Do not wait for ideal circumstances nor for the best opportunities; they will never come. Anonymous
The 1987 Market Crash
We could not help ourselves and put the word stock market crash in the title because every Tom, Dick and Harry is now chanting this tune. They want you to think that we are on the verge of Black Monday Dejavu. However, these same penguins fail to state that Astute investors that focussed on a 1987 stock market crash recovery are the ones that made a killing.
Fear grows of a repeat of 2008 crash as investors run for cover? The Guardian
A stock-market crash of 50%+ would not be a surprise — or the worst-case scenario on Yahoo Finance
Stock Market Crash 2016: This Is The Worst Start To A Year For Stocks Ever on rightsidenews.com
And the list goes on and on.
The Naysayers are busy listing several factors that in their opinion does not bode well for the market
- Ultra-low oil prices: we are told that low oil prices are bad for the economy. Hold on, was it not too long ago they were telling us that high oil prices were bad for the economy, so which one is it. Many oil companies will go bankrupt, but the ones that are left will emerge strong and be ready for the next bullish phase. It is because oil prices are low that car sales jumped and set a record last year; 17.5 million vehicles were sold and many consumers started purchasing Gas guzzlers they were avoiding before due to high gas prices. Ultra-low oil prices are the equivalent of central bankers injecting roughly $1 trillion dollars into the global financial system, as that is how much the global economy will save at these rates.
1987 Market Crash was a monumental Buying Opportunity
- The China factor; China’s economy is slowing down, and so the fear is that this could have a significant impact on our economy.
- A big deal is being made over China’s slowing economy; this growth is something every developed economy can only dream off. S. Corporations export roughly $500 billion years worth of goods to China. We have an $18 trillion economy, so this is a drop in the bucket and nothing to panic over.
- Uncertainty after the Fed’s raised rates. For crying out loud, the Fed only raised rates by a paltry 0.25%, and they can immediately turn around and reverse their position if they wanted. However, in our opinion, even another 2-3 rates will do nothing to derail this economy as rates are being raised from ultra-low
Are Things Different This Time?
Let us take a pause and think about the current situation. Have we not seen this before? The theme is always the same, something bad is going to happen a stock market crash is imminent, take cover and run for the hills. Sure, in the short-term the markets have experienced some violent moves, but fast forward, in every case, the markets recouped and traded higher. People will mention Japan as an example of a market that is still trying to play catch up decades later. Once again let us reiterate that traders that focussed on a 1987 stock market crash recovery were the ones that laughed their way to the bank.
Well, what happened in Japan happened in a different era? We are now in the era of devaluing or die, in other words, every nation is hell-bent on debasing its currency or it is being forced to because major players have jumped on the bandwagon. In such an environment, normal rules, do not apply, and central bankers usually respond by flooding the markets with money. Regardless of this issue, look at this long-term chart of the Dow and it clearly illustrates that every so-called disaster was nothing but a buying opportunity.
Every Crash Including 1987 Market Crash Should be viewed through a bullish lens
We have never advocated buying right at the top; our theme was to view strong pullbacks as buying opportunities to open new positions. Has the situation changed so much since last year? Are we also going to join the pack of naysayers? Before we answer that question, let’s examine the issue of volatility. Last year we emphasised several times that volatility was going to be a major issue as our Volatility Indicator had soared into record territory. In fact, in early Jan, we republished comments that we had sent out to our subscribers in Dec 2015, listed below
Our V indicator has surged to yet another high, so extreme volatility is here to stay. In fact, 2016 will probably be remembered as the most volatile year on record.
Volatility is a two-way street; this means that one should expect large price swings on both ends of the scale. Given the run up the markets have experienced over the past seven years, the current correction while strong is nothing to panic over.
Panic is the code word for opportunity
It goes without saying, that the traders are panicking, and that market psychology in the short term has taken a beating. However, the short-term and long-term is not the same. Last week we noted that the volume on most down days was significantly lower than the volume on up days. It appears someone is stepping in and buying; could this be the smart money in action? Time will tell.
On the short term timelines, the markets are oversold so a relief rally could take hold anytime. Both the MACD’s and Relative strength indicator are trading in the oversold ranges. The MACDS are about to make a bullish crossover. Given the strength of the correction, there is a good chance that we have not seen the lows as yet. The Dow is likely to rally to the 16700-16900 ranges before pulling back and trading below the current lows. The drop to below the August lows should drive out all the Bulls, setting up the bedrock for a bottom and a move to higher prices.
Coronavirus Pandemic; A repeat of the 1987 market crash (April 24, 2020)
There was total chaos in the oil market today; at one point the May contract was going for negative 40 dollars, yes sellers were paying buyers to take their oil. The reason for this is simple. There is so much oil out there and the May contract is about to expire. Furthermore, there is a lack of storage space, so May contract holders were willing to pay buyers to get out of their positions.
As the markets are volatile and some stocks are showing early signs of strength, we are going to adopt a novel approach when it comes to deploying/purchasing the first 1/3rd of our funds. The first trigger for getting into a given stock will remain the same; deploy 1/3rd when the stock trades within the suggested ranges. The second trigger is going to be a universal one. When the Dow trades to the 19,950 to 20,400 ranges, all pending plays that we have no position in, will be triggered. At this point, traders would enter orders to get into the given position at the best possible price. Always use limit orders. For example, the stock is trading in the 19.90 to 20.10 ranges. Place a limit buy order to open a position within that range.
Hysteria is the main Theme now
Instead of fleeing for the hills make a list of top-notch companies and load up. This will probably be the last time in many years to come that individuals will have an opportunity to become filthy rich. Don’t follow the masses for they are doomed to lose; use them as a contrarian signal.
The paranoiac is the exact image of the ruler. The only difference is their position in the world. One might even think the paranoiac the more impressive of the two because he is sufficient unto himself and cannot be shaken by failure. Elias Canetti
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