Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Jeff Gundlach thinks that a Stocks Bear Market has started. Is he Right?

Stock-Markets / Stock Markets 2018 Dec 18, 2018 - 11:07 AM GMT

By: Troy_Bombardia

Stock-Markets

The S&P is now sitting at a 1 year low. And of course, traditional technical analysis states “if the S&P breaks below this support level, watch out below”.


Go here to understand our fundamentals-driven long term outlook.

Let’s determine the stock market’s most probable medium term direction by objectively quantifying technical analysis. For reference, here’s the random probability of the U.S. stock market going up on any given day, week, or month.

*Probability ≠ certainty. Past performance ≠ future performance. But if you don’t use the past as a guide, you are walking blindly into the future.

Crash in December

It’s not common for the stock market to tank in December because of the Santa Claus Rally seasonality. When it does tank in December, that is usually a bad sign for stocks.

Here’s what happens next to the S&P 500 when it drops to a 1 year low in December:

*Data from 1927 – present

As you can see, forward returns are decidedly bearish 6 months later.

Here’s another way of looking at this.

Here’s what happens next to the S&P 500 when it has an intra-month drawdown of at least -8% in December.

Once again, this has a slight bearish lean.

And lastly, this has been one of the worst declines in Q4. Big declines in Q4 are uncommon due to bullish seasonality.

Here’s every single case in which the S&P fell more than -13% in Q4, from 1900 – present.

That’s a lot of bear market years. But interestingly enough, this isn’t consistently medium-long term bearish for stocks, because this often happened towards the end of bear markets.

Strong selloff

Such strong selloffs like the one right now is usually the setup for a medium term rally. Sentiment is fearful.

14 of the past 50 days have seen the S&P fall more than -2% on the intraday (today’s LOW vs. yesterday’s CLOSE). This is extremely uncommon when the S&P is within 15% of a 1 year high.

Here’s what the S&P did next, from 1962 – present

As you can see, the stock market rallied in both of those cases.

n = 2 (small sample size)

Homebuilders sentiment

The housing market has been deteriorating since August, and this downtrend is accelerating. For example, the NAHB Homebuilder Sentiment Index just slumped.

Over the past 2 months, the NAHB Index has fallen by -12 points, which is rare. From 1985 – present, this has only happened 3 other times.

This is important because fundamentals are generally more useful than technicals. This suggests that housing – one of the key leading indicators in the economy – will continue to deteriorate throughout 2019.

Mean reversion that doesn’t always play out

The NASDAQ has seen a lot of big DOWN days over the past 50 days. Is this a sign that the stock market will mean-revert upwards?

Here’s what happened next to the S&P 500 when the NASDAQ saw at least 11 -2.5% days in the past 50 days.

*Data from 1971 – present

As you can see, the stock market tends to bounce 1 month later.

Here’s a similar study for the S&P 500.

Here’s what happened next to the S&P 500 when at least 3 of the past 10 days have seen the S&P fall more than -2%, while within 15% of a 1 year high.

*Data from 1928 – present

This has a slight bearish lean over the next 1 week.

Jeff Gundlach thinks that this is the start of a bear market

Jeff Gundlach thinks that this is the start of a bear market. Is he right?

Right or wrong, it’s better to form your own stock market outlook. Jeff Gundlach is really good at predicting bonds. His stock and commodity predictions have over the years been no better than a 50/50 bet.

Never trade just because “so and so said to buy/sell”. Always look at the data and facts for yourself. If someone you follow is bullish/bearish, always look at WHY they are bullish/bearish. Focus on the reasons, and not who it’s coming from.

Click here for yesterday’s market studies

Conclusion

Here is our discretionary market outlook:

  1. For the first time since 2009, the U.S. stock market’s long term risk:reward is no longer bullish. This doesn’t necessarily mean that the bull market is over. We’re merely talking about long term risk:reward.
  2. The medium term direction is still bullish  (i.e. trend for the next 6 months)
  3. The short term is a 50/50 bet

Goldman Sachs’ Bull/Bear Indicator demonstrates that while the bull market’s top isn’t necessarily in, risk:reward does favor long term bears.

Our discretionary outlook is not a reflection of how we’re trading the markets right now. We trade based on our clear, quantitative trading models, such as the Medium-Long Term Model.

Members can see exactly how we’re trading the U.S. stock market right now based on our trading models.

Click here for more market studies

By Troy Bombardia

BullMarkets.co

I’m Troy Bombardia, the author behind BullMarkets.co. I used to run a hedge fund, but closed it due to a major health scare. I am now enjoying life and simply investing/trading my own account. I focus on long term performance and ignore short term performance.

Copyright 2018 © Troy Bombardia - 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.


© 2005-2019 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