It is funny watching people panicking about last week market decline.
Many panic and predict bear market. Many are guessing what happens next. Some are drawing their charts drawing lines of the next decline and claiming historicity of their claim.
Claiming historical evidence and predicting the drop all the way down to 2275 indicates more a lack of studying the history than knowing history.
And ignoring broader context.
Bear markets don’t come in 2 days
Bear markets really do not start in a week or 2 days of a sharp drop. Drops are usually smaller not so violent and they are preceded by other warning signs. This market dropped suddenly and violently. Even the “we know all” media were baffled and guessing what may have caused such drop.
The bear markets are preceded by other signs which would warn you in time that bear market is coming: raising interest rates, declining corporate profits, and investors’ optimism.”
Although FED is raising rates, they are still historically low. In December 2007 interest rates were almost 5%, today, the rates are at 2.5%.
Corporate profits are raising with no sign of slowing. And investors’ optimism? They are spooked by any flow of a breeze out there. The amount of bearishness is outstanding. Many people are still sitting aside in cash, spooked by never ending predictions of bear market coming “tomorrow”. According to AAII 63% of regular investors are neutral to bearish. Only about 35% are bullish.
Add to it fear of valuation, trade war, political comments of the President, FED intervention, and fear of slow down in China, Italy, Greece, Egypt and others. The markets do not turn bear upon fears. Corrections? Yes, they do.
Fundamentally, this bear market is not showing signs of being rolling over.
Technically, this market is not showing any signs of a rollover either.
Look at the following charts with simple moving averages from 1930, 2000, and 2007, in comparison with 2018. Do they look same or similar?
If you think that they are same then yes, the bear market is coming!
But you may also need to visit an optometrist.
Some spooked investors claimed that we cannot compare long term trends with short term time frames. But the long term time frames determine the short term.
If the long term indicates that we are in a cyclical bullish trend, and in fact, we broke from a long term consolidation (24 year long) in 2016, we are more likely to see a growth than another bear market:
If you know in what cycle the market is you may rest calm about any corrections or short term bear markets. I recommend watching a video made by Chris Ciovacco analizing the market from a distance. This definitely helps not to panic and stay the course when selling like this happens:
Corrections are healthy and needed for the stock market to go higher. There is no need to panic. However, there is a need to watch the market because although fundamental and technical reasons for this bullish market hasn’t changed it may change any day. and it will change for sure. But be assured that you will be able to react to the change. The rollover of the market is a process and it takes days and months before you see the market making bearish moves. Last week’s movement wasn’t it, yet.
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A reader of mine recently sent me a question: “…is it possible to show me step by step a trade you have recently made with puts?” I decided that it may be a good idea to write a post depicting the entire process step by step with pictures and show how I decide and place a trade.
I am trying to get back on track posting regularly our trading and investing results.
Markets were again struck by fear selling and media were coming up with tons of reasons why. At first, it was tech stocks such as AAPL driving the markets down, then semiconductors, later oil… all in one day. You could play the miney, miny… game to pick the reason. Granted, they do it all to entertain. However, the selling appeared to be purely technical, as I will present in this article, and quite predictable. Not that I predict the markets, I still have expectations but I do not trade to fulfill those predictions but use them to help me navigate the trade.
Investors and traders were afraid of what the stock market would do over the weekend due to an air strike in Syria. Myself included. I too was worried about the reaction on Monday. But there was no impact. The air strike ended on Saturday evening and as Trump said: “Mission accomplished” (we have heard this about Iraq once); the markets actually rallied. The S&P 500 futures opened more than 15 points up on Sunday and the market ended Monday trading 21 points up. Is there anything else coming on us we should be worried? I hope not. And if we are good now, no more Trump’s political escapades, no more wars, no other issues, then it will only be earnings season determining the next move. The banking earnings started lukewarm on Friday last week but today a few companies, reported good earnings. I hope this will continue and prop the market.
The market were finally on the path of recovery, the chart was clear, markets calm, shrugged the trade war, and going higher. Yesterday we saw dip buyers jumping in and buying cheap stocks recovering a market which was down 35 points finishing 35 points up.
Yes we survived one potential catastrophe from FED but Trump makes sure we have another coming. His tariffs on China sparked enormous fear on Chinese retaliation and we sold off heavily.
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