Stocks Have Taken Out Critical Support… Prepare Now!Stock-Markets / Stock Markets 2016 Feb 18, 2016 - 02:30 AM GMT
One of the most critical lines to watch is the 12-month moving average for stocks.
Historically this line has served well as a proxy for determining if stocks were in a bull or bear market. When stocks rallied above this line, they were in a bull market. When they fell below this line, they were in a bear market.
As you can see, this line was a great metric for targeting when to enter or exit the markets.
The significance of this line was somewhat obscured by Fed policy post-2009. Put simply, anytime stocks broke below the critical 12-month moving average, the Fed unveiled a new monetary program to reignite the bull market.
However, starting in 2011, the Fed got its wish (a long-term bull market) by convincing enough investors that whenever stocks collapsed into dangerous territory, the Fed would stop in. From that point onward, stocks stayed above the 12-month moving average.
The China Yuan devaluation in August 2015 triggered a sharp sell-off for stocks that took us below the 12-month moving average. The bulls tried desperately to reclaim this line in October-December but have failed.
On top of this, the Fed is now tightening rates. And with a US Presidential election only nine months away, the Fed’s hands are tied regarding another QE program (the fact the Fed’s policies have increased wealth inequality has become a campaign issue).
Which means… stocks have very likely just entered a bear market. Few investors have caught on to this yet, but when they do, there will be a selling panic, possibly even a CRASH.
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© 2016 Copyright Graham Summers - 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.
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