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So, the big question becomes – are we already in another bull market in stocks?
Over the past decade, investors have expected the Federal Reserve to step in any time volatility rises. While 2020 has been no different, the fact that nearly 58 million people in the U.S. have filed for unemployment since March is a serious dent to the economy.
The stock market and the economy are in two very different positions.
In June, I told Ten Stock Trader readers...
While a major low is likely in place, a new bull market is not yet in the cards. I expect the round-trip market will roll on.
However, this doesn't mean we won't see more double-digit gains in stocks this year. In fact, lately I've been quite bullish... And I am expecting new highs in most of the major U.S. indexes this year.
And so far, that's exactly what's happened...
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Since 2018, stocks have been in a near perfect round-trip market. This includes false breakouts in which everyone thinks the bull market will continue... followed by big declines where everyone thinks the bear market will take over.
In short – equity markets are in a long-term range.
This is not the first market environment where a long-term range was the dominant force. Equity markets saw this from 1999 to 2003...
Big bull traps led to big bear traps for three consecutive years before finally bottoming in early 2003.
The same thing happened in the '60s and '70s, when the range lasted for 10 years...
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We saw huge declines followed by huge rallies, with no sustained breakout or breakdown.
These range-bound markets were a result of economic stagnation after a long bull market. In technical terms, the range-bound markets worked off the overbought conditions of the previous long bull market.
Right now, with more than 57 million people out of a job, and states shutting down again as coronavirus cases spike, economic stagnation is back. Again, the disparity between the stock market and the economy is wide – we could soon see double-digit gains in stocks, but a major long-term bull market is not yet on the table.
And despite unprecedented monetary policy, central banks do NOT create wealth, do NOT create growth, and do NOT create jobs... The free market does.
What happens when you combine economic stagnation with excess liquidity from monetary policy? It's outlined above – explosive moves higher and lower over a long period of time. This environment could last until 2023 (following the 1999 to 2003 script) or even longer like the 1960s and 1970s.
Based on history, I have no reason to expect anything different.
That's why, just last Friday, I released an urgent message warning that something bigger is on the way. It will be a lot bigger than the massive drop we saw back in March, which was only the first phase of what's to come...
Now, don't get me wrong... I'm not predicting a financial disaster. At least, not the kind most people might be worried about.
What I am predicting is another crisis, beginning with a huge move on December 23. And it's going to be unlike anything we've seen since the 1970s.
If you don't see it coming, it could wipe you out, sooner than you think. But if you get scared out of the market and sit around in cash, you'll miss out on one of the greatest moneymaking opportunities of your lifetime.
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The above analysis is also supported by the BMI trend, where the big money is aggressively buying lately and is moving well into the overbought territory. This does not mean a crash is imminent per this BMI indicator. As you can also see the previous two times of the overbought condition this year, it can last for a while and then a collapse will ensue. My best guess is that the market will be volatile for a while with an upward trending in the remaining weeks of the year to satisfy the Santa Rally and make FOMOs happy. Then the reality weight will come and hit, probably hard sometime in Jan of the new year.
Holding a lot of cash is definitely wise for now!!
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