines going up at a 20% trajectory, that’s what we kind of had and so we got off of the trend, right?
Casey Keller: Right. It’s almost, you could think of a lot of things in history even like housing prices. Housing prices before ’08 back in the year mid-2000s, they were trending on a line at whatever growth rate. Then all of a sudden the housing bubble started and it just deviated from that trend line. It started going way above normal.
Karl Eggerss: The Nasdaq in the dot-com bubble. The …
Casey Keller: Great Depression.
Karl Eggerss: Yeah I was going to say the Great Depression’s a good one.
Casey Keller: The ’20s.
Karl Eggerss: You had a pretty good stock market coming into the ’20s and then you can picture the stock market took on a totally different parabolic look where it’s going straight up. And so the stock market dropped 90%. It didn’t just come back to trend, it went way below. But then what happens after it goes below? It comes back to the normal trend line again.
Casey Keller: It tends to go back to the trend line. So it tends to come crashing down quickly below the trend line almost like a rogue wave. It creates a trough or it bottoms out just as far below the trend line as it went above in the excitement period and it-
Karl Eggerss: So if we bring that to today’s market, what that would tell you is that it’s working out almost classic textbook where we were going along until about October and if you’re looking at a stock chart you could see it of the stock market. The S&P, the Dow. And we kind of went on a different trajectory above trend we’ll call it. We come crashing down 10%, 10 1/2% in a week which is pretty quick or 10 days whatever it was. And then we’ve bounced back we’ll just call it roughly about half of the drop. But we’re back to trend, right? So in other words if we just started going up how we were before November, it would be classic rogue wave pattern.
Casey Keller: And that’s what Tom McClellan’s research is suggesting. He’s saying we just experienced a rogue wave in the markets and we’re likely to continue our trajectory-
Karl Eggerss: So the good news-
Casey Keller: … not at the same pace as we were in the last few months.
Karl Eggerss: Sure.
Casey Keller: But getting back on track again.
Karl Eggerss: It’s as if the tax law enthusiasm and the run-up of that and the decline we saw two weeks ago, wipe all that out and if you just were looking at your portfolio in October and you went away for three or four months and came back, you’d be right on the same trajectory and saying what happened? It was like this shock like a drop in a rock in a pond and disrupting this calm pond. Something happened. But the cool thing is and I think the good news is if it plays out that way is that the whole point of it is that you get back to “sea level” or trend which means it’s not the end of a bull market, right? You just … it’s like what was that? And it just keeps going.
I think again part of this you sit back and question. You go why does this happen? Is this … Because you have the natural influences of earth on the water. That has nothing to do with the stock market. But I mean do you have any … what’s the connection there I guess?
Casey Keller: There’s just natural phenomenon’s I guess that occur in the world naturally that whether it’s human nature or natural cycles or whatever.
Karl Eggerss: Biorhythms.
Casey Keller: Bio … I don’t know but it’s interesting that it happens and it’s observable and we’ve even noticed in other parts of technical analysis certain … there’s things called Fibonacci levels where when markets tend to balance they go at these levels at 32% or 60, what is it, 60?
Karl Eggerss: It’s 38.2 and 50 and 61.8 I think.
Casey Keller: Okay, 61.8. So these levels that have been kind of observed not only in the stock market but also in nature with droughts and cycles and weather patterns. It’s a natural thing that just occurs in the world and it just you know-
Karl Eggerss: Yeah. And it’s interesting because it really doesn’t have to do with … I mean you could argue cryptocurrencies although they haven’t been around long enough to really have any kind of trend. But you can really see that when those cryptocurrencies starting going parabolic in October, November, December, you could almost see what was going to happen that they would come crashing down at some point. And they did. That doesn’t tell you where they’re going to be 10 years from now but that’s almost a normal pattern.
But it points to the fact that you can apply this to lots of securities, lots of investments and when something’s going parabolic, it doesn’t continue. I think furthermore what’s interesting is that it doesn’t mean that the investment’s going to just move sideways. It will come back down to trend and sometimes over correct. And that’s what we see. In other words, maybe the stock market should have only fallen 5% but it fell 10 because of this is what happens with a rogue wave. It doesn’t stop at the trend line, it keeps going down or the sea level as it were.
And so I think part of this, this whole discussion is about these kind of natural rhythms or whatever. In other words, you don’t have to apply it to the Dow Jones. It can be anything. But what’s interesting too and you were talking about technical analysis, a gentleman named Tom DeMark who we follow and have followed for years, very successful technical analysis years and years ago probably in the ’70s sat down with a yellow pad and started watching intraday movement of stock prices and noticed that something weird happens after nine days and after 13 days.
Essentially what it is on one of them is that after about nine days of closing lows, almost like let’s just say nine days in a row of closing lows. There tends to be this exhaustion where it doesn’t keep doing that and so you get this reversion to the mean, a bounce, something. What is it about humans that it’s nine days because that’s what’s happening. Everybody is without knowing is agreeing that after nine days, the trend’s going to change. Up or down. And sure enough, he called the Friday a week and a half ago last Friday’s bottom. He called it within a few points again and we’ve seen him do that before and he’s going off of … he couldn’t tell you why it works. He would just say that’s just a natural human reaction that we look at a chart and say that things gone down too many days. We’re going to either stop shorting it or we’re going to go buy it because it’s exhausted to the down side.
So it kind of ties into that there’s these natural rhythms and I’m not sure if it’s human emotion. I don’t know what it is. Obviously our human emotion isn’t controlling the sea levels, but I think the rogue wave is really interesting. What are some other examples as far as timing … not timing. As far as some of the things we’ve seen in the past. I know there’s some other examples. I think you gave the Great Depression back in the day. I’m trying to remember some other ones. There’s been-
Casey Keller: I haven’t seen the pictures but come to mind what would look like it, I think the ’87 crash would probably look pretty similar to that because you were in a trend and it shot up in early ’87 for the first nine months or 10 months of the year. Really got above trend and then it came crashing down within a year or so. It’s back in trend again. Oil prices in 2006, ’07 and ’08. We had this trend that really shot up [crosstalk 00:24:45] it went up to 150.
Karl Eggerss: It went up to 150, right?
Casey Keller: Came crashing down to 30 and then got back into trend at about 70 again. Started trending back up. I think of housing prices we talked about.
Karl Eggerss: And how about oil prices now, right? They went up to 120 this time. Went down to 26. Where have we been hanging out the last few months? 50, 60?
Casey Keller: Right. In this pattern I think what’s … it’s not specific to a time frame. Sometimes this pattern can be observed on a monthly chart. Hourly chart. Whatever. Daily chart. Like the Great Depression, that happened over years. That was observed on a monthly chart where you could see it broke the trend on monthly basis and then came crashing down. Whereas this one we’re seeing is obviously a daily one. We’re talking about two months of getting out of the trend here in the last two months of the stock market and then now we come crashing down 10%, 10% correction and now we’re getting back upwards of the trend line again.
Karl Eggerss: Yeah and it’s interesting because in those times there are some really interesting stuff going on. For example and we’ve noticed it and we’ve commented on it on the podcast for the last six weeks, eight weeks. Number one, people saying I want to get more aggressive because the tax law. People that normally wouldn’t be in the stock market are saying yeah I want to get in. People congratulating you on what a great job you’re doing. Let’s put more in the stock market. Those types of warning signs and we certainly saw it with cryptocurrencies. We were literally talking about it on the podcast the last several weeks that we’re starting to get some frothiness commentary.
That is right in line with the trajectory off of trend, right? It also has gone up at a rapid rate where that you go this can’t continue. Does it always mean it falls like it did? No, that’s the hard thing. We’re in a raging bull market and then all of a sudden within just a few days it feels like the world’s going to end. But what we’re telling you is that if you go back and look at history, what we’ve just been through is very, very common. Over optimism and it’s like a pendulum swinging. It doesn’t stop. It goes all the way to over pessimism. So we went from overbought, over loved stock market to oh crap, what’s going on? This isn’t normal. And we’re saying yeah, 10% correction is actually very normal.
We of course have been saying on here we were buying the dip. But what’s happening now so you get a lot of opportunity if you know what you’re doing. You also get a lot of chance for whipsaw of people getting out at the bottom. Freaking out and wanting to buy at the top and just all of that. So there’s a lot of disruption when you get this rogue wave coming in. Think about if you were surfing and you’re going I know these waves are this height and all of a sudden the rogue wave comes in and you’re like, “Oh my gosh, this thing is triple the size of what I’m used to.” It’s kind of fun for a while until it turns into a trough pretty quickly and you get tossed about. But guess what? That surfer goes back out there and says, “Okay, things are back to normal again.” That’s not normal.
Casey Keller: Right. It’s-
Karl Eggerss: So these don’t happen that often but … it depends on the time frame but you could see there’s some things that are overvalued in our market currently. We’ve been talking about them for months. You’re seeing utility stocks, publicly traded REITs. Think some consumer staple stocks that have been loved because they pay good dividend. People think they’re better than bonds. But they’re riskier than bonds.
We could see I think some type of rogue wave situation where those stocks are kind of calm, move along. And they’ve been going at a pretty rapid rate relative to themselves the last couple of years. We could see them over correct to where they get cheap. They just don’t go back to where they should be. They get dirt cheap to where we go, “Man these things are a great screaming deal.”
Casey Keller: Yeah.
Karl Eggerss: They’re not there yet. They’ve fallen 10 to 15%. But they’re not screaming deals yet.
Casey Keller: No, you could see a lot of utility stocks that normally trade at a 10 P/E that’s their sea level. They’ve been trading at 10 P/E for decades. Now all of a sudden in the last three years they’re trading at 20 to 25 times earnings. Well that usually doesn’t resolve itself by going back down to 10 which even if they did that’s a big crash. But more than likely it’s going to go to five. There’s going to be an over correction more than likely.
Karl Eggerss: How about the S&P 500 or the Dow Jones in ’08? It was not a overly expensive market but it was a little expensive. But what happened to the P/E ratio of stocks? The stock market didn’t just get to fair value. In March ’09 the stock market was dirt cheap. It had like a P/E of seven I think or eight something like that. And then that’s what happened. It over corrected and then it worked its way back to what was normal. Some would argue that we’re getting a little on the frothy side here.
These things are really interesting. So the takeaway is that if history is a guide, what we just went through is normal and the trend line we were on in the summertime where it’s just a pretty good creeping along market is intact. Number two is that we can’t explain why sea levels and stock markets correlate. Who knows? But the third thing I would say is look for this type of action in the future in sector, stock, cryptocurrencies, bonds, whatever it is. Look for that and take advantage of it. So next time you see something that’s trending along and then it’s just every day. It’s gone up to new highs. It’s this crazy unsustainable rate, don’t look to just avoid it. See if you can benefit from shorting it and more importantly when the trough comes, that’s when you can really take advantage of it.
Casey Keller: Yeah, it seems like it’s always a measured move. You may not be able to catch the top just right, but when it does come down you can almost measure. Go look at the trend line and see if it deviated 10% off the trend line, that means it should fall 20% from peak to trough and you can go right back. It’s almost measured. If the trend line was here it deviated 50%, then it should fall significantly from that.
Karl Eggerss: We’ve talked about Amazon stock back in the day after it went public fell 95% in the dot-com bubble. Had a recovery and these things fall really hard further than you think. But when they bounce they tend to come right back up to where they were before so you got to … it’s almost like you sliced out rogue wave and it looks like nothing ever happened. Which is a good point that if you’re a long-term investor and you’re 35, 40, even 50 years old and you’ve got stocks and the economy’s good, everything’s fine. And out of nowhere like a 2011, out of nowhere the market just tanks, that’s not how bull markets become bear markets.
You focus back on the long term and say hey this thing looks fine. Bull markets becoming bear markets is kind of a rounding top. So what it would look like is three or four months from now we make a marginal new high or we go back up to the old highs that we just experienced. And then we fall a little bit. And then we go up a little more. So all of a sudden that trajectory, that trend line that’s been in place for a long time isn’t there anymore. Now you’re moving sideways.
Casey Keller: Sideways, right.
Karl Eggerss: That’s the new trend line. That’s when you have to start going what’s going on underneath the surface? Is there deterioration? Then you’re making it more defensive. But a market making all-time highs has a blow off top and has this rogue wave usually means the market’s going to continue higher. Just not at the pace it was in November/December.
Casey Keller: Right.
Karl Eggerss: And I have to laugh because when Casey and I were talking about this when I first sent it to him I thought I would get a reply back that this is bunk and this is hilarious and I can’t believe people spend their time looking at this. But as we read through the article we said there’s something to this. Why? Maybe it’s because … I mean I can rationalize. Maybe it’s because people have been studying the way oceans move and when they see a chart, it looks like … some people say it looks like an EKG. Some people say it looks like the ocean. I don’t know if that’s why.
Casey Keller: I don’t know either but I could say when I read it … we read a lot of stuff here. When I read that I was like that’s pretty compelling. You guys got to check the article out. It is very, it’s very compelling when you look at that and you start to … if you observe markets for a while you start to just envision all these chart patterns that look like that and you realize how that’s more common than maybe meets the eye or maybe what you think. [inaudible 00:32:45] doesn’t recognizes that.
Karl Eggerss: Right. And the trajectory we’re talking about if you look at a chart really started in let’s call it May or June of ’17. And if you take it all the way up until now, you will see what we’re talking about. We’re on a clear moving along and then something changed in the last two months of the year where the market went at this crazy … and for those that are technical out there, the RSI index on the weekly picture was way above normal. How far the stock market was above it’s 200 day moving average was way … all those things weren’t normal. So we weren’t calling to short the market, we were calling to … this thing needs to maybe calm down a little bit.
We had even written an article and talked about three ways to protect yourself during a correction or prepare for a correction. So we didn’t … the correction wasn’t the shocking part.
Casey Keller: No.
Karl Eggerss: The shocking part was how fast we went from an all-time high to a 10% correction. That was unusual but again if you study this history and you back and look you say actually it’s not that unusual given the picture. The picture’s not unusual right?
Casey Keller: We haven’t seen it in a while or maybe we haven’t seen it on this short of a time frame. I think when it comes to mind you think of these bigger oil prices or housing price or we talked about the Great Depression which are longer term but it had the same picture. This was just kind of a microcosm or just a miniature version of that.
Karl Eggerss: Yeah. Yeah, exactly. I think another one to go look at if you want to see how this played out. You mentioned it Casey was oil back in 2006 and ’07 and ’08. Oil was doing pretty well from ’98 all the way until ’07 just working its way higher and lower. A channel we’ll it and then in early ’08 man that thing was like way just out of the channel. Something’s got to correct. Well not only did it come in the channel, it went below the channel. It got cheap. But guess where it ended up? Right back in the middle of the channel as if it never happened. So interesting stuff. Really interesting.
Again, our job is to bring you this information not to try to explain the correlation because somebody may be able to do it out there. We’re not. But again if you want to look at it, Tom McClellan is the gentleman who discusses this. Fascinating article. Casey, thanks for stopping in, appreciate it.
Casey Keller: You bet.
Karl Eggerss: All right. Take care and guys thanks for joining us here on The Eggerss Report Podcast. We’ll be back next week. Don’t forget to check out eggersscapital.com. If you need to get a hold of us for any reason 210-526-0057. Have a great weekend. We’ll see you back here next week and on The Eggerss Report, your investing playbook.
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