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Trump Bubble Bursts, Stock Market Panic Dow 1175 Point Crash Analysis

Stock-Markets / Stock Markets 2018 Feb 06, 2018 - 06:00 AM GMT

By: Nadeem_Walayat

Stock-Markets

The Dow crashed by 4.6% on Monday, closing down 1175 points at 24,345, the largest one day points drop in the Dow's stock market history, wiping out ALL of the gains for 2018 in just a couple of trading days. With bullish sentiment now turning to Fear of what could follow now that the Trump Bubble has finally burst! Especially given the fact that the stock market was falling INTO the close which implies a continuation of the sell off when Wall Street opens later today (Tuesday).


We'll you were WARNED! As my opening analysis of the year pointed out that for the stocks bull market to remain healthy then IT MUST CORRECT, and the worst thing that the stock market could do was to continue on rallying in its increasingly exponential trend towards a mania bubble peak which would ultimately replicate what was happening to Bitcoin at the time in the stock market indices, and thus my conclusion was that a rational market would seek to correct it's already overbought state by trending from the then near 25k level down to 23,000 over the next couple of months or so.

01 Jan 2018 - Dow Stock Market Trend Expectations into Early 2018

A quick look at the Dow chart shows that despite being overbought, the Dow is not showing signs for an imminent demise to this stocks bull market. Whilst the most probable trend likely to materialise over the first few months of 2018 is for the Dow to revert back down towards hugging the central trendline that currently stands at very distant 23,000. So ahead of my in-depth analysis I would not be one for expecting the Dow's December surge to continue during January, instead expect the Dow to unwind its overbought state.

Dow Stock Market Forecast

However, that is NOT what happened as the stock market not only failed to correct but continued it's mania building rally, busting through to a high of 26,600.

A trend towards which had me increasingly alarmed for the bull markets future prospects, even warning of a possible 1929 moment, where the stock market not only crashes, but CRASHES and BURNS in a BEAR MARKET that could result in a 90% wipeout just as occurred following the 1929 CRASH. So the higher the stock market climbed the greater the probability for a 1929 Crash and Burn moment became.

23 Jan 2018 - Stocks Bull Market Appears to have a Destiny With 1929

Clearly given the ongoing rally the market is continuing to deviate from my expectations. For me this is a RED DANGER WARNING FLAG! That I need to do in-depth analysis of to try and get a grip with, and even then I may not be able to wrap my head around the markets current behaviour. However, the thought that is increasingly coming to mind is 1929. You know what happened in and after 1929, the stock market did not just crash, it crashed and burned for three long years from a peak of around 390 to a low 40!

Yes, I am a stocks bull, and despite being bullish on sectors such as Artificial Intelligence, I am seriously considering liquidating most of my remaining stock holdings which despite the rally are at about 50% of peak exposure i.e. I sold 50% of my holdings a year ago, and sold some more during the remainder of 2017. But seriously this is not healthy, yes, I am prepared for a temporary 20% to 30% loss on what's left when the market turns, not 'IF' but when it turns! BUT a 90% LOSS over 3 years! That would be PAINFUL!

So with the stock market finally having started to correct towards my long standing target of 23,000 at the start of February, did start to put my mind at ease that the probability for a 1929 crash and burn scenario was diminishing as I wrote only early yesterday. And then we had the afternoons late trading session plunge in the Dow which was a PANIC EVENT. Though of course not on par with the likes of 2008, or most of the memorable panic events, even if some of the mainstream press have gotten carried away with their DOOM headlines.

As for what happens next, well I expect the sell off to continue and so the market to be wobbly for a day or two. Whilst my forecast remains since the start of the year for the Dow to target a correction to 23,000 during the first quarter of 2018, which given the spike in volatility could even be achieved this week in a Trumpesk Chaotic manner.

Nevertheless, given the deviation to date against my forecast expectations at the start of the year, then I really do need to undertake an in-depth analysis of the stock market to determine the most probable trend going forward which will be the focus of my NEXT major analysis, so do ensure you are subscribed to my always free newsletter and youtube channel for my forthcoming in-depth analysis and detailed stock market trend forecast.

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2018 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Housing Markets Forecast 2014-2018The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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 trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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