Friday , 22 March 2019


Charts Suggests We Could Be Near A Bottom With A Recovery Starting Very Soon

“The prices of equities today are factoring a deep recession and a disaster scenario which is unlikely to happen. The stock market will rebound, and good stocks always bounce back. It is only a matter of “when”. We make the case in the charts below that we could be near a bottom, which represents a great buying opportunity. A recovery could start as soon as this week.”

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

[Editor’s Note: This version* of the original article by Rida Morwa has been edited ([ ]), restructured and abridged (…) by 61% for a FASTER – and easier – read. Morwa is receiving compensation from Seeking Alpha for pageviews of his original unedited article as posted there so please refer to it for more detail. Please note: This complete paragraph must be included in any re-posting to avoid copyright infringement.]

“…The widely accepted definition of a “bear market” is a drop of at least 20% from a recent peak – and the S&P 500 index is down by 17% from its all-time highs recorded on September 21, 2018 – so we are about 3% away from being officially in a bear market…

The chart below…of the S&P 500 index ETF (SPY)…is as good as it ever gets. It appears that an incredible buying opportunity is coming very soon:

Source: High Dividend Opportunities
  • The purple line is the 50% retracement from the 2016 lows.
  • The black thin line is the 200 Moving Average.
  • The red line shows a very established trendline that is a major support level.
  • The green line shows a pattern of decreasing volume on every violent pullback since 2011.

…The NYSE index, composed of 2800 stocks, [shows the same]…so we could very well be at the bottom of this correction…

Source: High Dividend Opportunities
…Today we do not have the “triggers” for a typical bear market to happen. Below is a table that depicts bear markets since the year 1940 and the reasons behind them:
Source: High Dividend Opportunities

The table below provides statistical percentages for the reasons (or “ingredients”) that triggered past bear markets:

Source: High Dividend Opportunities

…The most frequent trigger for a bear market is an economic recessions…[where] companies start to struggle and post less profits…but this is not the situation today:

  • The state of the U.S. economy is solid, enjoying a period of low unemployment and low inflation [and] according to the Fed Chairman himself,
  • GDP for the year 2019 will be healthy, and that growth will be above average…

We can come to the same conclusion by looking at the “probability of a U.S. recession chart” produced by the Federal Reserve Bank of New York:

Other reasons that could trigger a bear market include extreme valuations, high commodity prices and aggressive rate hikes [but] we don’t have any of those triggers today [either]:

  • valuations are very reasonable if not low,
  • commodity prices are very low based on historical standards,
  • interest rates remain around their all-time lows and.
  • although we do have fears that the Fed may be overly aggressive in its rate hikes, these fears are overblown.

so, we could very well be at the bottom of this correction…

Because we do not have the “triggers” for a typical bear market, if it happens, it will be a relatively mild one and unlikely to last long, simply because macroeconomic factors do not support it. Remember, the current pullback has little to do with fundamentals and more to do with negative investors’ sentiment. Even if this scenario plays out, the worst of the downturn is likely to be behind us…

Conclusion

I remain optimistic…[that] lots of money will be made from these levels. Bargain hunting is already happening behind the scenes by institutional investors…which tells me that the bottom is near…”

(*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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