Sunday , 8 December 2019


Bull Market Top Not Necessarily In BUT Risk:Reward Favors Long-Term Bears

“Some veteran investors and traders see the current market situation as a repeat of early-2008, in which stocks fell while gold went up. That being said the bull market’s top isn’t necessarily in but risk:reward does favor long-term bears.”

Prepared by Lorimer Wilson, editor of munKNEE.com – Your KEY To Making Money! 

[Editor’s Note: This version* of the original article by Troy Bombardia has been edited ([ ]), restructured and abridged (…) by 51% for a FASTER – and easier – read. Please note: This complete paragraph must be included in any re-posting to avoid copyright infringement.]

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Is this a bearish sign for the U.S. stock market?

Here’s what happened next to the S&P 500 when gold went up more than 7% in the past 3 months while the S&P fell more than -15%

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As you can see, this is not a consistently bearish factor for U.S. stocks on any time frame.

What about for gold? Historically:

  1. Gold can go up during the initial stock market crash because gold makes a “safe haven” play.
  2. But gold falls during the middle part of the stock market’s bear market (e.g. after March 2008, when gold fell).

Here’s what happened next to gold when gold went up more than 7% in the past 3 months while the S&P fell more than -15%

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You can see how gold’s safe haven play doesn’t usually last for a long time.

Another safe haven

The Japanese Yen is often a “safe haven” during times of trouble. (Yen going up = USDJPY going down). There are many reasons for this phenomenon, but that topic is for another day.

Over the past month, the S&P has tanked while the Yen surged (USDJPY tanked).

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Here’s every case in which the S&P fell more than -12% over the past month while the USDJPY fell more than 5%. *Data from 1980 – present

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Interestingly enough, all 3 historical cases happened within the context of a 30%+ stock market decline.

Volume

…The NYSE Volume Momentum Oscillator looks at how oversold the market’s volume (and breadth) is [and it is currently] bouncing back from extremely oversold levels.

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Is this a bullish sign for the stock market?

Here’s what happened next to the S&P 500 when the NYSE Volume Momentum Oscillator reversed from under -230 to above -190 *Data from 1970 – present

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There is a slight bullish lean 1 year later, but the short term (next few weeks) tends to be choppy…

Conclusion

Here is our discretionary U.S. stock market outlook:

  1. The long-term risk:reward is no longer bullish. This doesn’t necessarily mean that the bull market is over. We’re merely talking about long term risk:reward. Long term risk:reward is more important than trying to predict exact tops and bottoms. 
  2. The medium-term direction is still bullish (i.e. trend for the next 6 months). However, if this is the start of a bear market, bear market rallies typically last 3 months. They are shorter in duration.
  3. The short-term has a slight bearish lean. Focus on the medium-long term because the short term is extremely hard to predict.

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Goldman Sachs’ Bull/Bear Indicator (see above) demonstrates that while the bull market’s top isn’t necessarily in, risk:reward does favor long term bears.”

(*The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.)

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