March 14, 2025 – Jim Puplava and Tom McClellan of McClellan Financial dissect the stock market’s rocky start to the year and the potential way forward. McClellan believes the S&P 500 is in a downtrend, amplified by Trump’s tariff moves, and lack of liquidity. Tom shares with Financial Sense Newshour a number of charts—presidential cycles, NYSE Advance-Decline Line, and investor sentiment—that signal to him we haven't yet reached a sustainable low. Gold, nearing $3,000, shines as a bright spot, entering a three-year upcycle. Cash is king for now, offering 4-5% yields, as McClellan eyes trading opportunities amid volatility. Listen in!
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Charts discussed in today's show:
Transcript
Jim Puplava:
Well, at the beginning of the year, it looked like the stock market was going to continue to go up. But recently, we've seen major pullbacks in all major indexes. Where are we gonna go from here? Is this a correction, or is it something more serious? Let's find out. Joining us from McClellan Oscillator is Tom McClellan. Tom, let's take it from the top before we get to your charts. You and I were talking before we went on the air about the media's version of correction. Explain that.
Tom McClellan:
Well, the media—and especially CNBC—gets it wrong. A correction, by definition—that’s from 100 years ago—is any movement which is against the direction of the trend, but which does not establish a new trend. So, if you're in an uptrend and you go down by one tick, that one-tick move is correction territory. It all came about that they got this silly definition of 10% is a correction and 20% is a bear market. That came from Alan Shaw and the technical analysis shop at Smith Barney. And what happened was that he would write in his newsletter for the brokers at Smith Barney that I expect a correction, but I don't expect a bear market. And the brokers didn’t know what he was talking about. So, he defined it for them. He says, when I say correction, think of something that goes about 10%. When I say I look for a bear market, think of something that goes 20% or more. So, he was just framing it in terms of what those words are referring to. But the whole idea that, oh, we’re now officially in correction territory because we’re down 10%—that’s a silly CNBC invention because they misunderstood what he was talking about. And even if you say that 10% is a correction and that you’re officially in a correction, well, every decline of 50% starts out by going down 10%. So, nobody would say that 50% is just a correction. They say, yeah, that’s pretty much a bear market. So, it doesn’t make any sense to say, well, we’re officially in a correction, because you don’t know that. You might be in a downtrend, you might be in a correction, and you don’t know just from looking at the percentage terms. So, it is an absolutely silly definition. The only people who use that are unprofessional TV people who don’t know what they’re talking about. When you hear someone talking that way—that 10% equals a correction—you can pretty much verify that this is a person who is not a professional and he doesn’t know what he’s talking about. And so, you should judge everything else that he says from that point on based on that new knowledge that he has given you. Let go of the idea. Think of a correction as a movement against the trend that does not create a new trend. Think of the trend as being the important impulsive moves. And so, that’s a much better way to think of it. And you can’t know just from the percentage whether a move is a correction or whether it’s a new trend. I will end my rant there.
Jim Puplava:
Let me rephrase that.
Tom McClellan:
Fair enough.
Jim Puplava:
Looking at all three indexes, would you say they’re still in an uptrend?
Tom McClellan:
No.
Jim Puplava:
Okay.
Tom McClellan:
And that’s the important question. Are you in an uptrend, or are you in a downtrend? Because you can—even if you’re in a downtrend, you can still make money on the long side if you play a countertrend rally. And countertrend rallies can be vicious and violent and exciting, but you’ve got to know which way you’re playing and which trend you’re betting on or betting against. So, I think that we are in a downtrend, as we are supposed to be. 2025 was supposed to be an ugly year based on our long-term projections. It is being fulfilled that way, and it’s getting an amplified boost based on what Mr. Trump is doing with the tariff battles and what the other countries are doing in response, which is really getting everyone anxious and overly excited. He’s only amplifying something that was already going to happen.
Jim Puplava:
Yeah. I want to go to three of the charts you sent me. One of them is the presidential election cycle. And we all know that presidents, if they have to do things that are going to be unpopular or could affect the economy in any way, you want to get that done the first year, because the second year you have congressional elections. And if you do things and have these bad things happen in the second year, it could affect the outcome. So, given this chart, let’s talk about the presidential cycle and what that means for the market this year.
Tom McClellan:
Sure. And you’ve expressed it very well. New presidents especially try to get all the bad things out of the way in the first two years so that then they can spend the final two years running for reelection and declaring victory. Mr. Trump seems to be pulling forward that schedule and getting things done really quickly—the unpleasant things done way ahead of time. In that chart, I broke down the presidential cycle pattern into two different versions, and these are both created by chopping up the S&P 500 data into four-year chunks of time and then averaging it together to see what the average performance is like. But there is a big difference, especially in the first year, depending on whether you have an incumbent-party candidate who wins reelection and stays in office versus if you have a new president taking over from a different party than the last one. Even though this is Mr. Trump’s second total term for 25th Amendment purposes, he is more like a first-term president in that he is seeking to change what he sees as all of the bad things from his predecessor. And so, he is acting more like a first-term president and much more loudly. When we first had him get reelected, the market celebrated because, yay, we got what we think we want—or at least that was how investors believed. And that all changed when we got to February 20th, and we saw all of the big new announcements about tariffs, and that really sent people for a loop because nobody’s lived through imposition of tariffs and had a big trade-war battle like this before. So, nobody knows what to think about it. If it was something that we had all lived through before—like, oh, this again—then we would know how to quantify how bad it is. But this is new ground for everybody who’s trading these days. And so, everyone immediately thinks, oh, Smoot-Hawley, 1930, Great Depression, 90% decline, because that’s the only playbook that they know. And that’s why we’re getting a much more dramatic-than-average selloff now in response to the tariff news. You can argue that it is creating a bit of an opportunity. You could also argue that Mr. Trump is pulling forward the losses that typically happen later in the year during a first-term presidential term because he’s much more organized in getting things done quicker. Both of those arguments have some soundness to them, but I think there are other factors that matter far more, especially in terms of what the Fed and banks are doing with liquidity. And those are saying that we have an ugly year to do in 2025. The Fed and the President and Congress can make it uglier—even uglier—with their actions. They can also dampen it and mitigate those effects and make it less ugly depending on what they do. We have not yet seen how Congress and the Fed are going to interplay with this. We’ve seen what President Trump is going to do. The Fed can affect this if they decide to start QE5, for example, and start dumping money back in the market like we saw in 2020. I haven’t heard anything about them cutting rates and deciding to do QE again. I don’t think they’re going to embrace that right away. I think they need to see a lot more pain before they’re willing to do that. We don’t know what Congress is going to do other than getting this spending reauthorization through. We don’t know what Congress is going to do regarding extending the 2017 tax cuts and making those permanent because they’re about to sunset. So, there’s still a lot of cards left unplayed. But we are in an illiquid year, and we’re supposed to be having trouble. The only question is, is it going to be exacerbated or dampened?
Jim Puplava:
All right, well, let’s go to the second chart that you sent me. It’s the New York Stock Exchange Daily Advance-Decline Line. Let’s talk about that one.
Tom McClellan:
This is a great way to know that we have liquidity problems. The daily advance-decline line is a running cumulative total of every day’s numbers of differences between the advancing and declining issues. That’s what’s known as the daily breadth. And so, if you tabulate that on a cumulative basis, then the advance-decline line will go up or down every day by the amount of the daily breadth. What we saw, starting from the divergence that began in December, is that we have a lower high in the daily advance-decline line, which is not confirming the higher high that we saw in the S&P 500. This is a classic bearish divergence in breadth, like we saw back in 2021 that foretold the ugliness that was coming in 2022. That’s at the left end of the chart. This is one of the classic indicators of liquidity problems. And the reason it works as a liquidity indicator is that in the calculation of advance-decline statistics, every stock gets an equal vote. No matter how good or bad of a stock, how big or small, everyone gets an equal vote. And there are a lot more small, undeserving stocks that make up the stock exchange than there are stocks like Microsoft or Apple or—pick your other big-cap name. And given that they all get an equal vote, when the liquidity starts to go bad, it’s all the runts of the herd that will start to suffer and die off. And that’s what you see when you get an advance-decline divergence. You see the weak are starting to suffer from the illiquidity. And that same illiquidity is eventually going to come around and bite the big-cap stocks. We’re getting the fulfillment of that now. We’re just getting it in much more of a hurry than we might have otherwise, thanks to the tariff news.
Jim Puplava:
All right, let’s move on to the third chart, which is investor sentiment. Very, very bearish at the moment.
Tom McClellan:
It is. We finally have in the Investors Intelligence data more bears than we have bulls for the first time since late 2022. What I have done in this chart is a little bit of charting magic. I’m plotting the S&P 500 on a detrended scale, meaning I’m measuring the distance of the S&P 500 from its 200-day moving average. The S&P 500, as you know, trends higher over the year-over-year in the long run. But the bull-bear spread moves sideways. And so, to get them to move sideways together, I detrended the price data and put them on the same chart. And what we find by doing this is that most of the time, there’s not a lot of information in the Investors Intelligence data apart from what prices are doing because they have such a very tight relationship. Whatever prices do, that’s what sentiment is doing most of the time. Right now is different. We’ve had what I call a sentiment overshoot, where the amount of change in that bull-bear spread is in excess of what prices alone would have said should happen. And you can see sentiment overshoots to the upside, you can see them to the downside. When you get that sentiment overshoot, you’re seeing that, yes, people have turned bearish because of what prices are doing—that’s what they’re supposed to do. But they have done it by more than what the amount of price move says they should have done. And that represents a little bit of an opportunity for people to have their sentiment readjusted back toward where it should be. And as they do that, as people change their sentiment—as investment advisors and all their followers change their view of the market—they tend to be buyers just to go along with their change in sentiment. And that gives a little bit of an opportunity for just a sentiment snapback. That doesn’t necessarily mean we’re starting a new uptrend. It just means that we’ve gone a little bit too far too fast and need to make a little bit of a reset just to get things back to equilibrium.
Jim Puplava:
Well, that’s exactly where we are today. On the day we’re speaking, on a Friday, we’ve got the Dow up over 500 points. So, the indexes seem to be rallying back—so, countertrend rally.
Tom McClellan:
Yes, but there’s another—we’ve had the dead-cat bounce as we’re talking today on Friday, the 14th of March, and, by the way, Happy Pi Day—3.14—we’re having a little bit of a countertrend rally, which was merited. I’m expecting that the dead-cat bounce is going to roll over, and we’re going to get another bottom that’s ideally due March 20th, according to my predictive models. People who pay attention to the economic calendar will know that the Fed is meeting March 18th and 19th. So, probably right around the time of that Fed meeting—or perhaps caused by it—we get the dead cat flopping down to retest the recent low, and then we can probably chop sideways for a little bit. But there’s going to be more downside to do this year. I’m looking for an initial low in July, a failing bounce in the summer, and ultimately, probably the final low is ideally due in January of 2026, and that would be very early. Normally, the four-year cycle bottoms late in the second year of a presidential term. I’m looking for it to bottom, based on long-term predictive models, in January—plus or minus a month or two. And so, we’re in a bear-market year, and I’m—please don’t shoot the messenger—but that’s what we’re in, and there are lots of ways to make money in a bear market. Buy-and-hold is not the best of those unless you’re buying and holding very selective countercyclical or countertrend stocks that don’t follow the herd. If you’re in the S&P 500, it’s going to be a rough year.
Jim Puplava:
All right, let’s talk about something that’s really breaking out. We’re just—what—a few dollars away from $3,000 gold. It was a fabulous year for gold and silver last year. Is 2025 the same thing?
Tom McClellan:
It is, and I’m expecting gold to go higher, but not immediately. The final chart that I sent you shows an interesting phenomenon that I have come to embrace after having initially tried to disprove it. Other analysts have said for years that there’s a relationship between the lunar cycle—when full moons happen—and the price of gold. And I thought, oh, that can’t be true. And so, I gathered the data just so that I could refute it from an educated standpoint. And I failed in my effort to refute it—there really is a relationship. The dates of full moons have a very strong tendency to mark either turning points or acceleration points in the price of gold. And this particular full moon that we just had overnight on the night of Thursday, March 13th, was a special type of full moon. It was a lunar eclipse. And eclipses show this tendency of marking turning points to a slightly greater tendency than ordinary full moons. And so, the problem is that we don’t know in advance in which way a full moon is going to manifest importance for gold. It could be a bottom, it could be a top. And you’ve got to wait till you get there and see what prices are doing. What we have seen is a three-day blow-off up-move in gold to an intraday high above 3,000 in gold futures. And I think that the 3,000 round-number effect is going to matter, and the full moon is going to matter, and it’s a little bit overbought. And so, it’s deserved to back off. But at the same time, we are just now starting the upward phase of the eight-year cycle in gold prices. And the eight-year cycle typically features a three-year up phase and a five-year down phase. The last cycle that we just completed didn’t have very much of a downward bias during the five-year down phase, which says that gold is very strong—it’s likely to go higher. There are lots of good reasons why gold shouldn’t go higher. There are lots of good reasons why our government shouldn’t be printing so much excess money that is helping to make gold higher. But, in fact, those things are what is happening. And so, once we get a little bit of a pullback from this minor blow-off into the full moon, I think gold has higher to go.
Jim Puplava:
And where would you—if you were to just kind of estimate—where would you see gold going this year? I mean, I’ve heard people like Ed Yardeni, who is—he’s not known as a gold bug—talking about $4,000 gold by the end of the year. Is that realistic?
Tom McClellan:
Well, that would be a 33% advance from 3,000. So, that’s pretty ambitious. The methods that I have explored for forecasting the magnitudes of moves have not proven very reliable. I’m much better at forecasting the timing of moves and when things are going to happen. And if I get the when right and the direction right, then the magnitude tends to take care of itself. So, I wish I could tell you that on December 31st what exactly the gold price would be. But I just haven’t found good methods that do that very reliably. If you get the direction right, ride the trend for all it’s going to give you. That’s doing the best you can do.
Jim Puplava:
So, you’re talking about in this eight-year cycle—you’ve got five years of a downtrend. So, we’re in the three-year uptrend.
Tom McClellan:
We’re starting the first of the three years up—should be ’25, ’26, and ’27—should be a good time to be in gold. And then five years—the tail end of that—’28 through ’32—is the next five-year down phase. And that would not be a good time to be in gold. And this cycle has been working since the ’70s when gold first became actively traded. I noticed it back then, and I’ve been tracking it ever since then. And it still follows this cycle pretty nicely—not perfectly. And it’s a strange cycle. You normally think of a cycle as looking like a uniform sine wave where you get the peak halfway between the troughs. It doesn’t work that way in gold. Gold is kind of funny, and it has a three-year up phase and a five-year down phase most of the time. But you can get into a strong trending move, like we’ve been in in the 2000s and twenties here, where gold doesn’t really go down during the five-year down phase. And that is a sign of strength that should continue, especially as we’re in the next upward phase, which we’re starting now.
Jim Puplava:
Yeah. Because one of the things that’s been holding up the price of gold is we’ve seen central bank buying as strong as I’ve seen probably in my career. So, when you’ve got a big buyer like that, it tends to hold up the price. You know, it’s really hard when you think about it, Tom, and you look at this one-ounce coin to realize that little one-ounce coin is now worth 3,000. When I think about when we first started buying gold in the year 2000, it was 250, and here we’re talking 3,000.
Tom McClellan:
Yeah. And that one-ounce coin is about the weight of three AAA batteries that you put in your pen light. It’s not very much, but yeah, it’s very valuable. And it’s very different from when I was early in this business, back in 1990-2001. The central bank of England was selling its gold because it thought it was pointless to hold gold. And all those periodic gold sales—you know, they dumped 25 tons every couple of months—and that really drove the price down into 2001 when they finally stopped. And we got a great bottom at, I think, 263 or somewhere around there. And it’s been a great bull market ever since the central banks stopped selling. And now the central banks are buying. One day, eventually, central banks will stop buying—I don’t know why or when—but it is a bullish force now. It’ll be a bullish force for as long as they keep doing it. And they may not tell us when they are done doing it—especially countries like China, which tend to not be very forthcoming with economic information. And so, that’s why you’ve got to watch the charts and see what the charts are doing, because you’re going to get more current information from that than you are from looking at press releases.
Jim Puplava:
Well, I can tell you we’ve been in gold since 2019, and it’s been one heck of a ride. You know, people—everybody’s been focused on the Mag 7, but people have forgotten where gold has come from if you go back to, like, the year 2019.
Tom McClellan:
Well, the interesting thing is that gold mining stocks have not kept pace with the metal. You would think that if the thing that they produce is now more valuable—like corn prices going up, it makes a corn farm more valuable—that should really, really help the share prices of gold mining companies. But it’s a perverse relationship there, because what gold mining companies tend to do is, if gold prices go up, they tend to start expanding. And expanding costs a lot of money, and they’ll expand into more marginal ground. If gold prices are falling or low, then a gold mining company is only going to mine the best ground. And so, they will concentrate their operations so they can make money. When gold prices go up, they expand into really marginal ground where the yield per ton of mined ore is much lower because they can still make a profit. But that sets them up for being very vulnerable. Once they get all those operations set up and in place and have spent all that money getting the environmental approvals and clearing all the topsoil off and moving in all the machinery and hiring all those people, that makes them really vulnerable to a drop. Because if you’re mining ground that’s profitable at 2,800 an ounce, that’s fine as long as you’re at 3,000. But now, suddenly, if you get just a 10% drop to 2,700 dollars, then you’re losing 100 bucks an ounce on every ounce that you mine. So, it makes for a very interesting and perverse relationship between the price of gold and the share price of the gold miners.
Jim Puplava:
So, as you look at the market right now, is there any trade you have very strong conviction on right now?
Tom McClellan:
Well, today, for my managed accounts as of March 14, I’m very convicted about—cash is a great place to be today. I’m expecting another low later this month, and there could be some trading opportunities for the very swift and nimble. But managed accounts are up 10 or 11% so far this year because we were short up until just this week. And riding the downtrend, I’m seeing that the downtrend got oversold and decided to step off the down elevator and wait for a while. Cash looks really good—you can get 4 or 5% in a money market account, and a 4 or 5% dividend on a money market fund is a whole lot better than what the S&P 500 is going to do for most of this year.
Jim Puplava:
All right. Well, listen, Tom, as we close, our listeners would like to follow your work. How could they do so?
Tom McClellan:
Go to our website, mcoscillator.com—that’s a contraction of the term the McClellan Oscillator, which my parents developed. My dad, Sherman McClellan, and my mom, Marian McClellan, developed it back in 1969. Marian died in 2003. My dad’s 90, still working with me every day, still doing great. And you can read about the newsletter that we have. It comes out twice a month. We have a daily edition every day. You can even sign up for our free weekly Chart in Focus series, where we email an article about a specific chart that’s of interest—no strings attached. We won’t spam you. We won’t sell your information from our mailing list. It’s just a way to get more people acquainted with the work that we do. But if you want the good stuff, it’s in our newsletter—in our daily edition.
Jim Puplava:
All right, Tom. Well, listen, it’s always a pleasure speaking with you. It’ll be interesting to see how this presidential cycle is going to play out this year. They’re working on a tax bill right now, and they’re supposed to be getting this tariff thing organized—or at least sorted out. So, interesting year—they always are the first year of a president, they are.
Tom McClellan:
And news events like a tax bill or a tariff—those news events are stronger and have more force when you are in an illiquid environment like we are in 2025, that illiquidity that the Advance-Decline Line has told us about. If you have a very liquid market where there’s plenty of money running around, then bad news can bounce off everyone’s backs and doesn’t bother them. Bad news feels like it hurts more, and it is more effective in an illiquid year like we have now.
Jim Puplava:
Good advice. Well, listen, Tom, take care. Hope to talk to you again.
Tom McClellan:
Good day, Jim.
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