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  • Bruce Kamich forecasted a bear market in December 2021.
  • He accurately predicted an oversold rally in May.
  • His latest technical analysis suggests the bear market may not be over yet.

Real Money's Bruce Kamich has a long, storied career in technical analysis. He forecasted interest rates and stock prices at Van Kampen in the 1980s, taught technical analysis at Baruch College for 20 years, served as President of the CMT Association (Chartered Market Technicians), and he's been helping Real Money readers analyze charts since 2015. In short, Kamich's got the been-there-done-that experience necessary to know a thing or two about where prices are heading.

This year, Kamich's been particularly prescient.

In December 2021, he wrote in "My 2022 Technical Outlook: Beware of the Treacherous Road Ahead" that "Unless you are a great stock picker and timer, a strategy of taking profits into available strength the next two months is key."

If you'd listened, you could've sold stocks into peak prices in January and again in February when the index bounced back from its late January swoon. Given the S&P 500 finished September down 25% year-to-date, following his advice paid off handsomely.

Kamich's December outlook made him one of the few offering a bearish outlook when the S&P 500 and NASDAQ were marching to all-time highs. Sadly, it's not surprising more voices weren't sounding an alarm. Unfortunately, market dissenters are few and far between because bearishness is bad for brokers' business.

A path less traveled

Kamich isn't beholden to bean-counting brokers who need to spin a marketing message.

At Real Money, he's free to go where the charts take him. Perhaps he said it best in that December article, "After nearly 50 years "in the business," I try to put aside the distractions and ignore pressures to conform and genuinely give readers my best advice."

At the time, the charts sent him an ominous message "beware: lower prices ahead!"

He wrote:

“I look for the S&P 500 to decline to the 3000 area and make a low in the late second quarter or early third quarter of 2022. With the S&P 500 trading around 4700, this represents a loss of around 36%. We can label it a bear market if you want, but a flexible strategy is more important than a label…The major averages are quickly rebounding now and may even go on to make slight new highs in the weeks ahead, but a strategy of taking profits into available strength over the next two months is going to be my guidance. There should be some recovery in late 2022 into 2023, and a new high could be seen in early 2024. This, however, does not mean one should ride the market down and back up again. Leadership is always changing, and the leaders in the last rally are probably not going to be the leaders in the next advance. The averages could recover but not your stocks, and that can be very frustrating.”

Kamich's bear market outlook was spot on. The S&P 500 rallied in January, February, and March, but each was relatively short-lived, ending with the market making fresh new lows.

The sell-off following the March rally was particularly sharp, prompting Kamich to predict a tradeable rally on May 16. He wrote, "this is not a buy-and-hold recommendation but rather a path to producing modest gains over the next few weeks…Treat this recommendation as a trade looking for a 10% move on the upside. For the next few weeks, the news will remain bearish, but stock prices will probably rise."

What did stocks do?

Once again, he was right. The S&P increased 9.7% before stalling and rolling to yet another fresh 52-week low, setting up another robust rally fueled by bargain hunting and short-covering that stretched into August. That rally, which lifted the S&P 500 by nearly 20% over six weeks, led some to proclaim the bear was over. However, Kamich wasn't convinced.

On August 4th, about two weeks before the S&P 500 peaked, he penned "The Next Phase of the 2022 Bear Market Could Start Soon." In it, Kamich reviewed charts of all the major market indexes and came away unimpressed. He determined on balance volume, essentially a running total of up minus down day volume, and daily trading volume was lackluster, prompting him to reiterate his bearish outlook.

About the Dow Jones Industrial Average, Kamich wrote, "Trading volume has declined from the middle of June, and to old-time chart readers like myself, that is a problem. Trading volume should increase in the direction of the trend to give us confidence in the advance. That is not the case here." Of the S&P 500, he said, "The OBV line is struggling to improve, and trading volume has declined since the middle of June."

He concluded, "Regular readers of Real Money may remember I turned bearish on the broader market averages in early December and saw a trading rally around the middle of May. That trading rally appears to be over for the most part, and I see the risks to the downside again. Traders should take appropriate action to nail down profits."

Again, following his advice would've been profit friendly because the sell-off from mid-August through September, a notoriously tricky month for market performance, was, frankly, terrible.

How bad was it? The S&P 500 fell 17.3% through September 30, and individual stocks? Well, many declined much more than that.

CHART-Street-Smarts-100622-

What now?

September's slide set up yet another buy opportunity for stocks, but September's low may not be "the" absolute bottom of this bear market.

As Real Money Pro's Helene Meisler and Doug Kass correctly pointed out, souring sentiment created extremely oversold readings on most indicators, leading them to tilt short-term bullish. For example, the Advance/Decline line, as measured by rolling short, medium, and longer-term averages and the McClellan Oscillator, became very oversold in late September. Additionally, funds experienced outflows to money market accounts, and sentiment survey responses became overly pessimistic by month's end.

As a result, stocks snapped back sharply on Monday and Tuesday, lifting the S&P 500 by 5.5%.

The rapid run-up prompted predictions that the Federal Reserve's hawkish rate hike policy would pivot dovish because of growing instability in the credit markets.

Last week, a surprisingly strong sell-off forced the Bank of England to intervene, reversing plans to sell bonds in favor of a buying program to prop up values. That's led some to believe "too big to fail" risks could cause a similar reaction in the United States.

However, that's not a view currently held by Kamich.

He updated readers on his market outlook on October 5th. Once again, in "Sorry, This Bear Market Is Probably Only Two-Thirds Over," he says the charts of the major indexes worry him:

“Despite a two-day burst of buying perhaps pinned on hopes of a shift (i.e. pivot) by the Fed, I am not moved to declare that the bear market is over…If traders felt that Monday was the start of something bullish and durable, I doubt that the market would trade off in the last 90 minutes of trading on Monday. A real low would have seen prices close on the high of the day…Prices were oversold and prone to a rebound…Trading volume did not surge strongly, and the On-Balance-Volume (OBV) line is still pointed down.”

Absent better action, Kamich concludes, "I could be dead wrong, but I anticipate a better buying opportunity later in the fourth quarter."

The Smart Play

Predicting bear market bottoms is risky because while gains in bear market rallies can be alluring, they stall under the weight of trapped investors eager to sell to "get out flat." If you fail to spot the turning point, you can easily increase, rather than decrease, your losses.

For this reason, insight from people who have experienced multiple bull and bear markets is essential. Put simply, having Kamich and other seasoned pros, including Kass and Meisler, on your side can help you make better decisions with your money.

What could make Kamich bullish? This week, he offered his favorite indicators for spotting bear market bottoms. You can read that article in its entirety for free.

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