Monday , 11 December 2017


A Stock Market Correction – Not A Crash – Is Most Likely – Here’s Why

If the markets crash in 2018 then, like previous crashes, they will prove to be a buyinginvesting-hold-buy-sell opportunity but, until the masses embrace this bull market, however, the most likely outcome is a correction and not crash.

This article is an edited ([ ]) and revised (…) version of an article by Sol Palha to ensure a faster & easier read. It may be re-posted as long as it includes a hyperlink back to this revised version to avoid copyright infringement.

Markets are extremely overbought

The chart below speaks for itself; the markets are trading in the extremely overbought ranges.

  • Traders should be cautious when it comes to committing too much money to this market.
    • Open positions in oversold stocks or stocks that have taken a beating but whose future appears to be turning around.
    • Make sure you have stops in place.
  • Having said the above markets can trade in the overbought ranges for months on end.

Each bar in the chart below represents a month’s worth of data, and you can see that this phenomenon that we just mentioned occurred from Oct 2012 until Aug 2015.

market

Market Sentiment is not Bullish so don’t expect a crash; a correction is more likely

bullish

Game plan for dealing with an extremely overbought stock market

The stock market is trending in the overbought ranges for an extended period; so what’s the plan? In such situations, you have only two options:

  1. forget what the markets are doing and just focus on the trend and wait for key Technical indicators to move to the oversold ranges.
  2. if our proprietary technical indicators refuse to pull back then option 2 comes into play then focus on stocks that are trading in the extremely oversold ranges…
    • The follow-through reaction (upward move) is going to be very strong. In such conditions, we suggest that you:
      1. buy some stocks but focus on stocks that are trading in the oversold to extremely oversold zones and
      2. build up cash, so when the market pulls back, you have the capital to deploy into top stocks that will be selling for a discount.

We are almost positive that the masses will panic extremely fast during the next pullback and in doing so they will throw the baby out with the bathwater. Instead of the Dow pulling back 1500 points, it will probably shed double that amount before a bottom takes hold but, oh my, what a great buying opportunity this will prove to be – provided the trend is up…

Conclusion

The logical way to examine this market is to stop looking at what it should be doing and instead focus on what it’s doing and why it’s doing this. The reason the markets are erratic is that people today are acting as if they are insane. Everyone has an emotional stake in every possible outcome. A market is nothing but a seething cauldron of emotions. The crowd is insane so don’t expect anything different from the market.

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