![]() Third, that November 2016 notation, “Election,” reminds us that politics helped spur the market by some unknowable amount.Second, the technical levels are significantly below the market’s current level.First, the steady 2017 bull market rise offers no foundation building areas that serve as clear support levels.(The current picture is still far from heightened negativity.) It may be during a vicious selloff or a steady fall in prices (like in March 2009). The purpose is to attempt to buy when investors and the media are at their most negative. The emotional picture - A contrarian evaluation of the negativity. The objective is to identify the points at which traders and technically-oriented investors could see weakness and opportunity. The technical picture - An evaluation of graphs to determine what the stock market and individual stocks are doing: both price movements and trading volume. Therefore, we must turn to two non-fundamental areas: (For example, Caterpillar, with miserable earnings, will be selling at its highest price/earnings ratio). Therefore, fundamentals are both poor and misleading for trying to determine when the bottom is near. Moreover, the weak earnings of the time will create seemingly overpriced stocks, especially among the cyclical companies. The only way to answer this question is to forget fundamental valuations. Facts and forecasts will steadily decline as well as become more uncertain. Then, when times get tough for everyone, you will have the cash reserves that can help steady your emotions and accomplish what few do: Buy low. Force yourself to be the first on your block to get panicky. The only way to endure such a period is to avoid being fully invested now. Don't expect them to hold up in such an environment. Even the professionals (fund managers, analysts, and those previously calm advisers) will feel a fearful certainty that the worst is yet to come. They come from the terrible declines/losses, from the awful fundamentals and from the crush of disheartening media coverage, complete with frightening visions of what is coming. Every capitulation-panic-crash period produces immensely powerful, negative emotions. They are confident that they will not be one of those weak investors that succumbs to the bear market and sells everything at the bottom. Investors, encouraged by calm and seemingly knowledgeable advisers, believe that they can ride through a bear market. The common problem is reliance on the misleading refrain, “stay invested because you cannot time the market.” Believing one can ride out a bear market is a set up for major distress if/when this market hits new lows and the fundamentals (which always lag) begin to show why this selloff began in October. Bear markets can decline by any amount (20% is neither a definer of bear markets nor a limit of decline).Bear markets can last from many months to well over a year (2019 could be the year of the bear).These two characteristics of bear markets, when understood, will create dismay: Two negative realities that are missing from investors’ thinking Importantly, while slowness does not always mean a recession will follow, it does raise the risk because recessions always begin with slowing growth. What we are seeing is some “good, but less than expected” business and economy reports that support a slowing growth forecast, the primary concern. This breadth of risk requires time and proof to show its true extent. Moreover, the fundamental concerns behind this bear market are both significant and numerous. The next earnings report season is two months off, and management outlooks will likely contain unenthusiastic expectations and even slowing growth confirmations. ![]() ![]() Yes, but not substantially enough and not soon enough. Unfortunately, that day will be dark – a time when the view of owning stocks turns negative and emotions take over.Īt that time, as in the past, we could see capitulation and panic produce a rout – a crash of prices as sellers’ offers swell and buyers’ bids evaporate. The fully-invested investor group does have another day coming in which it will play a major role in the stock market. Traders are now driving this market. They rule the stock market because fund managers, investment advisors and individuals are either already fully invested (hopeful spectators), or have taken defensive actions based on the bear market’s current level (skeptical viewers).ĬNN's panicky view is coming, but not yet All it takes is a drop through the weak barrier it sits atop to reignite trader selling and short selling. Therefore, with investors sitting out this "dip," the natural next step is for this bear market to slash prices. ![]()
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