In 1929 the stock market crashed because
Instead of continuing that sentence, our response is “who cares”. You looked shocked but don’t be shocked, instead ask us why we decided to take that stance. If one takes a long term perspective every crash has proven to be a buying opportunity and today’s FED is ten times more reactive their predecessors. In other words, the moment the markets start to tank, they will throw boatloads of money to stabilise the situation. Case in point, look at what happened in 2008.
History is replete with Naysayers stating that the world is going to end. Even after one of the most horrific crashes in modern history, the Market Crash of 1929, the financial system recovered and the market soared to new highs. In the long term, as long as Fiat is in play, a stock market crash should be viewed as a buying opportunity. The Tactical Investor would never focus on the “Is the stock market going to crash?” scenario. Instead, we would focus What happens when the stock market crashes? What happens is the astute investor backs up the truck and buys all the top quality stocks for pennies on the dollar.
What are the Dow and Nasdaq saying in terms of a Stock Market Crash
However, for those that want to know the markets crashed in 1929, the answer is quite simple. in 1929 the stock market crashed because the masses were euphoric. When the masses are euphoric, Mass Psychology states that it is time to bailout and the opposite when the crowd panics.
The Dow is overbought on the weekly charts but still, has room to run on the monthly charts. As you can see below the Dow is extremely overbought and looking for any reason to let out some steam. In our opinion, this would be a positive development. Never listen to the Drs of Doom for they make it look like they know exactly when a stock market crash is likely to occur.
If they knew this, they would not be screaming; they would be silently opening up short positions in anticipation of locking in massive gains. As they have no idea of when this market will crash, they need to peddle nonsense as that is the only way these penguins can make a buck. They need gullible cows to sell this rubbish too, and it seems that the world is full of these lemmings. A Stock Market Crash is always a buying opportunity as long as the trend is up and the crowd is in panic mode.
Do not fixate on the crash factor, instead focus on the opportunity instead.
Is the stock market going to crash?
Once again, in 1929 the stock market crashed because the masses were jumping up in joy. This is not the case presently and until this crowd embrace this market with love, this bull market will not end.
The overall trend is still up (and this is based on our proprietary trend indicator), and thus all sharp pullbacks need to be viewed through a bullish lens. The Nasdaq is also trading in the extremely overbought ranges on the weekly charts, but what is interesting is that on the monthly charts there is plenty of room for the Nasdaq to run before it hits the overbought ranges. We could have a nice tug of war here. The NASDAQ could have a limiting effect on any correction or we could witness a divergence.
The Dow and SPX correct firmly while the NASDAQ experiences a minor correction. Until the trend changes, do not focus on the “Will the stock market crash” scenario but on the trend. All sharp corrections have to be viewed through a bullish lens.
Nasdaq is the strongest Index and should outperform Dow and SPX
A stock market crash is unlikely at least for the time being. The Nasdaq is in a strong uptrend and until the trend turns negative the odds of a stock market crash are not that high. It, therefore, makes no sense to focus on the will the stock market crash scenario. If you are going to do this you might as well focus on the what if leave the house and get hit by a truck scenario.
The NASDAQ is going to outperform the Dow and this usually tends to occur in the last phases of a bull market. However, we could also be witnessing something new here as we are in the era of hot money. The entire world is lowering rates. Despite the misery, Brazil is facing it lowered rates once again. Can the trend change and favour higher Interest rates? Yes, it can, but until it does, we are not going to jump on the high-interest rate bandwagon.
The US, for now, is the only nation that has raised rates twice. If hot money continues to power this market than we could have an irrational exuberance phase that lasts for a long time; it is too early to dig into this topic now; we will save it for another day.
The Nasdaq broke past 5,000 for the first time in 15 years in 2016
Thus a stock market crash is unlikely at this stage. It took the Nasdaq 15 years to test its old highs and trade past them, but until July of 2016, it was unable to hold above 5K for any period. On an inflation-adjusted basis, it would need to trade to the 6600-6900 ranges to trade on par with its 2000 highs. The bull market for the NASDAQ has just started; it has the potential to trade to 10K. Again this is a topic for another date.
We do not like discussing extreme targets until certain key turning points are touched. The 1st point to keep your eyes on is 6200. A monthly close above this level will signal a move to the 6900 ranges and beyond. The Nasdaq indicates that the “Is the stock market going to crash?” question, for now, is a silly question.
Update Aug 2019
Bullish and Neutral readings both came in at 36 this week, and that is very telling as it indicates that the masses are still a long way from embracing this bull market. Secondly, it provides ammunition to the new hypothesis we are putting forward.
When we look at market sentiment, one thing sticks out sorely; bullish readings have hardly traded past their historical averages. It, therefore, forces us to consider another possibility, a possibility that would make no sense under different condition.
We hypothesise that when the bears are asleep, and the bulls are barely awake (as is the case presently), the market will tend to drift towards the direction of least resistance and the path of least resistance is up. Therefore as we have stated before, while we would like the markets to let out a nice dose of steam, there is no rule that states that they have to comply with this request. And that is why are continue to issue new plays as we never put all our eggs in one basket.
If the market pulls back, it’s a bonus, and this is why we also adopt the stance that when the trend is up; the stronger the deviation, the better the opportunity. Extracted from the July 24, Market Update
Other stories of interest
The American dream is nothing but the American Nightmare (March 2)
In 1929 the stock market crashed because of stupidity & Greed
Is the stock market going to crash?; a stupid question that does not deserve an answer