Stock Market Crash Imminent Or Bull Ready To Trend Higher

Stock Market Crash Imminent Or Bull Ready To Trend Higher

Updated March 2020

Stock market crash imminent; someday but not today

For a long time, we have been stating sharp pull-backs should be viewed through a bullish lens. In this article published in Nov 2017, we stated the following;

View strong corrections through a bullish lens. This game plan will remain valid until the masses turn bullish or the trend turns negative.  The stronger the deviation, the better the opportunity. Tactical Investor   

In the above article, we also noted that the trend had to remain positive and sentiment should not turn bullish. Things worked out well up until Jan of 2018.   In January bullish sentiment suddenly soared to a six-year new high and at that point, we knew all was not well.  For until that moment the market was soaring to new highs on negative sentiment, illustrating the principle of “a market climbs a wall of worry” to its fullest, but that all changed in January.

Fear is a great long-term bullish force for the markets

Interestingly, the Dow missed the low-end targets we issued in Nov by 1400 points, so does that mean the upward journey is over.  Before we answer that, understand that nothing trends up in a straight line; a healthy market always lets out doses of steam on its upward journey; sometimes the pullbacks are minor, and sometimes they are very strong. At the time we noted that the markets were extremely overbought and even went on to issue possible downside targets if the markets decided to let out some steam.

 While the Dow is trading in the extremely overbought ranges, any pullback will most likely end in the 21,000-21,500 ranges.  For the correction to pick up steam, it would need to close below this level on a weekly basis.  As the trend is still positive, the odds of the Dow crashing are very low. At the most, the Dow would test its breakout point which falls in the 18,900-19,200 ranges unless the trend were to turn negative suddenly or the masses suddenly embraced the market with gusto.  At this point, the trend is strong and showing no signs of weakening.  Remember that the markets can remain irrational for much longer than most traders can remain solvent by betting against it. Tactical Investor   

The Stock Market had to let out steam but

Instead of letting out steam, the markets overheated and continued to surge to new highs almost on a weekly basis until Jan of 2018. At that point, as we stated above bullish sentiment soared; the masses embraced the markets with gusto; in fact in Jan Bearish sentiment dropped to a multiyear low of 15% and bullish sentiment soared to 60%.

So back to the question we asked before.  Does this mean the end is near?  That’s the billion-dollar question and articles such as these whose sole function seems to be sensationalistic rather than realistic don’t help improve the outlook for the average Joe. Both articles were published on CNBC.

The stock market looks ‘pretty fantastic’ despite rising yields: Art Hogan

‘Epic’ market bubble is ready to burst, and stocks could plunge, strategist warns

A stock market crash is not likely at this moment, because the market has pulled back sharply several times since January and the masses are nowhere as bullish as they were in Jan of 2018.  Given the massive run, this bull has experienced the current action though painful from an emotional perspective is well within the norm. No market can trend in a straight upward line forever; the equation must balance.  We expect volatility to remain an issue until bearish sentiment surges past the 50% mark; a move to the 60% ranges would be ideal

The crowd is becoming anxious as evidenced by the data below:

stock market crash imminent; we don't think so Bullish Neutral Bearish readings indicate that stock market crash imminent is based on rubbis

While the bearish sentiment still has some way to go to before it hits the 50% mark; bullish sentiment has pulled back strongly, and the number of neutrals has surged. Neutrals are bears with no teeth and bulls with no ba**s. Contrast the above reading to those of January 2018.

Bullish Neutral Bearish Chart of January supports a stock market crash or strong pullback

Bearish sentiment was at a multiyear low back in Jan of this year; in fact, based on those sentiment readings the current pullback is minor. It is easy to get drawn into the “hysteria” and forget just how far this market has risen; the market is taking a well-deserved breather.

 

Conclusion

As this pullback was long in the making, the action is going to remain volatile until the bearish sentiment soars well past the 50% mark. From a psychological point, the only way to completely destroy this surge in bullish sentiment and to ensure it rises slowly would be to decimate the morale of the masses, and that’s what’s taking place now.

While a crash spooks the masses for a while, nothing destroys investor morale more than uncertainty. When a market looks like its crashing; they are sure that the sell-off will continue.  Regardless of whether they are right or wrong, the perception of being right is there, and that’s very important.  The masses want to know what to expect and when they don’t, uncertainty sets in. Uncertainty is fantastic when it comes to the markets for the masses keep jumping from one camp to another; each jump demoralises them more and more.  This demoralising effect is very powerful for it provides the investor that has no emotional stake with an unbelievable long-term opportunity. The other way to demoralise the crowd (and this does not occur often) is for the markets to pullback extremely strongly; for example, losses of 30% or more over a very short period.  Market Update April 17, 2018

DOW industrials are not going to crash

This correction is likely to end in 23,400-23,800 ranges, with a possible overshoot to the 22,500 ranges.  The Dow would need to close below 22,000 on a monthly basis to indicate that the outlook is set to worsen.

The Dow is likely to trade over a wide range, and the moves are expected to be very volatile; be ready to deal with intraday moves of as much as 1200 points in a day. The markets need to move to the extremely oversold ranges, and if you look at the MACD’s on the above chart, you can see that they still have room to trade before getting into that zone.  The rapid up-down action is the best way outcome because it achieves two objectives; it demoralises the masses and helps push the markets into an oversold state.  Until the trend turns negative, strong pullbacks should be viewed through a bullish lens.  We would build a list of stocks we would love to own and use pullbacks to build positions in them. Stocks like TCEHY, NLFX, ROST, HA, CHKP, etc look interesting.

Tactical Investor June 2019 Update

When uncertainty is running high, the markets are likely to trend higher.

The masses are still uncertain, and we find uncertainty adorable; nothing is more bullish for the markets than an undecided crowd.

 The best time to buy is when the masses are in panic mode, and when one feels far from certain about the future of the markets; certainty is the secret word for failure when it comes to the stock markets. Market Update Feb 28, 2019

What is striking is that over the past several weeks the number of individuals in the Neutral camp has hardly budged and is gently trending upwards. Since the last update, we have two sets of new readings.   Last week the number of individuals in the neutral camp stood at 39, this week they increased to 41. So far in 2019, the number of individuals in the neutral camp has always surpassed those in the bullish or bearish camps, and this is very revealing. It clearly indicates that the masses are suffering from a long term bias and that the political landscape is messing with their ability to distinguish reality from fiction.

In terms of the stock market, until the Fed changes its mind, all sharp corrections have to be viewed as buying opportunities, and backbreaking corrections have to be placed in the category of “once in a lifetime events”, provided of course the trend is positive. That is what we are here for; to inform you if the trend is positive (Up) or negative (down).

The world is going to witness a Fed that has decided to make a cocktail of Coke, Heroin, Crack and Meth and take it all in one shot. Imagine what a junkie on this combination of potent drugs is capable of doing, and you will have an idea of where the Fed is heading in the years to come.  Market Update Feb 28, 2019, Investing For Dummies

Market Update March 2020

The guys predicting the demise of the world since the beginning of time will all be dead before even 1/10th of it comes to pass. This crash is a time to buy and the coronavirus is a test to see how fast social media can be used to stampede the masses. So far it’s working brilliantly, like fools the crowd’s stampedes without checking the facts

This could prove to be a fantastic buying opportunity for traders willing to take a risk. Don’t focus on the short term but on the long term, history indicates that the markets have an uncanny ability to trend upwards. Bears that have been beating the markets will crash have a dismal long term record. Markets trend upwards once the dust settles and this time will prove to be no different

Take a look at how many people die a day from other causes and the flu https://www.worldometers.info/

investor sentiment cycles

The masses are still uncertain so all sharp pullbacks have to viewed through a bullish lens. Do not listen to the noise but focus on the trend and build up a list of top-notch companies you would like to own.  When the markets let out a large dose of steam you will be ready to purchase these companies at a significant discount.

Stock Market Update March 2020

To put things into perspective, consider this: If cancer were a virus, it would be one of the most lethal viruses of all time, yet no one blinks that we lose 9.6 million people a year to this insidious disease. Until mass-scale testing is underway and the data is broken down into categories such as age group and other pre-existing conditions, all the massive death projections experts are issuing amount to faulty science.

It appears that the only course of action on the table is to give in to panic and flee for the heels. Well, that’s true if you are part of the herd; such action brings short term relief at the expense of monumentally large gains for the long-term player. Nobody knows the inner workings of a company better than the insiders and these chaps are doing something that can only be described as unprecedented, further confirming that this sell-off represents opportunity instead of a disaster. We will finish tabulating the latest batch of sentiment data tomorrow and another update will be sent within 48 hours if not sooner.

Backbreaking Correction or crash

It appears that markets are experiencing the “backbreaking correction” one which every bull market experiences at least once and is often mistaken for the end of the bull.  In today’s manipulated markets, one cannot tell which correction will morph into the backbreaking correction, as free-market forces have almost been eliminated from today’s markets.  While it feels like the end of the world, such corrections always end with a massive reversal.  Given the current overreaction to the coronavirus, there is now a 70% probability that when the Dow bottoms and reverses course; it could tack on 2200 to 3600 points within ten days. Interim update March 9, 2020

When the panic subsides, it will create a feeding frenzy of the likes we have never seen before.  When you combine zero rates, two trillion dollar injection by the Feds and several more billion-dollar packages designed to stimulate the economy, the result is going to be a market melting upwards. The markets will be driven to heights that are unimaginable by today’s standards. Zero rates are also going to force a large portion of individuals on a fixed income to speculate, and these guys have a lot of cash sitting on the sidelines.

 

All the king’s horses and all the king’s men can’t put the past together again. So let’s remember: Don’t try to saw sawdust. Dale Carnegie

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Is this the end for Bitcoin or is this a buying opportunity? (Jan 24)

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