This is a Guest Post by AK of Fallible
AK has been an analyst at long/short equity investment firms, global macro funds, and corporate economics departments. He co-founded Macro Ops and is the host of Fallible.
Is The 2019 Stock Market Crash Over? Or Will The Bear Market Continue?
In this video we’ll do a quick market review to see whether we’re headed higher from here in stocks or if the bear is still creeping behind the corner.
The market is battling through the major supply overhang (red zone) that I pointed out a few weeks ago. I’d expect a selloff from these levels over the next few weeks. This bounce is technically overextended (price is near the upper Bollinger Band) and one more good washout would really set the stage (both from a technical and sentiment point of view) for another major leg higher.
Of course, we don’t need to see a selloff. We could see persistent strength and have the market move higher from here. But, I believe it’s odds on we see a reversal before the market makes another major move.
The market has so far, though, given us a number of things to be optimistic about. Both credit and Cyclical vs Defensives have been confirming this rally; which is just the type of action we need to see in order for a significant bottom to be in place.
And various breadth indicators are showing extremely large buying pressure coming into the market. My longer-term breadth indicator is moving in the right direction.
And then there’s this via Sentiment Trader from one of their latest reports.
Starting on January 4, we’ve spent quite a bit of time looking at the thrust in buying pressure. It was extreme and wide-spread…and hasn’t stopped. From several different viewpoints, the cluster of up days over the past three weeks has been extraordinary. There is always the risk that this time is different due to changes in market structure, a concern that will probably never go away. If we take the readings we’re seeing at face value, though, then the past three weeks have been truly historic.
The 3-week average of the Up Volume Ratio has gone from below 35% to above 65% in less than a month. Going back to 1940, this has only happened twice before, shown in the chart below. Both of the others triggered after approximately two-year declines of just under 30%, so quite a bit more extended than our current one. What’s remarkable is that both also kicked off major bull markets that went essentially straight up for the next 6 months, at least. As stocks continue to ignore any short-term signs of exhaustion here, these two precedents should at least be considered.
As always, stay Fallible out there investors!
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