Dow Crash: A correction is more likely than a crash
Dow Crash: A correction is more likely than a crash

Dow Crash: A correction is more likely than a crash

Dow Crash: A correction is more likely than a crash

Empty pockets never held anyone back. Only empty heads and empty hearts can do that.

Norman Vincent Peale

New comments April 2018

Dow Crash unlikely at the moment

We have published several articles over the past few months refuting proclamations from experts calling for a crash, two of which are Market sell off time to panic?  And  The Dow index is getting ready to soar.  Instead, we viewed each so-called crash event through a bullish lens. We even went so far as to tell our clients to celebrate while the markets were pulling back, a practice that is unheard of today.

Dow crash is it now a reality: well that same silly question was asked when we first penned this article back in 2015 and the same questions were asked in 2016, 2017 and now in 2018. The answer is that the markets will crash one day, so the Dow crash the experts are talking about will become a reality, but until the masses embrace this market, the markets are going to trend higher. Waiting for the Dow crash is like trying to catch a falling dagger; a process that is both futile and painful.  Instead focus on the trend and mass sentiment, for mass psychology clearly states that until the masses embrace this market, a crash is a low probability event.

The Dow crash theory is full of holes

As long as the trend is up, every pullback is a buying opportunity; that’s what you should focus on.Market Update Jan 16, 2018

This whipsaw action we have witnessed for the past few weeks is here to stay; this is the beginning of a new trend. It also suggests that no matter how strong the next correction is; it will prove to be a buying opportunity and not the start of a bear market. No bull market has ended on a note of uncertainty.  Market Update Nov 31, 2017

The utilities are in a full bullish mode; they continue to trend higher, and if the alternative Dow theory holds, then it is not possible for the Dow to crash as the utilities would lead the way first.   Therefore a crash appears to be unlikely now, but a correction ranging from mild to strong cannot be ruled out in the future. Market Update June 18, 2017

we will stick our necks out even further and state that we expect the Dow to trade to the 18,800-19,000 ranges in 2016; this view will remain valid unless the trend turns negative.  Market update Jan 2, 2016

Look at the bright side; you get to do something you have never done before. Drink while everyone is screaming bloody murder and sing when the markets are sinking.  Who knows you might be an aspiring singer in the makings. Yes, most will call you insane, but instead of being stricken with fear, you will now be the master of your destiny instead of a slave to another’s.  Drink and be merry for the markets are letting out some well-deserved steam.  We see no reason to worry and no reason not to sleep well at night. Interim Market Update July 9, 2015

Experts love to create chaos

New phrases have been coined to put the fear of God into the masses. Earnings recession is one that comes to mind. Yes if things were that bad, and then pray do tell, what gives, why are the markets trending higher.

The comical fixation on whether the Feds will raise rates is another clear way to miss what is going on right in front of your eyes. It reminds us of a silly young girl pulling the petals of a flower and saying “he loves me, he loves me not”.  While the masses fixate on what effect a rate hike would have on the markets, the markets have already moved up from their lows and dangerously close to testing their highs. So if you continue to follow the talking heads, you will always be one step behind, and the only thing you will have to show for you worry is a bag full of dust.

Anxiety Index IndicatorDow crash is a fantasy as sentiment is not bullish

Market sentiment as evidenced by our proprietary indicators, the anxiety index and the bull, bear and neutral sentiment chart are not supportive of a market crash scenario. No market has ever ended on a note of uncertainty and the neutral sentiment has been trending upwards for months on end. Individuals in the neutral camp are bears with no teeth and bulls with no balls, and uncertainty is the best emotion as it virtually guarantees that the bull market will surge significantly higher.

Stock Market Bull 2018

The chart above illustrates that the NASDAQ is ready to soar higher and therefore by default the Dow is either going to follow or let out some steam.  The NASDAQ joined the party late, so it’s likely to rally higher before pulling back. However, we see no evidence that the market is showing any signs that it’s going to crash

Dow Crash Ideology not Supported by Technical Indicators

Even secondary indicators can be used to create a bullish argument for the markets and offer a more plausible scenario than what is being provided by the Doctors of Doom.  For the record, we never rely only on secondary indicators. Our most important indicator is our trend indicator, which is bullish and as long as it remains bullish we will not think of shorting this market.

is the Dow going to crash in 2015

The Rydex Nova/Ursa ratio can be useful when it trades in the extreme zones as was the case back in Sept and Oct of this year.  When you see this occur, and the crowd is panicking, it is time to pay attention.  It can be used to help determine when a market is close to putting in a top or a bottom.  Right now it has mounted a very strong rally, so it’s letting out some steam. If it does not break above 3.6, then a test of the 2.8-3.00 ranges is warranted.

Dow Crash not supported by the Broker-dealer index

The broker-dealer index is also a useful index to monitor in times of turmoil and or euphoria

Dow Crassh unlikely in 2015 and 2018

Brokers and dealers are like the average Joe; they march to the same drumbeat of Joy and euphoria. Taking a position that is contrary to theirs when emotions are running high usually, leads to a positive outcome.  Like the masses, they panicked when the markets sold off as illustrated in the chart above. The Index plunged to new lows in Sept and October.   Failure to trade past 187 on the next leg up will result in a test of the 170 ranges. The trend is up; the lower this index drops, the greater the opportunity.

 The Dow Jones Industrial's not going to crash

200MA is being  abused to support Dow crash theory

Experts would have you believe that it’s bad news when more than 50% of the SP 500 stocks are trading below the 200MA.  Yeah once upon a time this might have held true, but look at the above, chart,  it shows that a large percentage of stocks in the SP500 has spent a considerable amount of time below the 200 moving average, and yet the markets continue to trend higher.   Note too that they are trending downwards since 2013, so this should be a double negative; instead, the markets have continued to soar.

Faulty analysis 

Well, markets are no longer free and dreaming about free market forces is a waste of time. The markets have continued to soar higher because its hot money that is fuelling this market, and it’s hot money that will continue to fuel this market.

We view the above chart in a different light. We have opted to use the information in the above chart in a different manner;  every significant deviation from the mean is a buying opportunity; illustrated by the blue boxes.  As long as our trend indicator is bullish, we do not care about the so-called bearish pattern this chart is generating.

From a psychological perspective, the markets are soaring higher because this is still one of the most hated bull markets in history.  A significant portion of the public is still sitting on the sidelines. You will also notice that when there is any bit of uncertainty in the markets, the individuals in the neutral camp surge the most.  People that claim to be neutral are simply gutless bulls or toothless Bears. As long as the number of persons in the neutral remains high, the masses will not move to the euphoric stage. And, until the masses are euphoric this bull market will not end.

The Trend is all that matters

 Finally, the Fed is trying to fire a shot across the Bow of this bull market by hinting about an interest rate hike in December. Our response is come on do it or stop the chatter; the fact that the Fed harps on this nonsense are totally unbecoming. There are better things to pay attention too; since when is a meaningless 0.25% rate hike such a big event.  This drama should be viewed as a clear signal that this economic recovery is nothing but an illusion and that Fed is well aware of this.  Rate hike or not, the Fed will have to come out with a new stimulus plan. This market is addicted to hot money.

Put it this way. We welcome a rate hike, for it will trigger another market selloff providing the prudent investor with another attractive buying opportunity.   Every substantial pullback is a buying opportunity, end of discussion.

Accuracy is to a newspaper what virtue is to a lady, but a newspaper can always print a retraction.
Adlai E. Stevenson

Other Related Articles of Interest:

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The Dow Industrials are not going to crash (Nov 11)

Oops we did it again- The Fed is setting up the masses for another stimulus program (Nov 9)

Palladium Bulls are getting ready to sprint  (Nov 7)

Dow industrials set to defy naysayers and trend higher  (Nov 6)

Dow continues to soar, doctors of doom wrong, what’s next (Nov 5)

Dr Copper time to buy, markets & psychological warfare  (Nov 3)

World’s only Adult Index predicts rise in immoral behaviour (Nov 2)

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Market Timing Does it work  (Oct 28)

Turkey shot down a Russian Drone  (Oct 27)

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stocks and bonds will not crash in 2015  (Oct 25)

It’s not time to sell the DAX (oct 22)

The Dow is getting ready to Soar  (Oct 21)

why its time to investing in banking stocks (oct 18)

Ignore the Yield Curve- bank stocks are a bargain (Oc 16)

Dr Copper back from the dead; time to buy or blink (Oct 7)

China’s Stock Market Crash; time for panic or restraint  (Oct 2)

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