the hs dent forecast

August 2021

WWW.HSDENT.COM 1HS Dent Forecast August 2021

THE HS DENT FORECAST

I've been warning about a potential turn point around July 29–30, and the market thus far is timidly marching up to a potential new high and top. My original target was 4,600 on the S&P 500—and it may not quite make it that high. I’ll have more about that ahead. This newsletter is coming out a few days early so that you’ll get it the morning of this potential top, although the top could come a few days earlier or later.

First, let’s back up and see where we are in the longer-term picture. This is indeed a potentially very potent time for such a top. My last major cycles to peak were the 45-year and double 90-year technology cycle, which naturally would have peaked around late 2019 or early 2020. The previous major cycle to top was the approximately 40-year Demographic cycle or Spending Wave in late 2007, right as predicted. The deepest recession since the 1930s fol-lowing that 2007 top was precisely why we’ve gotten such massive stimulus ever since, to keep a dead economy alive at all costs.

The COVID shock gave the governments and central banks an excuse to throw the little caution they had left to the winds and just blow out the most-massive cocktail of monetary and fiscal stimulus ever! The unprecedented stimulus pushed this potential top into 2021, and the odds of a peak grow every day as we move toward the most-powerful downside confluence since late 1982 of my Hierarchy of Four Key Cycles in late 2022 ahead.

Yet this is the only major cycle target that brings the confluence of the two most powerful cycles: the 90-year Super Bubble cycle and the 40-year Generation Spending cycle. They both bottom in late 2022, as does the Decennial cycle, and the 34-year (on average) Geopolitical cycle just bottomed in early 2020, close enough to here. Near the late 1982 bottom, the Decennial, Generation, and Geopo-litical cycles bottomed together, but the most-ominous 90-year cycle, which last bottomed in late 1932 at the end of the greatest crash in U.S. history, did not bottom with them.

By Harry Dent

Late July Is a High Probability Time for THE Long-Term Stock Bubble Peak

This first chart shows the stock market trends back to the beginning of the last century. Even if you didn’t know my key cycles, you could still observe that bull markets usually continue until they make a low after a major surge that is lower than the low after the previous surge. I show that with the two blue dots that come near each other. The first one is the final low in the bull market, the second one is the first lower low to occur after the ultimate peak.

Note that I also mark with red dots when the rising bottom trend line of a bull market is first violated. That is the other good sell signal. The problem is, only in retrospect will it be obvious which of the two was the better one. I do prefer the red one when it looks like we are at the end of a long bull market, as in 1929 and in 2021 (today).

Note after the 1929 top, there was no blue-dot sell signal until late 1938! That red-dot violation will almost always get you out earlier, as the first crash is 40% to 50% in just a few months, and that will break the bottom trend line during that first wave down and be better, especially if the bounce after that first bottom is not that strong at first, as it often isn’t.

The last very-long-term bull market ended in late 1932, at the end of that infamous crash. That broad-er bull market only began after the 90-year cycle bottom in late 1842 following the biggest broad market bubble crash in history up until that point.

Let’s start from that 1932 major bottom and look at how the long-term bull market since then has evolved in four bull markets of varying lengths: late 1932 to mid-1937, mid-1940 to late 1968 (the lon-gest), late 1982 to early 2000 (the most powerful), and early 2009 to 2021 (now, and it’s mostly artifi-cial as a result of stimulus, with only the 45-year technology cycle favoring it into early 2020).

A good way to tell when a bull market is over is when a new low is made after a major surge vs. the previous low. In the first wave, that occurred at the bottom in late 1937 after the first sharp crash—the strategy thereafter would have been to sell into that next bounce into late 1938 or early 1939. That downturn continued into a long-term bottom in mid-1942, much lower. Hence, selling into that bounce would have been a great play.

The next bull market was not confirmed until the first strong rally into 1946, and it was followed by a downturn that didn’t make a lower low into late 1949. You could have started buying into that next rally, especially after it exceeded that 1946 top. After that, stocks did not make new lows after suc-cessive major rallies until the crash from late 1968 into mid-1970. That was the longest bull market in U.S. history, at just over 26 years!


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Long-Term Bull Markets Don’t See Lower Lows After Major AdvancesS&P 500 Adjusted for Inflation, Log Scale

Source: Bloomberg; BLS

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At that point, it would have been wise to sell on the rally from that lower low into 1971 or so. The major 1973–1974 crash followed, and stocks kept making lower lows without violating the previous rally highs on the way down. So, the same reverse logic follows in bear markets: bounces on the way down shouldn’t exceed previous major lows. That bear market bottomed in late 1982 after lasting 14 years. That’s typical of my classic 40-year Generation cycle: 25-26 years up followed by 14-15 years down. And yes, the spending cycle for the Bob Hope generation bottomed for stocks in late 1982, which according to my 40-year Generation cycle would have been an expected time for a major long-term low, like in late 1942 and like late 2022 ahead.

The 40-year Generation cycle that followed, based on the massive, new Baby Boom generation, was expected to last until late 2007, and it did, fundamentally. But the extreme tech bubble into early 2000 caused stocks to rise higher than normal and, hence, burst more than normal for a long-term bull market. The first sign of that peak was the new low in late 2002, well below the previous low from the substantial correction into late 1998. The time to exit after that would have been the bounce into 2003–2004.

Although in nominal prices the 2007 stock top was well above the 2000 top, it was not after it was adjusted for inflation—and that’s the real measure here. Long-term stock charts should always be ad-justed for inflation, and especially after we saw the greatest inflationary surge in history in the 1970s.

That bull market ended in early 2000. The best exit for someone who knew nothing else would have been during the rally into 2003–2004. Because the Generation cycle was not expected to peak un-til late 2007, it would have made sense to expect a strong and longer rally to follow, and therefore it would have made sense to stay in until then and not exit in that case. But the overall downturn ad-justed for inflation did not bottom until early 2009, so that cycle was more unusual—and my Spending Wave would have given valuable assistance in determining the correct exit strategy.

The next bull market would not have been confirmed until the pullback after the rally into 2003, which came nowhere near making a new low. That market made a higher high again in 2004. Since then, stocks have not made new lows following major surges, not even in the early 2020 crash (although they almost did then). We now look to be in the final wave up, and we can confirm that only when stocks fall below the March 2020 low.

The problem with the next conventional sell signal if we break below the March 2020 low after this bubble peaks is that it will come only on a bounce after a near 50% crash—which is about the level I expect for the first crash after a bubble of this magnitude, given my thorough study of the history of bubbles. That’s too long to wait to get out and why the red-dot signal will be better this time!

Like the 1929–1932 crash, this one is of the highest magnitude, expected to be by 50% or more in a few months, as I will show again ahead. Hence, we need to strive to get out of this bull market just ahead of its peak or shortly thereafter.

Technical Analysis Suggests High Odds of Top in Late July Here or by September at the LatestNow, I’m going to whisk through a number of technical indicators here that show how overvalued stocks are getting in this rally and why there is a high chance of a major peak at this time, when such a peak is now already long, long overdue by natural cycles.


The strangest thing going on in this pervert-ed, overstimulated stock market is that risk-free Treasury bond yields are falling with seriously rising inflation in the late stages of this bull mar-ket…. What? The last time inflation-adjusted yields such as this chart shows were near -4% was in early 1980, just before the final crashes in 1980 and 1981–1982 that led to the final bottom of that Bob Hope generation boom and bust cycle, as expected around that time. This chart would have warned that the bottom was nowhere near in as the stock market bounced into early 1980. It’s warning that again.

Such low T-bond yields in a strong recovery with rising inflation can only indicate either that bonds are now as drunk on the stimulus Kool-Aid as stocks and both are ignoring inflation or, more likely, that the economy is getting ready to weaken faster than anyone expects in the wake of the massive stimulus we’ve gotten since COVID!

Neither a strong reversal up in such T-bond yields nor a rapid slowdown would be good for stocks, and that could be the final death knell to the argument that central banks can just keep stimulating forever without serious consequences.

Normally, tech stocks do better when T-bond yields are rising mildly in a boom, as it shows economic strength… but not this time. This chart is similar to the previous one and shows that the odds of a stock crash are as high as they were in early 2000, the last time T-bond yields were this much out of line with tech stocks.


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Inflation-Adjusted 10-Year Treasury Yields -4%, Similar to Early 1980

Source: https://twitter.com/DiMartinoBooth/status/1417523182580416518

www.HSDent.comSource: https://www.marketwatch.com/story/bond-yields-and-tech-stocks-echo-extreme-anomalies-of-dot-com-boom-says-morgan-stanley-11625767559

S&P 500 Tech Index vs. 10-Year T-Bond Yield Most Bearish Since 2000

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This next chart shows a market timing indicator from Morgan Stanley that is now overvalued as much as at the late 2007 top and a bit more than the early 2000 tech-bubble top. I showed this as an up-date recently. This is one of the most urgent warnings for stocks now.

Next, we get to the most-classic indicator from Robert Shiller, one of the few mainstream economists I like. He took the classic P/E (price-to-earnings) ratio for stocks and adjusted for cyclicality, which can be very distorting around major tops and bottoms. Normal major warning signs have come at ratios like 30.2 in 1900, 28.9 in 1937, and 27.8 in 1965—and those were all good times to sell. But the current reading, at 41.6, is higher than the extreme 1929 top at 38.3 (in a bubble era like this one) and is currently at 41.6, approaching the highest reading ever, at 48.1, which was during the first tech bubble in early 2000.

This top is coming in a bubble era like the Roar-ing 20s and 1995–2021 and right in between the two greatest bubble

peaks in history (other than 1836, which we can’t measure here), 1929 and 2000. If this rally lasts a bit longer, the top could get as high as it did in early 2000, but it would be foolish to wait for that. I say that first tech bubble and extreme overvaluation came as a surprise; the smart money should be quicker to react to this one before it gets quite that extreme.

The next chart is the simplest to understand. This growing and unprecedented bull market has made investors more bullish than ever, as measured not by answers to surveys but by how much of their household assets are actually in the stock market—and, of course, now that’s more than ever.

HS Dent Forecast August 2021

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Clear Warning of Stock Peak Likely Just Ahead as in 2000 and 2007

Source: https://www.lmtr.com/

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Shiller CAPE Ratio Second Most Overvalued Ever: Only to 2000 Peak

Source: http://www.econ.yale.edu/~shiller/data.htm

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This measure has only gotten higher over time, as more people have higher wealth and invest more in stocks. The peak of stocks as a percentage of household assets at the 1968 top was 29.7%. At the tech bubble top of early 2000, it was 32.5%. Now, it’s a whopping 36.5% and rising. This indicator is perhaps the most clearly overvalued historically. And, since stocks fall more than real estate and bonds, more households will get hit harder by this stock crash, and that will only make the downturn worse than it is already slated to be after such a bubble burst.

Rising margin debt is always to be expected when stocks rise strongly for a long time. Investors (especially the institutional ones) get more confident and leverage their bets more with the growing numbers. Margin debt always grows faster until stocks get overvalued by more money chasing stocks leveraged through borrowing.

The story here is sim-ple, as usual. Since the March 2020 bottom, stocks have grown 2.2 times, while margin debt has grown almost 4 times. That’s a clear indicator that a stock top is at least ap-proaching—and added to evidence from the previous charts, this indicator clearly is high enough to signal a top here.

And this next chart shows that, especially in the late stages of a long bull market like this one, the re-tail investors—like those on Robinhood—tend to be on the wrong side of the trade. They were buying the least at the last bottom in early November 2020, and they have been buying the most at strong surges into peaky points like March 2021 and at present. That’s just another brick in the wall for the


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Margin Debt Grows in a Strong Bull Market, But Never More Than Now


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Stocks Now a Higher Percentage of Household Assets Than at 1968 or 2000 Tops


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near-term demise of this rally since Novem-ber 2020 and all the way back to late 2002, in the final of the four bull markets I covered at the beginning. This indicator is not as im-minent as many of the others but is still a clear sign of rising dumb money participation, which is not healthy.

Updated Projections for Stocks and Bitcoin at This Critical Topping Point

Here, I will repeat the key Bitcoin stock-to-flow model that has become the standard for the new, emerging blockchain/cryptocurrency industry. As much as Bitcoin may have seemed overvalued after its dramatic surge to near $65,000 into April, this model has been saying that fair value is around $100,000, and market rallies always tend to overshoot such targets before crashing… and need I remind you that when Bitcoin crashes after every major surge (like this one), the crash normally is 84%+. I see this as the end of Bitcoin’s first “baby bubble,” much like happened with the early-stage dot-com stocks such as Ama-zon into early 2000 in the first tech bubble, or more like a 95% crash. This is the second and final tech bubble, and it has been led by the crypto stocks, among which Bitcoin and Ethe-reum still dominate.

The best models I’ve seen in the industry are projecting a minimum run to $85,000 ahead, and $115,000 is the most likely target. I am looking more for $115,000 if it breaks above the resistance around $41,000–$42,000—and we are already close to that! The recent bounce on Monday, July 26, was rather astounding: up 28% from its low on Friday, July 23, to a high of $40,368. That’s how highly charged this coin still is. Bitcoin just broke slightly above the $40,732 top and the key resistance line for the current sideways channel it’s been in since May. A clearer breakout could happen soon.


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Rising Retail Investor Purchases Have Outpaced Since January 2021

Source: https://www.marketwatch.com/story/apple-amazon-arkk-and-other-big-names-indicate-a-market-correction-is-coming-strategist-says-heres-why-11626348456

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Basic Bitcoin Stock-to-Flow Model: $100K Fair Value Now, $1.1M+ by 2026

Source: https://www.lookintobitcoin.com/charts/stock-to-flow-model/

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If it can break back above the previous $64,853 high, then that $115,000 target be-comes real… but such a rally is not likely to last past the end of this year. I have shown many times in the past that Bitcoin runs on a very clear 4-year cycle with its halving periods. As its sharpest bubble peaks occurred in late 2013 and late 2017, late 2021 is the next most-likely target for a peak.

The big question moving just ahead, as I warned in my Harry’s Subscriber Update on July 26, is this: Will Bitcoin act at first as a safe haven if stocks make that 50%+ first crash I have been warning about, which looks to be imminent here in very late July (which is why I put this news-letter out a little early)?

If it does at first, that won’t last. Note that again, taking cues from the previous and equally dramatic rise and fall of the dot-coms, Bitcoin is likely to crash more like 94%–95% in this final crash from its first baby bubble before it enters its longer-term bull market into 2037 or so. That means a target of around $4,000 if Bitcoin has already peaked near $65,000 and of more like $7,000 if it explodes up to as high as $115,000 by year-end.

So, this obviously is not a crash scenario to hold through!

And, finally, I’ve updated my two key stock charts, in which the patterns have not changed since the July issue.

This channel has held, and if it continues up toward around 4,600 by the end of July, then that would be a likely top and a great place to sell, especially on the 29th or 30th. The mar-ket is rising more mod-estly than expected and either may not quite get to the top around 4,600 or may take a little lon-ger than the expected turn date, July 29–30.


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If Bitcoin Breaks Above $40,732, It Could See Final Burst into Late 2021

Source: Investing.com

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S&P 500 Channel Projecting as High as 4,600 by Late July and a Top?

Source: Yahoo! Finance

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The first sign of a crash would be a break of that bottom channel line around 4,250 just ahead in August. The most likely target for that first and always dramatic first bubble crash from a top would be 2,192, the last low of March 2020. That would be a 52% crash if we hit 4,600 as a final high. Again, it’s not a crash to sit through. A crash of that magnitude would be the best confirmation of a final top for a very, very long time.

The megaphone pat-tern has been my most important stock chart for a long time now. It continues to play out its likely throw-over and final E-wave rally here. The first sign of a crash coming would be for the S&P 500 to break back below that top channel line around 3,750. After that, the target would be even a bit lower than in the previous chart, around 2,000, or a crash of as much

as 56% within a few months, likely in early to mid-October if we do see a top here in late July. If that occurred, it would be the largest first crash from a major stock bubble ever!

If the top comes later on the previous channel and a bit higher, that would only change the bottom targets (around 2,000) a little, likely to 1,950 or so.

To summarize: The first sign here of a top would occur if stocks break below the bottom S&P 500 channel line around 4,300 ahead. The second would be a break below the top line of the megaphone pattern around 3,750. The third would be a break of the first rally top in August 2020 around 3,600.

Given that stocks are struggling to rally to the top of the S&P 500 channel trendline around 4,600, it's time to start to look to sell stocks here, as the August to October time frame has the highest chance for a major crash like the one I am looking for and that the megaphone pattern says should be more imminent:

1. Sell if the S&P 500 breaks the bottom channel trend line around 4,300 just ahead, or

2. Sell if it first rallies to the top trend line around 4,600, which is starting to look less likely near term.

If stocks break that trend line but only see a more modest correction in August, then you have the option to get back into stocks very short term for a potential final rally into September or so. Given that this first crash should be very sharp and ultimately go down 50%+ within 2 to 3 months, it should be clear by late August if stocks start correcting soon whether we are more likely in a serious crash or another correction. Either way, August looks more like a correction month at this point. I still advise getting out a bit early here, rather than too late. Stay tuned for more updates.


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Source: Yahoo! Finance

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Got a question or comment? Reach us at [email protected].

Disclaimer: Copyright 2020 HS Dent Publishing LLC. These newsletters (the “Newsletters”) are created and authored by Harry Dent and Rodney Johnson (the “Content Creators”) and are published and provided for informational purposes only. The information in the Newsletters constitute the Content Creators’ opinions. None of the information contained in the Newsletters constitute a recommendation that any particular security, portfolio of securities, transaction, or investment strat-egy is suitable for any specific person. The Content Creators are not advising, and will not advise, you personally concern-ing the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent that any of the information contained in the Newsletters may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.

From time to time, the Content Creators or their affiliates may hold positions or other interests in securities mentioned in the Newsletters and may trade for their own accounts on the information presented. The material in these Newsletters may not be reproduced, copied, or distributed without the express written permission of HS Dent Publishing, LLC.


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