Even though I have talked in my videos and on twitter about potential drop for months, I didn’t expect that to come in this manner. 10,800 for $DAX was reached, 10,200 is the next… For Russell 1,300 is reached. Signs were there – bearish divergence between Jan and Oct highs on SPX, parabolic charts of leading stocks, narrowing leadership to just small number of stocks… ignoring trade war possibilities and so on…
Now when I look at this, markets have been feeding on QE and tax cuts promises and lost touch with the real economy long time ago. I can remember from school that saying “Stock market is the mirror of the economy”… But, is that really the case? Bigger drop that was absolutely necessary was delayed and delayed… and we had 22 corrections (drops of more than 5%) since the 2009 lows. But nothing significant and markets got very expensive. In order for market to rally, it has to crash first. All great rallies came after crashes. In the same time, fund managers were telling the same story over and over again to attract new investors. European and Asian markets were diverging from US markets for a long time, and that was ignored also. The thing about buy-and-hold is TIMING. Bad timing – and you are sitting on a dead money for years. Easy to hold if you bought stocks anywhere from 2009-2016 period. What about starting to invest in 2018? Probably a lot of scare.
A friend of mine asked me when $AMZN was around $1,850 would I buy that, since he was approached by some fund and idea of investing for the first time have cross his mind. I have opened my mouth to say “No”, but he interrupted me and said – “That stock is already way to high, Idk, but isn’t that was like much lower price before… can it go higher like that”? A man that never was involved in stock market in any way skipped that “opportunity” by just using common sense. Timing.
Open $SPX weekly chart and look at the drop from the 2000 dot-com bubble, then compare that with the GFC 2008 drop. Do you see the difference in speed? Now we have even faster drop. IMO, forget the oversold readings, the fear & greed index and such, since all of that can have some meaning only in normal market behavior. This is not the norm - so what can we do then? There is some hierarchy in technical analyses. IMHO, No. 1 in TA is horizontal S/R levels/zones. Now see if market respects them or not. Look at the PA around those levels. None of the indicators will work when margin calls force managers to close positions. We are likely in the first leg of the bear market, with the lower lows to come. As I said on twitter and in my videos, the entire “Trump rally” is in danger to retrace 100%.
You can check my videos on YouTube, there is a “Weekly videos” playlist - videos with large time frame analyses.