We labelled this the market of disorder last year for a specific reason. We could use labels such as chaos or insanity, but insanity has a pattern, and even chaos has a pattern. Disorder generally has no discernible pattern if you rely on traditional tools (standard technical analysis, fundamental analysis, mechanical systems, etc.). The only possible way to spot patterns when a market is in this phase is to employ mass psychology principles. When you are dealing with a disorderly market, determining stock market trends is no easy feat.
Up until this point, the market of disorder was operating in a very low-level mode. Once the Dow challenges 33,000 or the Nasdaq trades past 14.5K, it will move to the “low level” mode. You might think the move from very low to low is not a big issue, and if you were to arrive at this conclusion, you would be doing yourself a huge disservice. Once we hit the low-level mode, fundamental analysis will fail, and standard technical analysis will cease to work. Mechanical systems will become redundant, especially those black-box systems that big firms have spent millions on. These guys assume that their complex algorithms can outguess the average person. The beating many hedge funds took over the Game Stop trade illustrates that these Black box systems days are numbered. It will take AI a long time to discern and interpret human emotions. The best tool for determining stock market trends, is investor sentiment.
What’s causing this? Some might say it’s the Reddit crowd, but that would be touching the tip of the iceberg. Until recently, HFT (high-frequency trading) was responsible for over 50 per cent of stock transactions. Now the retail player is back, and they are just getting started. Why are they back? They realise that all these money market managers and experts are full of crap, and they want to take matters into their own hands. Apps such as Robinhood (otherwise known as robbing the hood) have gamified the stock trading experience. So, it’s like playing a game with the real chance of hitting it big for these new players. The incentives are huge. Games are highly addictive, so when you combine the power of games with greed, one has almost created the perfect addition. Whether this development is good or bad is irrelevant; This is the start of a new trend, and that’s the only factor that matters.
Determining stock market trends boils down to having the right tools
The number of retail investors will grow, and margin debt which is now roughly 780 million dollars, will surge to over 4 trillion before this bull market ends. If we have a ballistic feeding frenzy stage, we can expect the debt to surge to 6 trillion before this bull ends. Let’s pause for a second; while the bull market will end one day, it won’t mark the end of the World. The only day this market will experience a devastating crash will be the day Fiat ends. Until then, each crash should be viewed through a bullish lens as every crash will lead to a new baby bull’s birth. The experts don’t want you to understand this simple fact, for if you knew that, you would never call on them. Even a good fisherman needs a good fishing rod, but he no longer requires a so-called expert to teach him to fish. There is an excellent chance that this market could experience an insane feeding frenzy stage because, at that point, the number of retail investors is expected to increase 200% from current levels.
Back to the topic at hand, we will soon move to the low-level stage in terms of this disorder, and the last step will be the extreme stage. We are not sure how many stages this market will have because the pattern is still unfolding. Still, we suspect it will have at least five levels, and we will warn everyone as we approach each level.
Very low level – Dow shedding 1500 points is not a big deal
Low – Dow shedding 2400 points should be viewed as a common occurrence
Low Medium – Dow shedding 3900 points should be viewed as a non-event
Medium – Dow shedding up to 7500 points should be viewed as a minor/mild event
We will stop there, for now, so you can see how volatility increases as we broach each level. We have not factored the V-indicator into this equation. If V readings surge to or past 10K, add at least 1K to each of the above levels. These wild swings are going to create incredible buying opportunities for those that are prepared. Therefore, you must prepare your mind for these developments, so when they come to pass, instead of panicking like the masses, you will be tempted to jump up with joy and celebrate. This “market of disorder” will provide small astute players with the chance to retire with a substantial nest egg decades earlier than planned. One can then stop doing what they don’t like and start doing what they love.
However, do not let this get to you and do not drink from the cool-aid fountain. The market should be viewed as a game, for it is indeed a game. It’s the astute players against the emotional fools. If one keeps one’s emotions at bay, is patient and never forgets that discipline is the key to winning, the odds of walking away with a massive fortune before this bull market keels over are relatively high.
Hence, the current market volatility should not come as a surprise as we spoke in advance that the markets needed to let out some steam. At this stage of the game, the current pullback is minor, and even if the Dow were to shed 2500 to 3000 points from its highs, we would classify it as a non-event. Market update Feb 28, 2021
Embrace all corrections ranging from mild to wild. If the markets experience a Sharp correction (this year), and the trend is up, run out, buy your favourite beverage, and then sip it calmly while compiling your buying list. Panic is the code word for opportunity and vice versa. Market update Feb 28, 2021
Once again, this strategy paid off; the recent sell-off proved to be a buying opportunity despite all the hype over what so-called higher interest would have on the market. All that rubbish about reflation proved to be just that, all bark and no bite.
We want to take this opportunity to warn everyone that in addition to the above levels we spoke of (above), investors should be ready for one severe correction. In this setup, the markets will pull back; then Tactical Investors will jump in and deploy some of their new funds; the markets will rally a bit but then take out their old lows. If you fall for this rouse, you are going to panic and dump all your stocks. What should you do? Buy even more top-quality companies. During firm corrections, one should cut back on speculative plays and focus on top-rated companies. The market might experience three such waves during a sharp correction. A wave is when the market pulls back and then rallies, but the rally fails, and the recent lows are violated. If the trend is up, no matter how sharply the markets pull back, do not panic, even if every expert and his grandma are telling you it’s time to flee for the hills.
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