Brussel Explosions and Big Market Trends - Mike Swanson (03/22/2016)
They are ratcheting up the fear today on Fox News and CNBC, because two explosions have hit Brussels and over a dozen people are dead. One of the explosions was apparently carried out by a suicide bomber, so we are looking at a probable terror attack.
Europe is becoming more dangerous, because the chaos in the Middle East in Syria and Iraq is spreading there.
Nation building games in Iraq and Syria have failed and people are leaving those nations and flooding into Europe. And because these areas of the world are now ISIS incubators some of the people going into Europe are terror monsters.
And monsters are scary.
(BTW - if you watch what the political polls do over the next week for Clinton, Trump, and the others and see who gets a bump in the polls compared with one another after this terror attack you will see who will be the likely Presidential race winner in November. In the last election when there was a bad news story of a movie shooter or New Jersey hurricane Obama bumped in the polls every time in 2012. What happens is that the elections are decided by swing voters who have no loyalty to either party, but vote for the person they think is the strong leader that can protect them or do things for them or against their enemies. In the last election people thought Obama was more of a good big brother for them than Romney could be. It will be curious to see what the polls do over the next week)
Now back to the financial markets.
So the S&P 500 is poised to gap down a few points on the open.
But never EVER has a terror attack made the market go down in a new big downtrend.
Terror attacks for people safe in their homes and looking at the financial markets are a simple news item.
And every day there are news items that create short-term gyrations that become meaningless when it comes to the financial markets.
What is more important are the big trends of the market.
And for the US stock market that big trend is still down, because we are very early in a bear market.
There are four stages to a financial market cycle in a stock or entire financial market. As you know you can have a bull market. Before a bull market starts though you usually have a stage one basing phase in which a market simply goes sideways and builds a base.
Then it breaks out and begins a full blown stage two bull market that typically lasts for several years. Then there is a stage three topping phase and then a stage four bear market.
There are various technical indicators you can use to determine when these stages are coming to an end so you can make the proper adjustments. That's a topic a little too big to get into now, but we can look at the basics right now. I can quickly show you one important indicator to watch to identify the trend the market is in.
That's the long-term 150-day moving average, which is simply a line plotted on a chart using the average price number of the past 150-days.
In a bull market this line slopes up on a chart and the price of the market tends to stay above it, so it acts as a nice price support level in a bull market to make for a good entry point timing mechanism.
In a bear market this line slopes down on a chart and the price of the market tends to stay below it and it acts as resistance.
So you can use this moving average to quickly identify the trend of a market. Then you can know if you should be bullish on a market or not.
Take a look at the S&P 500.
Last year the S&P 500 completed a stage three topping process just like it did in 2007.
Then in January it dumped through its 200-day moving averages hard.
In February and March it bounce back above it.
But that rally momentum is fading and the market is now simply drifting.
It looks to me that it is starting to act right now just as it did in November when the last rally stalled out and like it did several times in the 2007-2009 bear market after similar rallies stalled out.
What you would see is leadership push the market up in a small segment of stocks and then most stocks start to stall out.
So even with this recent rally less than 35% of the stocks in the entire Nasdaq have been able to rally back above their 200-day moving averages.
And the fad "FANG" stocks such as Amazon and Netflix have been acting weak and drifting for a week already.
The Nasdaq is lagging the DOW.
The leadership on the rally came from a few big back DOW stocks such as IBM and MMM.
What is important though is that today's gap down is not likely to cause some instant stock market crash, because we are now in a rally exhaustion topping phase in a bear market like last November.
During such times most stocks do start to act weak again, but the averages tend to drift on low volume and lower volatility for a few weeks.
It all becomes a setup for the start of a giant dump.
And this bear market has a long ways to go.
Here is John Hussman's target from an article he just released today titled Extinction Burst:
From a long-term investment standpoint, the stock market remains obscenely overvalued, with the most historically-reliable measures we identify presently consistent with zero 10-12 year S&P 500 nominal total returns, and negative expected real returns on both horizons.
From a cyclical standpoint, I continue to expect that the completion of the current market cycle will likely take the S&P 500 down by about 40-55% from present levels; an outcome that would not be an outlier or worst-case scenario, but instead a rather run-of-the-mill cycle completion from present valuations. If you are a historically-informed investor who is optimistic enough to reject the idea that the financial markets are forever doomed to extreme valuations and dismal long-term returns, you should be rooting for this cycle to be completed. If you are a passive investor, you should at least align your current exposure with your investment horizon and your tolerance for cyclical risk, which we expect to be similar to what we anticipated in 2000-2002 and 2007-2009. For more data and detail on these views, see The Next Big Short: The Third Crest of a Rolling Tsunami, and Rarefied Air: Valuations and Subsequent Market Returns.
So that is what is happening in the market now.
But everyone is asleep and on Friday the market is closed so even fewer people are watching the real trends of the market now.
And today they have the terror news to focus their attention on.
So few will analyze the big trend of the market today or make decisions based on it, but some will and they will be the winners as this continues while most spin their wheels.
Now gold is up today too and gold often has short-term moves up when there is a terror attack.
But terrorism and war has never created a new bull market in gold.
Look at gold though.
Gold has had a huge rally this year from around $1050 and advanced towards $1,300 an ounce to break through it's 200-day moving average and complete a stage one base.
So gold is now in the beginning of a bull market.
That means gold is the place to move money to make money, because the big trend is up.
This is all that is important now for gold.
Today's news means nothing for gold in comparison to the big trend.
Now if you want to take advantage of these market trends the best way you can do it is get into my Power Investor group.
I'm running a special offer that expires on Thursday for you to get a trial membership to Power Investor for free as a bonus to my POS Stocks Course offer.
That offer expires Thursday so to start go here.
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