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The Talk of US Stock Market Crash Does Not Make Sense

Stock-Markets / Stock Markets 2015 Sep 17, 2015 - 01:24 PM GMT

By: Submissions

Stock-Markets

Nicholas Kitonyi writes: Over the last few weeks, there has been a lot of talk of a possible US market crash. This comes following a substantial decline across all the major US Indices and their associated ETFs which saw them drop by 6%-9% between late August and early September.

However, we have already witnessed significant resurgence in US markets over the last few days, which suggests that investors still remain optimistic.


Jason Collins, a senior analyst with OptionsClick tells me that the recent plunge in the US stock market provided a perfect opportunity for traders to buy.

“The US market is taking a very similar trend to what we have seen in over the years. Technically speaking the movement is always an upward trending zigzag, expect for special situations like recession, and I do not see us undergoing another recession. Now is a good time to buy”, Jason said.

In some quarters, this is seen as a market correction phase, and thus whatever we witnessed between late August and Early September may be nothing more than a small market correction, which was long overdue. Now, when a sudden dip in market prices takes place, the inexperienced traders tend to go on a selling spree, however, the more seasoned investors take this opportunity to buy while the market looks cheap.

Market movement sometimes does play tricks on investors, and inexperienced traders are mostly the victims at the end of the day. According to leading brokers, lack of experience mostly leads to panic trading, which then results in massive losses.

And at Jason Collins’ firm, which is regarded as one of the best binary options brokers as per this OptionsClick review and many others, the recent plunge in US markets and the subsequent rebound caught many of the inexperienced traders by surprise, simply because they really never look at the key details.

Why investors should remain optimistic

Generally, a bear market is often preceded by a lackluster economic condition. The US economy has remained bullish for the larger part of the last 12 months, and that remains to be the case. Illustratively, the US unemployment rate remains at low levels of between 5.5% and 5.8% since September last year, while Jobs numbers continue to impress one month to the other averaging about 240,000 new jobs per month, over the last two years. In addition, the US economy is on course to grow by about 2% this year, which is the best amongst all the developed countries.

Now, when you look at the two charts above on a multi-year basis, it is clear that the US economic condition based on these two measures is nearing the levels for the pre-financial crises of 2008/2009, which thus suggests that the US economy remains on the right track as far as recovery is concerned.

This means that there should be no cause for concern with regard to the possibility of a market crash, because the immediate future looks bright.

The other thing is that outside of the energy and in particular oil and gas industries, the rest of the market appears to be doing pretty well. As such, even given the obvious plunge in profits for oil and gas stocks, other sectors such as technology continue to perform better. Therefore, it would be reckless to judge the whole market based on one ‘deadbeat’ sector.

There is also the fear that the underperforming Chinese market could drag the US stock market to a crisis. This cannot be true because, the US reliance on China is very small. Analysts estimate it at about 2% in terms of revenues coming from china for US stocks, which means that this cannot hurt the US market.

Another major positive as to why the US stock market is not headed for a plunge is the manner in which the Federal Reserve has been handling things. The Fed has remained impressively cautious only promising to increase interest rates gradually, in phases.

This means that investors are unlikely to be hit by a major negative impact resulting from decision made by the Fed. If the Fed was intent on raising interest rates all at once, the uncertainty could be very high, but at the moment that is not the case.

Conclusion

The bottom line is that at the moment, the US markets appears to be on a recovery campaign following what was really a slight correction. The general trend though is still upward trending and there are several factors that support this case scenario.

Therefore, those that are worried of a possible market crash should remain calm, because at the moment, the US market is the best bet amongst the developed countries for obvious reasons. In addition, with interest rate hike well on the horizon, this should be able to maintain the bullish outlook, at least for now.

In summary, whether you are a trader or a long term investor, it may be worth your while to look at U.S. markets drivers before speculating on what could happen next purely based on technical analysis.

By Nicholas Kitonyi

Copyright © 2015 Nicholas Kitonyi - 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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