Stock Market Correction

Is a Major Stock Market Correction Still Ahead?

The equity markets have enjoyed a strong bull run for the last 8 weeks. And there’s lots of money in the system to support higher prices. But there’s significant dangers to watch for too.

Just as earthquakes and volcanic eruptions send out minor tremors before a big event, we have to wonder if last weeks sudden drop of 1800 points on the Dow Jones was a warning of something bigger coming.

How would a drop of 4000 points in one day go over sometime in September? How about a 2nd wave cooling of 10,000 points?  A cooling trend might be hard to stop as the Covid 19 nightmare awaits us in the fall.

Market Tremors

Are these market tremors signalling a potential stock market crash that could send the US economy to its knees? Who could come to the rescue?

Very few economic or stock market experts called for last week’s tumble. A few did mention they felt a correction was coming, but didn’t know when, where, how, why or by how much.

It’s incredible with all the history, software tools, and inputs they have that they can’t predict these things?  Investors should definitely be looking into AI stock prediction solutions for market guidance.

Jim Cramer Chimes In

Mad Money’s Jim Cramer took an interesting point of view, saying “It got too easy and now we all have to suffer as the get rich quick crowd gets blown out.”  Wow, really, the small retail investors are driving the markets?  What about institutional level investors? Didn’t they panic too?

First time I heard Cramer talk democrat-ic.  I want him to present solid proof that institutional fund managers didn’t panic on Thursday.

Stock Market Indexes. Screenshot courtesy of Yahoo Finance

The stock market experts all have their bag of stock market correction warning tools, and that said “something’s up here.”

What are those correction warning signs? Let’s list 11 of them:

  1. only a few stocks in the indexes are actually doing well
  2. stocks are trading below their 200-day moving averages
  3. big brokerages are forecasting a decline
  4. small business is suffering, with bankruptcies estimated in the millions coming
  5. hundreds of thousands of small retail investors who panic at the drop of a hat
  6. stocks are overvalued and price to earnings ratios are ballooned propped up by easy Fed money
  7. big fund managers and small investors may lack commitment to the market
  8. presidential election jitters begin testing voters’ commitment
  9. another Corona Virus second wave seems very likely
  10. Corona Virus vaccine distributed across the US seems a long way away
  11. the end of stimulus and the long gap to the U shaped business recovery

There are some definite warning signs in these indicators,” Mark Newton, president of technical analysis firm Newton Advisors, told MW. He recently downgraded his medium term outlook from bullish to neutral, and he anticipates a significant stock market decline in the fall. Meanwhile, Morgan Stanley is forecasting a 10% correction. — from Investopedia report.

Technical Support May be Troubled

In a Barron’s report on a potential stock market corrections, Sundial Capital Research’s Jason Goepfert said that of the 29 previous times the S&P 500 broke lower through the 50-day 21 times and then traded higher through the 200-day period only 8 times. To him, it suggests there’s a 72% chance that a downward slide is coming.

Slide sounds slippery, like it could get out of control. Is there anything cushiony at the bottom of this learning experience?

Goepfert noted that even when the S&P 500 broke through its 200-day moving average, the S&P consistently traded lower for the next six months, with an average decline of 12.7%.

Goepfert said “The trouble is basically that buyers haven’t shown enough oomph to make any progress lately, … it has indicated larger problems and that has almost always meant further weakness ahead.”

The Economy Supported by Consumers

The US economy has performed well based on consumer optimism and consumer spending. But consumers had the wallets taken away from them, and many won’t be coming back to pay checks. Restaurants, tourism services, entertainment, and more won’t be coming anytime soon.

It remains to be seen whether the restaurant industry can continue given people are eating at home to be safe, and that restaurants can’t pack them in like sardines anymore. Their business model has been crushed.

At the same time, President Trump is pressured to do something about the China Trade problem. Weaning off of China dependence and promoting American manufacturing and business development could bring sudden conflicts and short term wrinkles, which the Democrats could exploit via (outdated) TV and newspaper media.

Is Anyone Trying to Manipulate Public Sentiment?

Investing is an emotional thing, and the Democrat media consistently incite negativity into every event, every minute and day of the year. That media output is magnified online via Youtube and Google search.  That emotion can also be released at odd, uncharacteristic times.  That incites volatility.

But hey, if you’re in “in it to win it” then nothing should surprise us.

Consider how out of control and contorted the “Black lives matter” protests got. A small number of people, inflamed by a multi billion dollar media empire. Like dousing your portable barbecue with gasoline.

A lot of US companies are married to China supply chains, and would become dysfunctional during this transition.
Fed stimulus could iron over a major correction or even stave off a stock market crash. But what if the tap runs dry out of political reasons?

Magnifying and the Media

With the Democrats running media campaigns that are hitting home with big negativity, the death of the current economy might seem like a salve to some Americans, particularly democrats.

If voters feel President Trump has no power left to boost the economy or stock markets, or that the stock markets are irrelevant to their well being, could they choose not to vote for him?

These stock market corrections might well be a test in Americans commitment to America First, or whether to backtrack to the old trade deficit days and big imports. Most Americans know nothing about macroeconomics, trade deficits, nor can they see very far into the future. They’re focused on survival right now, and survival landscapes might not be ideal for the Republicans.

Stock prices are an estimate of the future value of a stock, and when prices decline, it means pessimism about the future.

Stock market corrections are just a tremor, but big tremors are not something to ignore.

 

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