Time To Start Getting REALLY Bullish? | Tom McClellan

Market Outlook and Analysis

Current Market Sentiment

• The speaker expresses a cautious outlook, stating they are not bullish at the moment but anticipate becoming bullish within the next week.

Introduction to Discussion

• Adam Taggart introduces Tom McClellan, a technical analysis expert, highlighting their discussion on recent Federal Reserve news and market conditions.

Character of the Current Market

• Tom describes the current market as strong despite being in the first two years of a presidential term, which typically shows sideways movement.

Economic Conditions Impacting Markets

• He attributes this strength to lower taxation levels for Americans, allowing more money to circulate in the economy rather than being collected by the government.

Presidential Cycle Patterns

• Tom presents his "Rapunzel chart," illustrating how stock markets follow regular four-year patterns based on presidential cycles.

Analyzing Historical Trends

Averaging Market Behavior

• By averaging historical data from four-year chunks starting November 1st (election time), he reveals that typically, years three and four show upward trends.

Current Market Comparison

• The current market is compared against historical averages; it shows more upward movement than previous cycles during similar periods.

Upcoming Volatility Expectations

Bottoming Process Insights

• Tom notes that while there is an ongoing bottoming process in the presidential cycle, significant upward movement is expected as they approach year three of the term.

Timing of Market Movements

• He explains that historically, markets tend to bottom out before midterm elections due to investor sentiment stabilizing around election predictions.

Indicators for Future Growth

Monitoring Key Metrics

• Investors should look for high put-call ratios and VIX spikes as indicators of potential market recovery; these metrics signal favorable buying conditions.

Importance of Certainty Post-Elections

• The outcome of midterm elections matters less than achieving certainty about results; once clarity is established, investors are likely to start buying again.

Analyzing Market Strength and Presidential Cycle Patterns

Understanding Market Trends

• The speaker discusses the implications of current market strength, suggesting that while it may be strong now, future performance could vary due to historical averages in presidential cycles.

• Emphasizes the limited sample size since the 1930s for analyzing these patterns, cautioning against drawing too many nuanced conclusions from insufficient data.

• Notes that despite normal seasonal fluctuations, there are no immediate signs of weakness in the market.

Historical Patterns and Predictions

• Introduces the concept of a four-year presidential cycle and a ten-year decennial pattern as frameworks for understanding market behavior over time.

• Highlights how historical correlations have generally held up except during significant disruptions like wars, indicating resilience in market trends.

Year Seven Effect and Bullish Sentiment

Yearly Trends

• Discusses a bullish trend associated with years ending in seven, noting exceptions like 1987 where this pattern did not hold true.

• While currently not bullish, anticipates turning bullish soon based on upcoming market indicators.

Addressing Skepticism

• Responding to skepticism about yearly patterns resembling astrology, the speaker acknowledges this viewpoint but presents data supporting reliable trends across decades.

• Argues that while such patterns shouldn't matter theoretically, they do reflect human behavioral tendencies within markets.

Advanced Decline Line Insights

Market Breadth Analysis

• The advanced decline line is noted as being strong without divergence from stock prices, indicating healthy liquidity across stocks.

• A new all-time high in the advanced decline line is seen as a positive indicator for future performance.

Risk Assessment

• Discusses research on potential drawdowns following three-year highs in the advanced decline line; typically around 10% unless disrupted by extraordinary events like pandemics or abrupt Fed policy changes.

Current Concerns and Divergences

High Yield Bond Market Issues

• Expresses concern over divergences between corporate high yield bonds and stock prices; historically significant divergences can indicate trouble ahead.

• Observes ongoing divergence throughout 2026 but notes that past instances have led to substantial impacts on market conditions.

Conclusion on Current Trends

• Concludes with an analysis of recent steep declines in advanced decline statistics for corporate high yield bonds, suggesting potential recovery if conditions improve.

Market Trends and Predictions

Current Market Analysis

• The lowest price point often precedes the actual market low, as observed in March.

• Anticipation of a final price low within a week, suggesting a potential upward trend thereafter.

• Discussion on negative divergences; these indicate potential end points for an uptrend, which is currently being monitored.

Divergences and Uptrends

• Negative divergence identified during an uptrend raises concerns about its sustainability.

• Lack of divergence is generally positive; however, current bearish seasonality may soon transition to bullish trends.

Corporate High Yield Bonds

• Rising interest rates typically impact corporate high yield bonds significantly due to companies rolling over debt at higher rates.

• These bonds are more sensitive to stock market liquidity than to interest rate changes.

Investment Insights

• Corporate high yield bonds are labeled as poor investments due to their junk status; they require high yields to attract investors.

• Liquidity issues have been evident in 2026, indicating that these investments suffer first when liquidity tightens.

Future Expectations

• A belief that liquidity will improve, potentially benefiting the corporate high yield bond market by October or November.

• Improvement in junk bonds would signal increased liquidity and investor confidence.

Margin Debt Concerns

Overview of Margin Debt

• Current margin debt levels tracked by FINRA show significant increases since 1997, raising alarms about excessive borrowing for stock purchases.

Historical Context

• When normalized against GDP, margin debt appears less alarming but remains historically high—indicating potential stock market tops ahead.

Cycles and Predictions

• Historical data suggests a reliable seven-year cycle between peaks in margin debt relative to GDP; counting forward from August 2021 indicates a peak around 2028.

Long-term Outlook

• While current levels are concerning, historical patterns suggest we have time before reaching another top based on the seven-year cycle.

Federal Reserve's Role

Quantitative Easing Impact

• The ongoing quantitative easing (QE5), initiated post-financial crisis in 2009, has historically supported bullish markets but shows signs of change under new leadership.

Changes Under New Leadership

• Recent shifts in the slope of treasury and mortgage-backed securities purchases indicate possible tightening measures not publicly announced yet.

Potential Risks Ahead

• If quantitative tightening occurs without warning from the Fed, it could disrupt current market optimism.

Interest Rates and Quantitative Easing

The Role of Interest Rates

• The speaker emphasizes the importance of using interest rates as a primary policy measure, suggesting a gradual lowering over time before tightening begins.

Impact of Quantitative Easing (QE)

• Observations indicate that one must analyze data beyond press conferences to understand the effects of QE, particularly its negative impact on the bond market.

• Contrary to expectations, increased Fed bond purchases do not boost bond prices; instead, they lead to declines in the bond market.

Historical Context of Bond Market Reactions

• Each instance of QE since 2009 has resulted in significant downturns in the bond market, including QE2 (2011), QE3 (2012-2013), and QE4 post-COVID.

• Following the cessation of QE, there was a stabilization in bond prices until new rounds of QE were initiated.

Current Outlook on Bonds

• Despite gentle current QE measures compared to previous ones, bonds remain bearish. Ending QE5 could further negatively affect the bond market.

Transitioning from Quantitative Tightening

Potential Effects of QT4

• The speaker clarifies that transitioning to QT4 may not necessarily make them bullish on bonds due to other overriding factors.

Understanding Market Dynamics

• The counterintuitive nature of how markets react necessitates acceptance of observed trends rather than expected outcomes based on theory.

Oil Prices and Interest Rates Correlation

Relationship Between Oil and Interest Rates

• A strong correlation exists between oil prices and interest rates; recent data shows both have been rising significantly.

Analysis of Crude Oil Trends

• Although crude oil prices are increasing, they have yet to surpass their peak from March; however, interest rates have already risen above those levels.

Predictive Indicators for Interest Rates

Gold Prices as Leading Indicators

• Gold prices provide a predictive indication for future interest rate movements with about a 20-month lead time.

Anticipated Movements in Treasury Yields

• A steep increase in interest rates is expected towards the end of this year based on past gold price movements.

Economic Implications for Homebuyers

Long-term Rate Predictions

• The speaker expresses indifference toward how high interest rates will rise but emphasizes understanding their directional movement for positioning strategies.

Mortgage Market Concerns

• Rising long-term rates will primarily impact homebuyers severely more than businesses or corporate expansions due to their reliance on mortgage markets.

Future Projections for Yield Peaks

Speculative Timing for Maximum Pain Moment

• The speaker humorously predicts summer 2027 as a critical moment when yields might peak coinciding with personal circumstances related to homeownership.

Interplay Between Gold and Oil Prices

Correlations Between Commodities

• Similar leading indicators apply between gold and oil prices with historical offsets indicating future trends in oil pricing based on gold's movements.

The Relationship Between Gold, Oil Prices, and Interest Rates

Long-term Trends in Commodities

• Oil prices and interest rates are expected to follow gold's trajectory with a 20-month lag. Current movements in gold will influence oil prices down the line.

• A feedback loop exists where oil impacts gold today, but the long-term effects are more significant. Anticipated peaks for both interest rates and oil prices are projected around August 2028.

Market Sentiment on Oil Prices

• There is skepticism about waiting until August 2028 for mortgage refinancing; however, it aligns with anticipated market trends.

• A sharp decline in gold is expected to reflect in oil and high-yield interest rates over the next 20 months.

Price Stability vs. Volatility

• The discussion centers on whether oil can maintain an average price of $60-$70 per barrel while experiencing volatility, even as gold potentially rises significantly.

• The rise in gold prices has been driven largely by central banks rather than typical investors, raising questions about the sustainability of this trend.

Commercial Traders' Positioning

• Current data from the Commitment of Traders report shows commercial traders are net short on crude oil futures, indicating they do not expect sustained higher prices.

• Commercial traders include producers who hedge their production costs through futures contracts. Their positioning reflects market sentiment regarding price peaks or troughs.

Future Projections for Oil Prices

• High net short positions among traders suggest a topping condition for oil prices; when these positions decrease, it indicates potential bottoms.

• As oil prices rise above $100 per barrel, traders exhibit caution and prefer to wait before locking in current pricing levels.

Speculating Future Price Levels

Challenges in Predicting Prices

• Speculation on future price levels is complicated due to various influencing factors; changing units may be necessary if pump limits hinder pricing accuracy.

Upward Trends Until 2028

• An uptrend is expected to persist until 2028 based on historical patterns mirroring gold's performance; fluctuations will occur within this overarching trend.

Insights into Market Analysis Techniques

Expertise and Experience

• The analysis presented draws from decades of experience within financial markets; insights come from established methodologies honed over time.

Family Legacy in Market Analysis

• Tom McClellan shares his family's long-standing involvement in stock market analysis dating back decades, emphasizing their technical approach's reliability.

Acknowledging Contributions

Recognition of Pioneers

• Tom expresses gratitude towards his parents for their foundational work in market analysis tools like the McClellan Oscillator developed without modern technology.

The Evolution of Market Analysis

Historical Context of Market Tools

• The combination of talents in market analysis was crucial before the advent of computers, making it nearly impossible to perform complex calculations in 1969.

• Today, tools like stockcharts.com provide instant access to data, highlighting how technology has transformed market analysis from manual methods using pencils and ledgers.

• The previous generation's contributions to financial calculations are still relevant, with active participants continuing their work well into old age.

Succession and Legacy

• Tom McClellan discusses his family legacy, mentioning he has two children and a grandchild but is uncertain who will continue his work in market analysis.

• Despite uncertainty about family succession, Tom finds comfort in knowing that many subscribers and followers appreciate his work, ensuring its continuation through future generations.

Current Market Outlook

Short-Term Bullish Sentiment

• Tom expresses an anticipatory bullish outlook for the market over the next few weeks as signals indicate a potential end to the current bottoming process.

• He identifies that counterarguments against bullish sentiment are diminishing, suggesting a shift towards positive market conditions.

Key Indicators Supporting Bullishness

• A divergence shown by oscillators indicates that bearish trends may be nearing completion; however, high-yield bonds remain a concern.

• Seasonal patterns are currently weak but expected to improve soon, transitioning into a more favorable period for stocks.

Factors Influencing Market Trends

Economic Indicators

• Low taxation relative to GDP is seen as a bullish factor alongside strong breadth in advanced decline numbers.

• Historical trends suggest that the third year of presidential terms typically favors stock market growth; betting against this trend would contradict historical data.

Potential Risks Ahead

• Global tensions could impact markets negatively; however, increased government spending might also serve as a bullish factor if managed correctly.

• A balanced budget could pose risks by removing liquidity from the economy; current deficit spending supports rising stock prices.

Consumer Behavior and Future Predictions

Consumer Spending Trends

• Many Americans are increasingly relying on "buy now, pay later" schemes for everyday purchases, reflecting broader economic behaviors influenced by credit availability.

Long-Term Projections

• Margin debt levels are projected to peak around 2028 alongside crude oil prices and interest rates; this timing suggests significant implications for future administrations post-election cycles.

Closing Thoughts and Personal Insights

Reflections on Leadership Transitions

• Tom humorously notes the challenges awaiting whoever becomes president in 2028 due to anticipated economic downturn following margin debt collapse.

Final Remarks

• The conversation concludes with an open invitation for Tom to return should any significant changes occur affecting his predictions or insights.

Discussion on Home Maintenance and Light Bulbs

The Challenges of Modern Home Maintenance

• The speaker humorously mentions being in charge of spiders and light bulbs, highlighting the existential challenge of changing light bulbs in tall rooms.

• Reflecting on the past, there's a contrast between current difficulties and those faced by previous generations regarding home maintenance tasks.

Wrap-Up with Tom

Closing Remarks

• The conversation concludes positively, with appreciation for Tom's insights and anticipation for future discussions.

• A mention is made about sending a link to the recorded session once it goes live.

Engineering Perspectives

Insights from Engineering Background

• John expresses admiration for Tom's charts, noting their engineering background influences their analytical approach to data.

• A personal anecdote about attending a West Point graduation illustrates the beauty of the location during different seasons.

Historical Context of West Point

Surveying History

• A question arises about who originally surveyed West Point, leading to a discussion about George Washington's historical connection to the site.

• There's an ironic note on how modern decisions have impacted archaeological value at historically significant sites.

Market Analysis Confusion

Clarifying Financial Concepts

• Mike raises confusion regarding corporate advance-decline lines related to corporate credits and potential market declines that haven't materialized as expected.

Introduction of New Harbor Financial Partners

Key Takeaways from Recent Discussions

• Adam introduces lead partners from New Harbor Financial, emphasizing their ongoing engagement with Tom McGlin’s work over many years.

Bullish Market Sentiment

Economic Observations

• Mike summarizes Tom's bullish outlook on markets driven by government deficits since the financial crisis, indicating no real plan B exists for economic recovery.

• Concerns are raised about long-term implications of sustained budget deficits exceeding $40 trillion without experiencing a true recession since 2008.

Methodological Differences in Analysis

Contrasting Analytical Approaches

• A distinction is made between New Harbor’s technical analysis combined with macroeconomic factors versus Tom’s focus solely on chart patterns.

Seasonal Trends in Market Predictions

Upcoming Market Movements

• Discussion centers around seasonal trends affecting market movements, particularly relating to presidential election cycles which may indicate upcoming upward trends.

Market Decisions and Cycles

Importance of Decision-Making in Markets

• The significance lies in the market's awareness of a decision rather than the outcome itself; New Harbor emphasizes that market movements are predetermined by chart cycles.

Yearly Trends and Predictions

• Years ending in seven historically show bullish trends, with Tom suggesting that if a pattern occurs 75% of the time, it should be anticipated again.

Divergence in High Yield Credit

• Concerns arise from the corporate advance-decline line for high yield credit being divergent throughout 2026, indicating potential market instability.

Margin Debt Insights

• Rising margin debt is alarming; it suggests we may be nearing a late-stage cycle that could lead to significant market fluctuations.

Seven-Year Cycle and Margin Debt Peaks

Historical Context of Margin Debt

• A historical seven-year cycle indicates margin debt peaks every seven years, predicting further increases until at least 2028 despite current all-time highs.

Market Predictions and Strategies

Potential Market Movements

• Speculation exists about a possible blow-off top scenario; however, caution is advised as predictions are not guaranteed outcomes.

Crude Oil Outlook

• There is bullish sentiment towards crude oil prices, which have shown volatility but are expected to rise further based on current charts.

Bond Market Perspectives

Contrasting Views on Bonds

• While bearish sentiments dominate regarding bonds, there’s an argument for their potential upside due to washed-out sentiment and macroeconomic factors favoring high-quality U.S. bonds.

Short-Term vs Long-Term Bond Strategies

• Tom's outlook suggests short-term rallies in bonds may occur amidst longer-term challenges; this cyclical view contrasts with those advocating for long-term bond investments.

Navigating Market Uncertainty

Risks of Long-Term Positions

• As uncertainty grows, committing fully to long-term trends can be risky; even correct predictions can lead to losses if timing or positioning is off during volatile periods.

Adapting Investment Strategies

Responding to Market Changes

• If markets respond positively to forecasts, New Harbor may adjust allocations by reducing equity positions during rapid upward movements while remaining cautious about overall exposure.

Market Trends and Trading Strategies

Understanding Market Dynamics

• The discussion emphasizes the importance of riding market trends, noting that the shape and speed of these trends influence trading strategies.

• As portfolio adjustments become clearer, insights will be shared in real-time by the New Harbor team to aid decision-making.

Fed Rate Hike Implications

• A significant question arises regarding the implications of the Federal Reserve's first rate hike in several years.

• John expresses gratitude for Tom's data-driven insights, highlighting their relevance to current discussions.

Analyzing Historical Data

• John critiques averaging methods used in financial analysis, suggesting they obscure critical signals present in outlier events.

• He stresses that outliers are not random; they often correlate with specific market conditions like high valuations during prolonged negative return periods.

Real Returns on Investment Portfolios

• A chart from NASDAQ Dorsey Reign illustrates average real returns for a 60-40 stock-bond portfolio over different time horizons.

• While a 60-40 portfolio averages an 87% real return over ten years, it can also experience severe losses, such as a 32% decline in purchasing power.

Future Market Predictions

• Historical data indicates potential "lost decades" for portfolios similar to those following previous economic cycles.

• Current market conditions suggest an increased probability of subpar returns over the next decade based on historical patterns and indicators.

Fed Meeting Insights

Recent Federal Reserve Actions

• The Fed raised the federal funds rate unanimously by 0.25%, marking its first increase since July 2023 amidst strong market expectations.

Market Reactions and Expectations

• The unanimous vote contrasts with recent meetings where decisions were more contentious; this could signal confidence in future rate increases.

Future Rate Projections

• Current market probabilities indicate no expected cuts but an 88% chance of further hikes, reflecting a significant shift from previous expectations.

Volatility Post Announcement

• Initial market reactions showed volatility following the announcement; S&P 500 experienced fluctuations around press conference announcements.

Overview of Long-Term Treasury Bonds and Market Reactions

Performance of Long-Term Treasury Bonds

• Long-term treasury bonds (TLT) experienced a spike followed by a sell-off, yet they were one of the few assets showing positive performance on that day.

• In contrast, precious metals and commodities faced significant declines, indicating a generally negative market reaction.

Analysis of 10-Year Treasury Yields

• A monthly chart reveals that the 10-year treasury yields have been fluctuating within a range of approximately 3.2% to 5% over the past three years.

• The yield peaked at around 5.016%, closing slightly below this mark, which places it at the upper end of its historical range.

Sentiment Towards Bonds

• Despite some bullish sentiment towards bonds, there are fundamental challenges in the bond market; caution is advised against overly aggressive investment strategies.

• Current allocations include about 32% in fixed income with an average duration of five years; long-term treasuries make up roughly 7.5% of the portfolio.

Market Indicators and Defensive Positioning

• There has been noticeable degradation in broad stock market indicators, prompting a more defensive stance from investors.

Upcoming Discussions and Events

• The discussion was cut short due to an upcoming live stream regarding today's Federal Reserve announcement; further elaboration is planned for next week.

Engagement and Professional Financial Advice

Viewer Interaction Encouragement

• Viewers are encouraged to express their interest in having Tom return to the channel by liking and subscribing.

Financial Advisory Services Offered

• For those seeking professional financial advice related to discussed trends, free consultations are available through endorsed firms like New Harbor.

Conference Registration Reminder

• A reminder about registration for the Thoughtful Money Fall Online Conference is provided, emphasizing limited time for early bird pricing.

Conclusion Remarks

• Adam expresses gratitude before leaving early for another engagement but indicates plans for deeper discussions next week.