Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Micro Strategy Bubble Mania - 10th May 24
Biden's Bureau of Labor Statistics is Cooking Jobs Reports - 10th May 24
Bitcoin Price Swings Analysis - 9th May 24
Could Chinese Gold Be the Straw That Breaks the Dollar's Back? - 9th May 24
The Federal Reserve Is Broke! - 9th May 24
The Elliott Wave Crash Course - 9th May 24
Psychologically Prepared for Bitcoin Bull Market Bubble MANIA Rug Pull Corrections 2024 - 8th May 24
Why You Should Pay Attention to This Time-Tested Stock Market Indicator Now - 8th May 24
Copper: The India Factor - 8th May 24
Gold 2008 and 2022 All Over Again? Stocks, USDX - 8th May 24
Holocaust Survivor States Israel is Like Nazi Germany, The Fourth Reich - 8th May 24
Fourth Reich Invades Rafah Concentration Camp To Kill Palestinian Children - 8th May 24
THE GLOBAL WARMING CLIMATE CHANGE MEGA-TREND IS THE INFLATION MEGA-TREND! - 3rd May 24
Banxe Reviews: Revolutionising Financial Transactions with Innovative Solutions - 3rd May 24
MRNA - The beginning of the end of cancer? - 3rd May 24
The Future of Gaming: What's Coming Next? - 3rd May 24
What is A Split Capital Investment Trust? - 3rd May 24
AI Tech Stocks Earnings Season Stock Market Correction Opportunities - 29th Apr 24
The Federal Reserve's $34.5 Trillion Problem - 29th Apr 24
Inflation Still Runs Hot, Gold and Silver Prices Stabilize - 29th Apr 24
GOLD, OIL and WHEAT STOCKS - 29th Apr 24
Is Bitcoin Still an Asymmetric Opportunity? - 29th Apr 24
AI Tech Stocks Earnings Season Opportunities - 28th Apr 24
S&P Stock Market Detailed Trend Forecast Into End 2024 - 25th Apr 24
US Presidential Election Year Equity Performance in the Presence of an Inverted Yield Curve- 25th Apr 24
Stock Market "Bullish Buzz" Reaches Highest Level in 53 Years - 25th Apr 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Bearish Turn In The Stock Market

Stock-Markets / Stock Markets 2016 Jan 13, 2016 - 02:29 PM GMT

By: Harry_Dent

Stock-Markets

Large-cap stocks opened this morning in the green, seeming to offer a little reprieve from an ultra-violent start to 2016. Small- and mid-caps weren’t so lucky. They’re continuing to rip through fresh new lows.

This has been the toughest bull market and bubble to call, as many leading indicators that we have used in the past simply don’t work since central banks hijacked the markets after 2008. But with these major divergences continuing to build, and after many years of the Fed’s zero-percent interest rates, it seems we’re finally coming close to the end.


You just can’t have a recovery that’s driven entirely by government stimulus. It only works when consumers start spending again and businesses expand to meet the demand.

Otherwise, you prevent the economy from rebalancing naturally, and only encourage greater speculation and bubbles… and that’s exactly what these bogus policies have done.

I’ve been warning more and more strongly from late 2014 forward that this bubble finally looked like it was peaking after going much longer than anyone could have imagined. But into May of 2015 it continued to edge up to slight new highs. Since then we have continued to make lower highs on each rally – what I call a “rounded top pattern.”

But there’s a classic indicator that tells when a major bull market or bubble is finally peaking. I was suspicious that this indicator would not work this time in such an artificial market and economy. But it’s working like a charm.

That indicator occurs when small-cap stocks greatly underperform large-cap stocks. This is a sign that the dumb money is piling in and the smarter money is exiting. It’s like the generals advancing without the troops.

Analysts use the advance/decline line to measure this phenomenon. But since it can get confusing, here’s a simpler take on it: the value line geometric index (the blue line in the chart below).

This is an equal-weighted and broad index of stocks. Instead of Amazon and Google counting for god-knows-how-much of the S&P 500 and skewing our sense of the broader market, this index weights them all equally.

That way you get a sense for how the broader market is doing. So look at how it’s doing compared to the S&P 500:

It shows that the “typical” stock is already in a bear market – down 21% as of yesterday.

The Dow and S&P 500 and the Nasdaq are all weighted by market value and that makes the largest stocks dominant in such indices. At the end of a bull market, the least sophisticated investors pile in and they buy the big-name stocks that they know – Apple, Coca-Cola, Facebook, Nike, Google, Amazon.

Those stocks get super overvalued. Do you realize that Amazon is up 120% in the last year and that its price/earnings ratio is currently at 870 times a 12-month trailing earnings of $0.70? That’s insane!

This is a time to sell on rallies, not buy on dips.

Stocks appear to be coming back after a rough start to the year, but I ultimately project they’ll be down to 5,500 to 6,000 by early- to mid-2017, and possibly sooner. My strongest warnings were at a Dow of 17,300. We’re about 1,000 points below that now, so if we get a sustainable bounce in the weeks ahead, sell any holdings you don’t have allocated to a specific, active investing strategy.

It’s better to get out of a bubble a little early than a little late, as bubbles burst at least twice as fast as they build…

It’s still not too late to get out of this one.

Harry

http://economyandmarkets.com

Follow me on Twitter @HarryDentjr

Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.

Copyright © 2016 Harry Dent- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Harry Dent Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in