USO - Avi Gilburt On Bond Market Crash Signals; Does Market Get 1 More High?

2023-12-07 11:00:00 ET

Summary

• Avi Gilburt believes we are at the start of a major bear market and the next few weeks will determine if the market gets one more higher high before the bear market begins.
• Gilburt is closely watching the market structure and the key level of 4607.07 to determine the market's direction.
• TLT, 2024 targets and what's taking shape in the treasury market.

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Avi Gilburt says he's looking at the start of a major bear market but wonders if the market gets 1 more high and why the next few weeks will likely give us the answer (0:45). (TLT), 2024 targets and what's taking shape in treasury market (5:30) Energy sector, bottoming out in (USO) (15:45) Bullish metals set-up (17:45).

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Transcript

Rena Sherbill: Avi Gilburt , welcome back to Investing Experts. Always great to talk to you on Seeking Alpha. Always great to get your insights. So thanks for joining us again.

Avi Gilburt: Thank you so much for having me.

RS : A pleasure. So we're here, December 5th, tail end of the year. What have you in mind when you're looking at the market? What are you -- how are you assessing what you're looking at?

AG : Well, I've been looking forward to, well, not really looking forward to it, but I've been looking at the start of a major bear market around this timeframe and we've been looking at that for -- we've been expecting this and looking towards this specific timeframe for about a decade now when I started telling my clients that, to be preparing for this.

And I have just one remaining question and that is, does the market get one more higher high over 4800 before that major bear market begins or has it already begun?

And oddly enough, I think the next few weeks probably will give us our answer. So that's really how I'm looking at it.

RS : And where is the answer coming from?

AG : Well, most specifically from the market structure. When the market was coming down into the 4100 region, I said, well from there I was expecting a rally back to about 4350 to as high as about 4475. And the market now has, you know, a little bit exceeded the expectations I had for that rally. The manner in which we decline from this rally will probably give me the answer.

Now first and foremost, 4607 - which was the high we struck in the summer - that is a very key point right now. If the market can now hold over the 4500 range and then rally over 4607.07 then it would invalidate any immediate bearish potential for me, or at least the setup I'm seeing right now.

If we can do that, then I'm expecting a corrective pullback which will be a buying opportunity. And then I'm looking for one final rally into 2024 that should take us north of 4800.

However, if we cannot exceed 4607.07 first and instead we break down below 4500 first, then the nature of that pullback will tell me whether or not we're going higher first or not. When I say the nature of the pullback I'm saying, if the market provides us with a corrective pullback back to about 4300 to about 4400 that would be a buying opportunity for a rally north of 4800.

If the market drops in, as we say, impulsive structure, meaning a five wave structure based upon the Elliott Wave structure, then it tells me we're probably setting up for what some may consider a near term market crash into 2024 which will be pointing us south of the levels we struck in October of 2021. So that's, it's a very important inflection point.

RS : And in terms of retail investors playing that, in terms of the path that you're describing that leads up to that inflection point and then perhaps what happens at that inflection point and thereafter, would you advise, or how would you advise retail investors to be positioning for that or thinking about their portfolio in that regard?

AG : Much depends on how aggressive and how aggressive that particular investor is and what time frame they're really looking out over and their risk appetite.

Some long term players would just want to be raising cash and continue raising cash if we go higher. Some may just want to be getting more aggressive and buying on the next pullback. So personally, I've trimmed my own - I'm 53 years old - I'm looking towards semi-retirement in a few years. So I'm looking to raise cash, but I'm not completely getting out of the market.

I'm going to wait to see how this next decline develops. If the decline develops as a five wave structure well, I intend to raise a lot of cash on the next balance after that five wave decline takes shape before a much bigger decline takes shape in earnest.

But for me, I mean, I've raised some cash up here. I may be putting it back to work depending on the structure of the next decline. But a lot really depends on how aggressive that particular investor is and what their risk profile is.

RS : Speaking of that, I think that this kind of goes hand in hand with the risk profile in terms of, you know, a lot of people are focused on the bond market right now and T-bills and looking to that area of the market. What are your thoughts there? And also vis-à-vis may be as allocating that as part of the portfolio.

AG : Well, we track the ((TLT)), for example is a good ETF for everybody to track on their own just as a general idea of what the treasury market is doing. And back in October of this year, so a couple months ago, I was giving our members a region of 81.75 to 82.50 as a bottoming zone for the TLT which could begin a very large rally into 2024.

I think we bottomed at about 81, I think the number here is about 81.92 or so, I could be wrong, but it bottomed exactly right in the zone we were looking for that bottom. Assuming again, assuming the next pullback is corrective, I'm looking for the TLT to next rally up into the 105 to 110 region, potentially followed by another corrective pull back.

And if we can get through that 109 region, then we're easily going to get to 120. And ideally that really should be my minimum target for 2024, the 120 region in the TLT. Depending on how the rest of the year takes shape, it could even get up as high as the 131 to 142 region.

But the bigger issue with the TLT is, the next rally that takes shape, larger degree rally that takes shape in the TLT, is not one that you want to take lightly.

You want to use it as an opportunity to get out of the bond market to a great extent because whatever that rally and however that rally takes shape, it's likely - the way it's setting up on the bigger degree charts, it's likely going to set up a bond market crash which potentially could be a lot worse than the one we've seen since 2020.

I wouldn't consider what we've seen since 2020 necessarily a bond market crash, I would say, yes, it was a very, very large decline. But what could be shaping up could be a bond market crash as we look towards the second half of this decade.

Market structure is what gives me advance warning where a market turn could take shape. And then the nature of the turn, how the turn develops tells me does it have legs or not in the opposite direction. So depending on what happens at 120, if the market begins declining in a as I put it, an impulsive five wave structure, then that's the initial signal that a bond market crash is starting to develop.

If the pullback from 120 is clearly corrective, then it likely means we're going up to 130 to about 142, 131 to 142. And from there, the bond market crash will probably begin.

RS : I'm curious in terms of your subscribers with your investing group at The Market Pinball Wizard. Is it investors from novice to the more experienced? Is it investors with different timelines? Is it all different types of investors that you're advising there?

AG : We have people that have come in because all they've known is fundamental analysis and they're realizing it's just not enough for them and that they've been left behind in certain ways and we're teaching them not only the basics of Elliot Wave analysis, but also the basics of technical analysis. So we have people that are just beginners, even people that are just beginning in their life of investing.

We have a bunch of 20 year olds in our services. But that range is all the way up to very long term investors. People have been around the market for many decades. I have people that are in their 80s in my services. And what I'm most proud of is between my various platforms, we have almost a thousand money manager clients. So the level of knowledge and experience that we have in our services really is such a wide range from all the way novice beginners in their 20s, there are people in their 80s and people that are money managers.

RS : I would imagine that when you're kind of giving out analysis that's also information and knowledge and I imagine that doing it in all those different kinds of ways sharpens, would you say like, keeps on sharpening - I know that's not the best way to put it - but keeps on sharpening your own ability and insight into your analysis?

AG : Well, I will tell you, the way I go about my analysis is I will run many different scenarios to identify what seems to me to be the most probable outcome that I'm seeing in the market at any given moment, in any given chart that I'm doing. And then after I do that, I then pull it apart and say, where could I be wrong? And then I run some other analysis to identify what would be my alternative scenario if I'm wrong.

So I am constantly scrubbing my analysis and this is on every single day. Market is always giving us more information as more of the structure develops. So I am constantly running different scenarios to identify not only where is the highest probability point of being right, where can I also be wrong? So I'll know fast this way we can adjust quickly so that losses can be either minimized or completely avoided.

RS : Yeah, I saw Michael Gayed wrote today something to the effect of overconfidence is the precursor to every market crash, something to that effect.

AG : Well, I wouldn't say it's a precursor to every market crash. Market crashes are structures that are developing. I don't think I've ever been surprised by a big down move in a market.

In fact, back in late 2019 we were calling for a 30%, 35% market decline. Starting in the first quarter of 2020 I didn't realize it would all happen in a month. But setups are always there to tell us when a market crash can potentially happen. I don't think that that really is the case.

But the way I look at it is, I put my client's money well before my own ego. I want to know where I'm going to be wrong so I can tell people this is where you now have to protect because look these people work hard for their money and I truly respect that. I work hard for my money, they work hard for their money and that's much more important to me than maintaining a position even in the face of the market moving against me. I want to know where I'm going to be wrong. I want to know where I'm going to be wrong right away so I can protect myself and my clients.

RS : So speaking of protecting yourself and your clients and also looking out for rethinking your own thesis, something that you were warning investors about last time you were on was this impending bank crisis? And I've seen some of your writings since then. Would you care to share with listeners where you stand in that kind of outlook.

AG : The banking crisis is going to become really much more obvious once the stock market starts heading south. So as long as the stock market is going to remain elevated, and especially if we get the next rally to 4800 plus before we hit a major market top, we're not likely going to see a lot of banks going under. There's a lot of stress under the hood when you look at a lot of the balance sheets.

But where you're really going to start seeing the stress is when you start seeing financial stress occurring throughout the market, that's when the market is going to be in its decline and it's going to be in various stages. It's not all going to happen at once where you're going to have 1000 banks going out of business.

It's going to happen in various stages. It's not going to occur in the same way that we saw in the Great Depression. It's going to be a process and when we look back at times like the Great Depression or even the S&L crisis, you had anywhere between 30% to 50% of banks that went under. And that's a lot of banks. That is a lot of risk that's sitting on banks.

So if we get that same type of scenario, people really have to do some due diligence about the banks that are currently holding their money. And I'm not even talking about where you have your investment money in bank stocks. I'm talking about literally what banks house your cash.

And so, yeah, I'm still very confident that that's going to happen. Is it going to happen tomorrow? No. It's going to happen alongside with the weakness in the stock market . So once we start seeing the stock market moving down, that's when you have to start worrying and saying, okay, we're about to start seeing some issues in the banks come to light. That's when the lid is going to be coming up.

RS : And are you still of the opinion that Citibank ( C ) and Capital One ( COF ) are likely the first to exhibit that kind of decimation?

AG : There are a number of banks in the same posture and so -- but yeah, Citibank and Capital One do not look pleasant from where we sit.

RS : So on the other side of things, something that you were bullish on previously and something that we have a number of analysts on speaking bullishly about is the energy sector, mostly oil and gas . How are you looking at that part of the market?

AG : Oh, I'll pull up my chart. Just to use an example, I've got a Daily ((USO)) chart up and we were looking for a bottoming in that chart from that very long pull back in the market that we had into 2023. We were looking for a bottoming in the market somewhere in the mid to low-50s on the USO and that's basically where it bottomed.

Once we started rallying up into the September time frame, we were completing a five wave structure off the lows. And well, once that happened, I told our clients, okay, now it's time to expect the pullback. And the pullback is basically just about complete. We can get a little bit lower.

But there's a lot of things that are suggesting that this looks like we're bottoming out, for example, in the USO and what I'm looking for next is a five wave rally back up towards that 80, 82 region to signal that the next major move is about to begin. After we get that, we'll see another smaller corrected pullback. And then once we break out over that 83 and change region, I'm looking north of 110 as we look towards late 2024 into 2025.

RS : Any other sectors that you're focused on, or bullish on, or particularly bearish on?

AG : I really like the metals . Metals are really starting to set up in a way and I've been writing about this for few months. Now the metals are setting up in a way that could present us with a major move into 2024, maybe even into 2025 as it continues.

RS : And is that both gold and silver?

AG : Gold and silver with silver potentially outperforming gold and ( GDX ) which is a mining ETF being in between the two.

RS : We had Don Durrett on, he runs a gold and silver mining and also just gold and silver investing group . And he was talking about how investors should be stacking silver, how he's just extremely bullish on that metal in particular over long period of time.

Can you talk a little bit, articulate the reasons why it's looking so bullish there?

AG : For me, it's all about structure. And the structure to me is what tells me where we are in market sentiment and market sentiment especially in the metals is what drives it. I remember my first article on Seeking Alpha was actually my first technical article about a market, about a specific price market was actually in the gold market back in 2011. And everybody was so bullish. It was going parabolic some days.

You were seeing $50 plus rallies per day. And I remember everybody was arguing about one thing. How far past 2000 are we going to go in 2011? And from where I was sitting it looked like we were hitting a top. And I published my first article from a sentiment standpoint, which is what we track from an Elliott Wave analysis perspective. And sentiment wise, it was telling me that 1915 is probably where we're going to see a top. As we know now, 1921 was the top.

Now from a sentiment standpoint again, even before we top, people were asking, where do I see the bottom? Where do I see the market coming down to? And I said, I think we'll probably drop back down to around 1000. We bottomed at about 1045 or 1050 from what I remember in gold.

So we look at everything from a market sentiment standpoint and Elliott Wave analysis tells us from a mathematical perspective where we see how things are going to move. So when I look at the gold market, I'll use the ( GLD ) because, that's probably what more people track than anything else. As long as we're staying over the 175 to 180 region on GLD, to me this is an ETF that's probably going north of 250 over the next year or two.

RS : And any thoughts or comments on the crypto rally that we've seen this week.

AG : Yeah. We have some analysts, I have two analysts that manage our crypto service, Ryan and Jason, and we have the service on Seeking Alpha as well.

RS : That’s Crypto Waves ?

AG : Crypto Waves, that's it. And what their analysis is telling us is, we're now in the 45 to 50 region of resistance and that resistance is going to be very key over the coming weeks. If we are unable to break out of -- well, first of all, they're looking for a pullback, I believe. And as long as the 27 to 30 region holds as support, the expectation is we should break out over that 50 region of resistance.

If we cannot get through that 50 region of resistance and instead break down below that 27 region, that's going to bring in a new leg in the bear market that probably will take some time until it completes to take us back down into the teens maybe even a little lower than that. And that would set up the next bull market move, but should we be able to get through that 50 region we're looking at about 100 to about 125 on crypto on -- on Bitcoin.

RS : Anything else you'd care to comment on about the market specifically or things that you feel like investors should be paying attention to or not be paying as much attention to?

AG : Well, I'm seeing a really nice set up in the emerging market ETF as well if people are interested. The support is around the 37 to 37.75 region. And during -- once this pullback runs its course, I'm looking for a move up to at least the 43 region, maybe even a more direct move to 45 to 45.50 region. So I think there's a nice setup that's developing in the ( EEM ), which is the ETF tracking emerging markets.

RS : I'm curious if I can pick your brain a little bit and get into the details of your day because I'm curious how much time you spend allotted towards looking at the events of the news in the investment world, but also kind of big picture how much time of your day do you spend doing that considering that it's not a big part of your analysis?

AG : The only time I will look at -- there are two reasons I will look at that. One, I like to know when a catalyst can occur. So I'd like to know -- if there's a, if there's some type of report coming out or something, I'll look at that as a catalyst. I don't care what the report says in itself. The market usually tells me the direction it's going to take once the report comes out, if it's going to act as catalyst.

As an example, October 13 of 2022, everybody was expecting the CPI report to take us down if it was negative. I was looking at the CPI report as just a catalyst at the time. And I was looking up. I thought it was going to start a rally that was going to take us north of 4300. And that's when we were at 3500. So I was looking at it as a catalyst.

So I like to know when the new various things come up. So I know when there's a potential catalyst on the table. I won't care what the substance of that report is.

The other time I will look at news or anything like that is when I write a public article because I usually like to outline to people just how silly it is to try and follow these because so often we see a news event come out and the market reacts in the exact opposite way everybody expects. And we've been seeing that a lot during this rally as well and it just confuses the crap out of people.

So I try to highlight why it is really not important to be watching the news as often as people do or to be focused on all these various economic factors and so on and so forth. At the end of the day, like I said, they can act as a catalyst but the substance of it will often get you looking in the wrong direction.

I challenge each and every person that comes into my service to stop listening to the news, stop looking at the news. Give yourself one month and see how you trade without looking at the news. I have never had a single person come back to me and said, it wasn't profitable for them to do so. And it made their life much easier and they could sleep better at night.

RS : Interesting. What are some of the takeaways specifically - do you remember specific kind of responses from that experiment? And also do a lot of people extend that into longer than just one month?

AG : Oh, absolutely. Once my subscribers start recognizing how little the news really means at the end of the day, they just completely give up on it and they now have so much more time on their hands. And I can't tell you how often I get somebody writing a post, sending me an email, whatever it is telling to, thanking us for freeing them from all the work they normally had to do because at the end of the day, it really didn't matter as much as most people believe.

Then I'll tell you, there are so many studies that have come out over the last 20, 30 years that support this. But people have a feeling that if they understand what's going on in the world, then they have control. They think that they have control once they know all these things that are going on. At the end of the day, it really is a fallacy. We don't have control. That's not how the world works.

Just because you know what the news is does not mean you have control. And there are studies that show you could have the news before it even comes out and you still could get the direction of the market wrong.

So at the end of the day, people feel like they've been freed from this big weight and not having to do all that work and following the news and following the Fed and following this or that. Things they thought were so important at the end of the day when you really delve into it are not as important as so many believe.

RS : Yeah, I think that all makes a lot of sense. All right, Avi, another great conversation where I think we dove into a lot of insightful topics for investing and just for life. Anything that you feel we would be remiss to not include at this point?

AG : I would be very, very cautious over the next few weeks. And be very careful as to how the market is going to react over the coming weeks, especially if we are unable to take out 4607.07 first.

So I would be very, very cautious with how the market progresses as we look towards the end of this year because the next several weeks are probably going to tell us how the next 3 to 6 months will probably turn out as we look into 2024.

RS : All right, we'll be watching along with you. Avi, appreciate it as always. Thank you very much.

AG : Thank you so much.

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