7 Signs Needed To Confirm The End Is Near For The Market Bubble

The bull market run since March 2009, when unprecedented money printing became the economic driver du jour, recently become the longest in history without a 20%-plus correction.

Past stock bubbles have lasted five years; six years max.

This one is now 9.8 years old –off the charts.

We have the unprecedented major tax cut and repatriation program near the top of a boom to thank for that, never mind that corporate profits as a percent of GDP are at record levels…

Now, volatility is rife. Markets are having a terrible December.

Is this the beginning of the end?

I don’t think so because we’ve not yet seen these seven signs, especially at this stage, the first one…

Sign #1…

If a leading U.S. index like the Nasdaq or Dow and/or S&P 500 corrects more than 30% from the top in three months or less, that is a SIGN it’s already over!

Then you wait for the first big bounce and get out (typically about a 50% retracement of the sharp fall).

Out of seven major stock bubbles in the last century, the average first crash has been severe, averaging a 42% loss in the first 2.6 months.

But, even though markets have seen a lot of red since early October, we’ve not yet reached even close to that 30% minimum mark over two months in. The late January 2018 peak looked more like a classic blow-off top, but this rule told me by April that it was not a top.

Of course, if that changes dramatically by year-end with a break below 2,500 on the S&P 500 and a much sharper crash to follow, it’s possibly the strongest sign that this epic bubble is finally done for. A decisive break below 2,300 would be curtains. But, if things continue as they are currently with only minor new lows just ahead, we’ll look for…

Sign #2…

U.S. stocks make substantial new highs in 2019 but with strong divergences between foreign and smaller cap U.S. sectors.

The U.S. was the only major market making new highs in late 2018, before the recent correction. Not Europe, not Japan (even in its bear market rally since 2009), not China, not emerging markets…

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Adam Reynolds 9 months ago Member's comment

So true.