Stock Market Bears Slaughtered as Dow Mounts stunning rally

Market Bears getting killed in 2016

Originally published in Jan 2016 but updated In April 2018

What we have been stating all along is coming to pass; the naysayers and Doctors of Doom on Wall Street are full of B.S.  They sing the same song of doom hoping that the outcome will change. History illustrates that every strong correction, even a so-called back breaking correction proved to be nothing but a splendid long-term buying opportunity.  The BOJ shocked the hell out of the Bears when they surprised the world by driving rates into negative territory, the massive spike in the Dow was a clear sign of the bears squealing in pain as they were forced to cover their shorts. Is the correction over and are the markets ready to rally higher?

Markets are in Corrective Mode not Bear Market Mode

The corrective trend is still in place, and we expect one more final wave down, perhaps a move lower than the August lows, which will serve to drive out the last of the ardent bulls and provide the backdrop for much higher prices.  Fear levels are rising which is a healthy sign.

Here are some of the comments we have made over thStock Market Bears Slaughtered as Dow Mounts stunning rally e past few weeks that highlight how we stood against the experts in stating that the current correction is nothing but a buying opportunity and not the end of the world.

 The latest reading pushed this index into the all-time new high territory, and as we stated at the beginning of this update, 2016 is going to redefine the meaning of the word volatility. Market update Jan 2, 2016

2016 redefined the Term “Market Volatility”

were not kidding when we stated 2016 would redefine the meaning of the word volatility; we just did not expect it to occur on the 1st trading day of the year.  However, it did, and it goes to show how accurate this indicator really is.  It was one of the sixth worst opening days for the SPX.  Has everything changed now, should we listen to the doomsayers and naysayers who are definitely going to crawl out of the woodwork and scream the world is over?  If you want to do that you can, but that would not be the smart thing to do.

The storyline never changes

Read this article which was published years ago, and sit and watch how similar articles will now appear all over the place.

It was a bitter return for U.S. financial markets today, with the bellwether Dow industrials badly battered, suffering their worst one-day point decline ever. Today was the first trading day six days after terrorist attacks left Wall Street and the nation badly shaken. The resulting closure was the longest on the New York Stock Exchange since the 1930s.

The high point may have been the opening bell, subsequent two minutes of silence and a singing of “God Bless America.” Immediately after the last note faded, traders pushed blue chips down dramatically and the blue-chip index never recovered. Even an emergency half-point interest rate cut was brushed off by traders.

The Dow Jones industrial average closed down around 684.81 points at 8,920.70/ Full Story

Bear market arguments always the same regardless of the date

If you change the date the storylines are the same; the only difference being that when the article above was written the Dow as trading slightly below 9,000.  The world did not end then. Instead, we find that the Dow is roughly trading 100% higher.

As we stated 2016 will redefine the meaning of the word volatility.  The action is not going to be one-sided; expect wild swings in both directions. Hence, the Dow could easily reverse course and soar 600-1000 points in one week.

Regarding the Fed, they have made a big mistake in raising rates. As usual, they did the worst thing possible and the worst time.  They backed themselves into a corner and had to raise rates to save face. Remember what we stated, that regardless of whether rates were raised or not, the Fed would find some excuse to come out with another stimulus. We still believe they will be forced to take this path.   They can stimulate the market in one of two ways

  • Another QE program
  • Or suddenly lower rates to push more hot money into the markets, which as good as QE

Average Joe still does not have easy access to Credit

The Credit markets are still frozen to the average Joe.  But we stated that the banks would start flooding customers with 0% balance transfers almost 12 months before the first offer appeared. At the time we made the statement, it seemed insane. The banks will find a way to provide easy money to the average Joe again.  The 0% balance transfers were the first wave, but to create a massive bubble you need to provide even larger sums of money.   Subprime mortgages are slowly making a comeback. We are not sure of what mechanism they will use to get this money out, but they will come out with a nefarious plan, and that could end up pushing the Dow to insane heights.   We will explore this in a future update.

Interest rate Hiking program will not last

Now back to the Fed, it has raised rates when things are actually slowing down, so they raised it in the worst part of the business cycle.  This low rate environment has given companies that should have gone belly up a new lease on life, and now higher rates will start to push them one step closer to the grave.

The Fed will have no option but to backtrack on its rate hiking stance, sooner than later. Remember the mistake Europe made, they raised rates years ago when the US was lowering rates, and then their recovering economy sputtered and collapsed; now they are mum on the subject of rate hikes. We are in the devalue or die era, and you do not raise rates when your currency is one of the strongest in the world.

Do not panic, just watch the show, volatility is not a one-way street.  We expect the Dow to rally as strongly as it corrected over the past few weeks.  The action on Jan 29th, 2016, was just a prelude of what lies in store for this market.

April 2018 comments

The markets are today are putting in patterns that match those of 2003 and 2009.  In other words, the patterns are more indicative of bottoming action the topping action simply because, for the most part of this bull run, the markets were hated. Investors did not want to allocate money to this market, so in, some ways, this could be viewed as the 1st leg of the Bull Run that the masses will eventually embrace.

At this stage of the game, we would not be worrying about a bear market for market sentiment is still too negative and there many positive factors one of which is the massive Tax cuts that will provide the energy for this market to run higher.  Secondly, even though the Fed has decided to raise rates; interest rates are at historically low levels and they would have to rise significantly before they have any impact on this market.

Lastly and most importantly, the trend as per our trend indicator is still positive and so that means every pullback has to be embraced regardless of the intensity.

Final thought, most bears and bulls are arrogant, they both usually overstay their welcome. In our opinion, if the markets are getting ready to put in a top, then a small amount of money should be put aside to purchase puts.   The main effort should be directed to building a list of top quality stocks that you can jump into when the markets start to crash

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