Don’t ever take a fence down until you know why it was put up.
Updated July 2020
The Nyse Composite Index: Trend Forecast
We have seen the same song sung over and over again by the Doctors of Doom; the markets are going to crash, the world is going to come to an end, or some other pretentious title. Let’s cut to the chase, the markets are not going to crash; they could experience a strong correction at some future date but that would just present you with another opportunity to buy quality stocks.
Could the markets crash? That is a possibility, but you could kick the bucket before the event plays out the way the naysayers have envisioned. In fact, one could go as far as to state that there has never been a real market crash in the true sense of the word and that every so-called crash event was nothing but a buying opportunity in disguise. Crash or correction is a matter of perspective and that perspective depends on where you boarded the train; if you got in towards the end of the ride, then it will certainly feel like a crash. We will examine this concept in more detail in a follow-up article.
Less than two months ago a lot of fuss was made about the death cross formation on the Dow; we immediately repudiated that nonsense and stated the Dow would continue to trend upwards. Fast Forward and the Dow followed the projected course.
The Nyse Composite Index: All is not well?
Now some professors are stating that all is not well with The Nyse Composite Index and that it is signalling a massive breakdown in the markets. With the advent of Quantitative easing and an ultra low rate environment that has been artificially maintained for an inordinate amount of time, many technical indicators ceased to function normally.
As the environment had changed and the Fed had eliminated all semblance of free-market forces, the laws of the jungle came into play; adapt or die. It is hot money that is powering this market and it is hot money that will continue to power this market, much to the anguish of the naysayers. The bull market will end one day but that day is not yet upon us. We do not believe that the NYSE Index is signalling impending disaster; at most, it is signalling that another correction could be in the works, with an extremely strong emphasis on the word “could”.
Let’s take a look at long term chart and see what it’s implying.
There is a strong layer of support that comes into play in the 9450-9500 ranges. It would take a monthly close below this level to indicate lower prices. Even in the off chance, this did occur, the astute investor will view it for what it is and view it as opportunity knocking in disguise. However, don’t place all your eggs in one basket and hope for this target to be hit. For now, it is a low probability target, unless Turkey and Russia suddenly decide to go to war.
The inability of Nyse Composite Index to trade above 10,700 on weekly basis, suggests further downside testing and a possible retest of the October lows. The NYSE is building momentum to take out the 11,200 ranges and eventually put in a series of new highs. Overall the expectation is for the Nyse Composite Index to be trading higher next year.
The NASDAQ is already trading well of its lows and is dangerously close to taking out its old highs. As this is the most speculative index out of all the major indices, it suggests that this trend is likely to continue as there is still a large percentage of individuals sitting on the sideline. Our analysis indicates that there are currently more individuals sitting in the neutral camp than in either the bullish or bearish camps. Neutrality equates to fear, you sit out because you don’t know what to expect and markets love to climb a wall of worry. Despite trading dangerously close to its highs, the MACDS are still trading in the oversold ranges, validating that there is more upside to this market.
In what light should you view the dire warnings coming from the Professors of doom? Dump these warnings of doom into the nearest dustbin and move on. Our game plan is to view every pullback as a buying opportunity. What is your game plan?
I can stand brute force, but brute reason is quite unbearable. There is something unfair about its use. It is hitting below the intellect. Oscar Wilde
Nyse Composite Index trend forecast July 1, 2020
The NYSE follows in the footsteps of the Dow so if the Dow and or Nasdaq trends higher; the NYSE will do the same.
The Dow traded roughly to 27,600, coming quite close to the 28,000 targets we suggested, and it did this without closing above 26,100 on a monthly basis. Hence the odds of a decent to sharp pullback rise.
Having said that we need to stop here and discuss a crucial point. Henceforth, the focus should not be on absolute targets as that won’t work. The Fed is directing the markets so while they are likely to let some natural forces control the upward trajectory; they are going to control the downward path. If a market lets out more steam then it should have, it has nothing to do with deteriorating fundamentals or the technical picture. The markets are being pushed lower because the Fed has determined that it is the best course of action.
Therefore, what traders need to understand and come to terms with is that all pullbacks ranging from mild to wild should be embraced. The Fed is playing a dangerous game; dangerous for the crowd, but completely safe for the Fed and its friends and for those that understand the concept of trend investing. Just look how many big players got it completely wrong. To mind comes Buffett. The oracle of Omaha, right now looks like the jackass from Timbuktu, he sold airline stocks right at the bottom, and that’s not his only mistake. Over the past few years, Buffett has made a massive number of errors. But he is not the only guy. There are a vast number of top hedge fund managers and money managers that would be better of employing a troop of monkeys to do their stock picking. These guys are only as good as you give them credit for, without the credit the masses willing assign to these experts; every expert is nothing but conman waiting to be discovered.
So, whatever rubbish they pump out in the news, this pullback will resolve itself sooner than later because the Fed and its allies will either come out with new policies to push more money into the markets or directly intervene by supporting the financial system. As the money supply is going to keep increasing for the foreseeable future, we are reaching the point where it makes almost no sense to focus on stock market crashes. For in reality it is only a stock market crash if you bought in at the top, but if one started opening long positions during the prior crash, it should not be viewed as a crash but as the next buying opportunity.
Other Articles of Interest
Paradoxes: The Scorpion And The Frog (May 14)
Getting Even With China (May 6)
Google Stock Price Projections For 2020 (April 28)
Apple Stock Predictions For 2020 and Beyond (April 24)
From GMO Foods To GMO Humans: What’s Next (April 05)
Trading The Markets & Investor Sentiment (March 3)