Stock Market Correction 2018 revisited: Market crash unlikely

Stock Market Correction 2018 Projections

When one continuously sits and waits for an event using false evidence to justify that it’s just around the corner, the event does not manifest and one is left holding an empty can and looking like a fool. That pretty much sums up most of the experts who have been predicting a stock market crash since the inception of this bull market.

We have developments that would fall under the “perturbing” category; for example, this escalating trade war, which unfortunately China is destined to lose. Markets are forward-looking beasts, and the Chinese markets have all but given the Chinese leadership an almost nil chance of winning this battle. However, that’s a story for another day.

Stock Market Correction 2018 likely as Masses are not Euphoric

A crash is out of the question but a correction is possible and it’s something we would embrace wholeheartedly. It would provide us with an opportunity to buy quality stocks at a discount.

Market sentiment is not extremely bullish, though the bullish sentiment has been trending upwards since Feb of this year. It has not remained in the extremely bullish ranges for weeks on end; a prerequisite for the stock market top. Market sentiment has been whipsawing, and that is usually a sign of uncertainty and uncertainty is a very bullish development especially if the underlying trend is up.

Crowd psychology implicitly states that an investor should only abandon ship when the masses turn euphoric and vice versa. The masses are not euphoric, hence there is no need to abandon the ship. The market has let out some steam but in our opinion, the Dow could drop all the way down to the 21,500 ranges without having any effect on the trend.

Tactical Investor Alternative Dow Theory has not issued Bearish Signal

Our alternative Dow Theory states that the Dow follows the Utilities and unless the utilities drop to new lows the markets will continue trading within a wide range. The utilities have held up very well when one considers all the outside factors; for example, an extremely volatile geopolitical situation (trade wars, disputes with our NATO allies, etc.) and the extremely polarised way the masses are behaving.

Dow Jones Utilities Holding up Well

The Dow utilities have a very strong layer of support in the 633-650 ranges. It would take a monthly close below 630 for the tone to turn from bullish to potentially bearish. As there is a fortress of support in this zone, for now, it’s a low probability event. The Tactical Investor Dow Theory states that one should pay attention to the utilities and not the transports. Therefore unless the transports put in new lows, the market is unlikely to take out its recent lows.

Most Major financial sites nowadays are on par with tabloids; their sole function is to create bombastic titles with little to no subject matter to back their faulty assertions. Take their advice with a barrel of salt and shot of whiskey. As we stated before, bullish sentiment from a longer-term perspective has been trending upwards, but the masses are not dancing in the streets, so a correction (which is what the market is currently experiencing) instead of a crash is the most probable outcome.

The Dow transports are also holding up well which is a bonus as that’s not a prerequisite of the Alternative Dow Theory; unless they trade below 9500 on a monthly basis, the outlook will remain bullish. The trend is your friend as everything else is your foe.

Negativity Is Rising & That’s a Bullish Signal For The Markets

While there are a lot of negative factors out there that could be used to paint a very bearish picture, market sentiment and price action are not supportive of a stock market crash outlook. However, as the market has experienced a huge run, this current rout should be embraced for the market is letting out a well-deserved dose of steam. Experts have you believe that Bull Markets only trend upwards, but that’s an assertion that’s on par with rubbish. Nothing trends upwards in a straight line and even the strongest bull has to take a breather.

While things could turn ugly in the future (with emphasis on could) as these trade wars could potentially escalate to a level that the market deems to be extremely unhealthy and that could trigger a bigger selloff. At present, the odds of that are low. The US is in a very strong position to push its weight around; this is, not the best method to employ but nevertheless, it’s being employed.

Trade War Factors

China exports a lot more to the US than it imports, so it’s virtually impossible for China to win a trade war with China. When it comes to Europe, Trump can use the NATO option to push Countries like Germany into line. Let’s not forget that many European nations are swinging to the right and their leaders are sympathetic towards Trump. Lastly and perhaps the most important reason that the US will win this war, is that the US dollar is still the World’s reserve currency with Euro coming at a distant second.

However, as far as we are concerned the above geopolitical factors we mentioned are not big enough factors to derail the underlying upward trend; at least not yet. Our focus at this time is on mass sentiment and the internal structure of this market. The masses are not euphoric but the markets are still trading in the overbought ranges on the monthly charts, and so from a technical basis more range-bound action should be expected. As the trend is positive, the stronger the deviation, the better the opportunity

Stock Market Correction Update Aug 2019

Stock Market Correction 2018 was something we advocated for in 2018 but we held our ground when it came to stating the markets would crash. In 2019, not much has changed as the Masses refuse to embrace this market and until they do, every strong pullback has to be viewed through a bullish lens.

This market correction should be a short term aberration unless we have a black swan type event and nobody can predict those, hence the title. However, even if that were to occur (black swan event), we would view it as a fantastic buying opportunity the markets were pushed to even lower levels. Why would we take this stance? The trend is still positive, and until it changes, corrections should be embraced. The only change in strategy is that we would use our technology tools and risk to reward models to fine tune our entry points.

Neutral sentiment is close to hitting 50, and on the monthly charts, our technical indicators for all the major indices are trading in the extreme to insanely oversold ranges. These two developments signal that the Dow could strike 30K a lot faster than even the bullish dreamers could envision. Extracted from May 7, 2019 Market Update