The current US stock market - A very risk place indeed
Hello all,
on the heels of my most recent published report (A word of caution to investors - deflation is getting serious) I thought it would be of benefit to take a good look at the stock market and really try and quantify the risks to investors at the moment.
The problem with the stock market is that it is a business where when prices go 'on sale' no one wants to buy. Conversely, when prices are zooming higher, no one wants to sell. This flawed logic has caused many a lot of pain and is in my opinion the number one problem with 'investing'. Investors, in my opinion, last got their 'buy' signal way back in 2011 (See RI's S&P 500 Blog for more on that), yet sadly we will probably head into a euphoric buyer mania before the end of this current bull run. As traders we call it 'FOMO' or Fear of Missing Out, and is sadly a primary component of our human psych.
The public always buys at the top and sells at the bottom. In very opposite fashion, institutions often do the exact opposite (remember the smart money always makes money!). If I ask myself, if I was an institution and I was going to buy, about where would I get interested? The answer to the question is rather startling and in itself should be a big cautionary note. On the conservative side, if we top out within the next 5% (ie reversing at the 1.618 'golden ratio' fib) then the buying zone is 50% lower. Interestingly, if the market goes a little nutso here and rallies all the way up to the 200% extension target then again, the buying zone is 50% lower. Either way, institutions (in my opinion) have absolutely no interest at buying current levels before at least some sort of consolation/correction. Interestingly too, the 2007-2009 correction just so happened to be about 50%....hmmmm
Couple this message, with my previous publication and we got the makings of a serious problem here going forward (or an opportunity, depending on how you late at it). While it is far too early to be calling 'tops' in equities on a weekly basis, we should at the very least appreciate the 'riskiness' of stock ownership in general. At the same time, it is simply far too late to get in on this bull and 'investors' would be far netter served with their money in cash (remember the DXY bull market) and only consider stock market participation after some sort of cleanup phase.
Well that is my cautionary note for you today Yes, it appears stocks have some gas in the tank. A significant harmonic object is fast approaching and I don't see any reason why that level won't be hit. If you are trading off the lower time frames then that is one thing. However, if you are a buy-and-hold investor, this is not the time to be aggressive.
Cheers all and good luck in following those trading plans,
Brian
aka The Rational Investor
p.s. if you are serious about working on your trading skills and may actually consider trading for a living, please take a moment and visit our Bitcoin related trading site at www.therationalinvestor.co Along with regular blog posts and member videos, we run a school to teach aspiring traders the basic essentials to trading for profit over the long term. From risk management, to strategic planning to crafting a personalized trading plan, our 12 week program's aim is to give you the tools needed to survive and prosper over the long term. While the school has a bitcoin theme, all principles of trading are applicable across all asset types and classes...a good buy is a good buy...
on the heels of my most recent published report (A word of caution to investors - deflation is getting serious) I thought it would be of benefit to take a good look at the stock market and really try and quantify the risks to investors at the moment.
The problem with the stock market is that it is a business where when prices go 'on sale' no one wants to buy. Conversely, when prices are zooming higher, no one wants to sell. This flawed logic has caused many a lot of pain and is in my opinion the number one problem with 'investing'. Investors, in my opinion, last got their 'buy' signal way back in 2011 (See RI's S&P 500 Blog for more on that), yet sadly we will probably head into a euphoric buyer mania before the end of this current bull run. As traders we call it 'FOMO' or Fear of Missing Out, and is sadly a primary component of our human psych.
The public always buys at the top and sells at the bottom. In very opposite fashion, institutions often do the exact opposite (remember the smart money always makes money!). If I ask myself, if I was an institution and I was going to buy, about where would I get interested? The answer to the question is rather startling and in itself should be a big cautionary note. On the conservative side, if we top out within the next 5% (ie reversing at the 1.618 'golden ratio' fib) then the buying zone is 50% lower. Interestingly, if the market goes a little nutso here and rallies all the way up to the 200% extension target then again, the buying zone is 50% lower. Either way, institutions (in my opinion) have absolutely no interest at buying current levels before at least some sort of consolation/correction. Interestingly too, the 2007-2009 correction just so happened to be about 50%....hmmmm
Couple this message, with my previous publication and we got the makings of a serious problem here going forward (or an opportunity, depending on how you late at it). While it is far too early to be calling 'tops' in equities on a weekly basis, we should at the very least appreciate the 'riskiness' of stock ownership in general. At the same time, it is simply far too late to get in on this bull and 'investors' would be far netter served with their money in cash (remember the DXY bull market) and only consider stock market participation after some sort of cleanup phase.
Well that is my cautionary note for you today Yes, it appears stocks have some gas in the tank. A significant harmonic object is fast approaching and I don't see any reason why that level won't be hit. If you are trading off the lower time frames then that is one thing. However, if you are a buy-and-hold investor, this is not the time to be aggressive.
Cheers all and good luck in following those trading plans,
Brian
aka The Rational Investor
p.s. if you are serious about working on your trading skills and may actually consider trading for a living, please take a moment and visit our Bitcoin related trading site at www.therationalinvestor.co Along with regular blog posts and member videos, we run a school to teach aspiring traders the basic essentials to trading for profit over the long term. From risk management, to strategic planning to crafting a personalized trading plan, our 12 week program's aim is to give you the tools needed to survive and prosper over the long term. While the school has a bitcoin theme, all principles of trading are applicable across all asset types and classes...a good buy is a good buy...