Patterns and Indicators Signaling Stock Market Danger
Getting ready for your best retirement
North Dallas i January 12, 2019
We are going to kick off the new year by teaching you the habits needed in an easy to understand format so that you can live your best retirement tomorrow. As a bonus, Bob will discuss recent stock market troubles and talk about 2019 and the steps you need to take to protect and grow your money. Click HERE to register.
I thought I would take this week’s newsletter and update you on the newest of troubling indicators that are appearing. Keep in mind that we are trying to answer one question. Is this a pause in the bull market where a correction is taking place or is this the start of a bear market? This is a critical question and why these indicators are so important to watch.
Inverted Yield Curve
This is one of those things that I am not going to spend a lot of time explaining how it works. I am just going to explain what it means. An inverted yield curve occurred on December 3rd for the first time since the recession of 2008. It occurs when the short-term yields on bonds are higher than the long-term bonds. What you need to know - It is one of the strongest indicators that would show we are on the verge of a recession. It is an unusual occurrence.
There have been 9 recessions since 1955 and an inverted yield curve preceded 100% of them. Recessions are a high predictor of bear markets. You might ask - What about the growth in the economy, all of the wonderful things that Trump is doing, the tax cuts, etc?
I would respond this way. Would you like the state of the economy with all of the built in optics from Washington, or the real economy with the optics stripped? The reality is far different than what is marketed. Yes, a recession is not out of the question. Bear in mind, it is the last thing that Wall Street thinks is going to happen. Then again, Wall Street tends to live in the optics.
The Death Cross
Although it sounds ominous, it is not as ominous as it sounds. However, it does warrant paying attention when it happens. It happens when the 50 day moving average falls below the 200 day moving average. There are times that it happens and a bear market doesn't follow. However, it happens preceding every bear market. It looks like this:
You can see where the red line is crossing under the blue line. If anything at all, it makes for a great buy or sell signal in a market correction or bear market. You want to be in the market when the red line is above the blue line and out of the market or bearish when the red line is under the blue line.
The W Pattern
They don't really call it the W pattern. I am calling it that because you can trace out a W within the pattern. This pattern can identify the potential of a serious upcoming decline. Below I am showing you 2007 right before the financial crisis. You can see the death cross of the red line going under the blue line. Also notice how the 2 bottoms of the W pattern formed on the green line.
This is what happened after the W pattern.
Fast Forward to 2018 - today. We have just completed the W pattern. In fact, it is a perfect pattern in design. Notice how the 2 bottoms (just like above) form on the green line and then of course you can see the death cross of the red line crossing under the blue line. Are we going to get the same result?
The stage is set for a nasty bear market. If it happened, we will look back and say it was obvious.
There is one important takeaway from the data above.
If, these patterns invalidate themselves, it will be fairly obvious that we need a different strategy. However, if they continue to develop it will further verify that we are on the right track. The markers are set in place. IF THIS PLAYS OUT, YOU WILL NOT WANT TO HAVE YOUR 401 K PLAN INVESTED IN STOCKS.