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
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.
Bearish sentiment is rising
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.
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.
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
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 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/
Stock Market Update March 2020
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
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.
When you combine zero rates and trillions of dollars being injected into this economy; the end result is going to be a market melt-up.
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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