Market Trends 2019: Buy The Fear and sell the noise
Does history repeat itself, well let’s look back at what we stated in 2014?
From high to low the SPX shed 4.33% before rebounding, which was in line with our projections. The SPX recouped its losses almost as fast as it shed its gains, clearly indicating that we are entering a topping phase. When a market drops quick and recovers the losses just as fast but does with a weakening trend, it is almost always a sign that a top is already in or near at hand. However, we are not operating under normal conditions as bandits are in charge, and they have no rules or morals; they will do whatever it takes to get what they want. Thus we will always defer to our trend indicator before taking action. Market Update August 26, 2014
V Readings Surge to New Highs
V readings jumped to new highs again; the markets are overbought on the short term time frames, so the high V readings mean we could see a quick pullback and then a move up to new highs. Until the trend turns negative new highs should be expected. As many technical indicators are not supporting the current move to new highs, we think the speed at which the market trades higher is going to slow down a bit. The market is likely to drift higher rather soar upwards unless the picture changes dramatically. The smart money continues to sit on the sidelines, and the current move to new highs is not being validated by this group of astute investors.
Technical analysis used in isolation is no longer as useful as it was before 2009. However, used in conjunction with other indicators, such simple tools can still provide some useful information as to when a market is overbought and oversold and then depending on the trend you can decide what position to take. If the trend is up, then opening up long positions during pullbacks would be the way to go and vice versa.
U.S. Investor’s Estimate of 2013 Average Stock gains
|Jun-27-Jul 9 2014|
|Believe stocks increase 30%||7%|
|Believe stocks increased by 20%||17%|
|Believe stock increased by 10%||37%|
|Believe stocks increased, unsure how much||3%|
|Believe stocks stayed the same||21%|
|Believe stocks decreased||9%|
|Not sure how stocks performed||6%|
Source Wells Fargo/Gallup Investor and retirement optimism index
Out of all the people polled only 7% got the number right; in 2013 stocks tacked on 30%. 37% thought that the market only rose by 10%, which to put in mildly is off by a mile. When you see this disconnect between what is happening and what people think is happening, it means the opposite of what the masses expect is going to become reality. In this regards, it appears that the markets will run higher simply because people do not think they can move much higher. Taking a longer view (unless the outlook changes dramatically) it means that even very strong correction is going to be nothing but a good opportunity to load the truck up. It seems that there is a huge disconnect between reality and illusion and when this occurs, it means the outcome will continue to shock the masses; in this case, this means the market trending higher. Market Update August 26, 2014
Secondary Indicators: What Are They Saying?
It was showing signs of pulling back, but it appears to have found support at 165 and is now trading at new highs. This is a contrarian indicator so extreme numbers are viewed through a bearish lens. As the trend is positive, we can expect it to continue putting in new highs. The next targets fall in the 173-175 ranges.
However as this indicator is in the extreme ranges on the short term timelines and that markets are very overbought, we would not be surprised if the markets and this indicator pulled back again before moving to new highs. On its own, this indicator is clearly stating that brokers, in general, are way too bullish and that a sharp correction is needed to rebalance the markets or find a new equilibrium point. However, as the trend is positive, a strong downward move is unlikely until it turns negative.
I the past, if this ratio moved past 1.00 it was considered high, but it has been rising since 2009, and it currently stands at a whopping 2.98; extreme would only not justify what is going on. This ratio has been pushed way beyond the higher upper limits due to the Fed’s so-called market propping program.
While this indicator used to be reliable in the days gone by, it can no longer be trusted on its own; it can be used to tell you when a market is overbought or oversold when used in conjunction with other indicators. One way to use this tool would be to look for negative a divergence and then use the pullback to open new positions and vice versa.
The last time we looked at this chart, it looked far worse. This chart examines the strength of the cyclical sector about SPX. As of late, the picture is improving, which suggests that the current rally has some legs to it? Cyclicals have strengthened about the SPX, and if the primary downtrend line at 0.035 is taken out, it will be the first signal that the SPX is ready to test the 2100 ranges. All in all, this chart paints a bullish picture in the short term timelines. A breakout past 0.035 would turn the outlook on the intermediate timelines to bullish.
Finally, we stated that if the projected path was followed that the markets would experience a strong year-end rally. If the trend turns positive, then we could move to the yearend rally phase totally bypassing the first stage of the correction. The corrective phase would have to wait for next year. This would only apply if the trend turned positive; otherwise, the current outlook remains in effect. Market Update August 26, 2014
As the trend has now turned bullish again, there is a high likelihood that we might have to wait till next year for the corrective phase. September is the worst month of the year, and so far it has been a dud; it could suddenly take a turn for the worse, but if the trend is positive then every pullback is going to serve as a buying opportunity simply.
Market Trends 2019
There is no law or set rules when it comes to the markets other than having the ability to adapt to a given situation. We are dealing with emotions and when emotions do the talking, chaos is set free. And that is why like cattle, the lemmings always stampede when the markets sell-off. The masses also tend to jump in when the markets are about to crash. Hundreds of years have passed since the Tulip bubble and nothing has changed.
The markets are volatile (Sept to Oct period) and the crowd tends to overreact to the news. Remember, every disaster becomes a disaster because the masses were conned into believing a false narrative. You say no way; well then how come reacting to disasters pays so poorly. The stock market is the best barometer for the disaster-prone. If disasters paid off well, then the Dow should be closer to zero than trading above 28K.
A Tactical Investor refuses to panic even when it looks like there is no reprieve in sight, for history indicates that panicking never pays off when it comes to the markets. The Crowd is always on the wrong side of the market when it comes to long term trend and nothing can or will ever change that equation. They are doomed to repeat the mistakes of their forefathers and that is why the poor always become poorer.
Wall Street Journal’s take on Market Trends 2019
Investors have pulled $135.5 billion from U.S. stock-focused mutual funds and exchange-traded funds so far this year, the biggest withdrawals on record, according to data provider Refinitiv Lipper, which tracked the data going back to 1992.
The outflows are also a sign that investors aren’t chasing the stock market’s strong performance, either. This suggests major indexes like the S&P 500 still have plenty of room to run after a decadel ong rally.Full Story
Market Trends 2020
The masses are hysterical over the coronavirus issue and so they are dumping the baby with the bathwater. History indicates this is the best time to open large positions. And that is what we are doing at the Tactical Investor. We are investing tactically in some of the best companies in the Technology and AI-related sectors; just a few weeks ago these companies were selling for hefty premiums, but now they are almost being given away.
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