Warnings Of An Approaching Market Sell-Off | Tom McClellan

These decades-long correlations all predict a correction in stocks later this year

Stocks markets have had a massive run since November of last year and all the major indices -- the S&P 500, the Dow and the NASDAQ - have hit all-time highs this week.

US GDP growth for the current quarter is currently predicted to be 3.6%, global economic growth as measured by PMIs has turned positive for the first time in 2 years, the official unemployment rate remains below 4%, the most important stock to the markets -- Nvidia -- just beat expectations on earnings & revenues...

So it's unsurprising the bulls are feeling large & in charge right now. Talk of hitting S&P 6000 later this year is getting louder.

Is that likely?

In heady times like these, turning to the data & navigating by what it's telling us is often highly useful.

Which is why we're fortunate to have one of the best technical analysts in the industry, Tom McClellan, joining us today to share his latest interpretation of the current market action.

Tom is watching several key indicators that, if their decades-long correlation with the stock market continues to hold, suggest a material correction is coming in the second half of this year.

To see the data for yourself, click here or on the image below:

---

I’m so grateful to everyone who has kindly supported me by becoming a premium subscriber to this Substack. It’s making an important difference in helping me afford the substantial startup costs of running Thoughtful Money.

Premium supporters receive my “Adam’s Notes” summaries to the interviews I do, the new MacroPass rotation of reports from esteemed experts, plus periodic advance-viewing/exclusive content. My Adam’s Notes for this discussion with Tom are available to them below.

If you, too, would like to become a premium subscriber to this Substack (it’s only $15/mo, less than $0.50/day), then sign up now below.

---

Adam’s Notes: Tom McClellan (recorded 5.23.24)

EXECUTIVE SUMMARY:

• Tom highlights a century-long correlation between crude oil prices and stock market movements, noting that the stock market tends to echo the movements of crude oil prices about 10 years later. That series predicts a potential market decline starting this summer, reflecting the sharp decline in crude oil prices back in 2014.

• Currently, market breadth is strong, with the NYSE Advance/Decline (AD) line making new highs. McClellan notes that strong breadth indicates sufficient liquidity and a reduced risk of a major decline in the near term. Tom will want to see a negative divergence between the NYSE AD line (heading downwards) and the price of the Dow (heading upwards). When/if he sees that, it will signal a market downturn likely is approaching.

• Tom emphasizes the importance of liquidity in driving market movements. He monitors Advance/Decline statistics, high-yield bond performance, and the Federal Reserve's actions.

• Tom sees that the Fed’s reverse repos have been providing liquidity to the market, boosting prices. But the RRP balance is nearly dry at this point. If it empties, or starts increasing again, that will withdraw liquidity from markets and could trigger a correction.

• Tom discusses the relationship between gold prices and long-term interest rates, noting that gold prices tend to predict