Down nearly 4000 points in Five Days in Correction Territory, but Bear is Still Hiding in Plain Sight
At the time of this writing the DJIA futures are down nearly 400 additional points (1.54%) at 25,161. As is often the case at major market turning points there is talk of corrections (commonly measured as a drop of 10% but less than 20%) and, naturally, afterwards, a probable return to all time highs.
The financial press has a similar job to the President, to calm fears. That’s why there are numerous articles that all say the same thing: don’t worry, corrections are healthy, by definition they represent a decline of 10% or more – and are not the start of a Bear Market. Unless they are.
There are articles advising to buy the dip, or to wait a little longer and then buy the dip. There are literally dozens of articles saying that virtually 100% of the downturn is based on “fears” that can be directly attributed to the Coronavirus.
More honest are the articles that use the word “amid” as in “Dow tumbles almost 1,200 points, 124-year record, amid coronavirus scare”. The word amid implying that the two things – the scare and the drop in stocks are in proximity, yet not necessarily a case of causation and causal correlation.
Naturally, being a part of the world economic situation, the virus and fears that it will spread and become a Pandemic have an impact. But 100%? As if all sellers are literally freaking out together about precisely this one thing?
Just as Summer leads to Fall and Fall Leads to Winter, there’s another Explanation the we should All Consider
The minority of the media weighing in, and from anecdotal evidence it is a tiny, tiny faction of the whole, actually mention the most likely and even obvious “cause” for the market showing a very strong propensity for decline at this juncture. The fact that Bull markets always end eventually and are followed by Bear markets.
Further, that the many all time highs that Trump has been touting at every opportunity were, in reality, the last throes of a bull market that was juiced in every possible way, initially to stimulate the economy after the 2008 “Great Recession” and, more recently, at Trump’s prodding, to help with his re-election efforts.
Optimism has been off the charts, and investing and paying insane sums to invest in companies that have zero profits was, until very recently, considered by many a permanent condition that would just keep expanding, along with the beneficiaries.
So, in the midst of all kinds of likely causes and reasons, the most obvious, the most likely, the most logical and the reason that is being emphasized by the extent that it is being ignored and ruled out stands out clearly, like a beacon in the fog.
A long overdue Bear Market has started. Just as with a virus threatening our health, it is best to be prepared if there is a chance ( possibly, a very significant chance) that it is coming.
Say the B Word, have no Fear, as Forewarned is Forearmed
So, rather than being behind the curve as wishful thinking grips us and makes literally any other explanation than the obvious one more attractive, it’s best to at least come to grips with the Bear Market scenario.
If this is the start of a Bear Market phase, here is what will happen next. This initial drop will continue for hours or days longer but not weeks. That will be followed by a rebound, possibly sharp, that will last a few weeks or even longer – climbing and clawing up takes longer than a straight drop.
Then, right around the time that all the articles are saying the worst is probably over, that all time highs are possible even likely, the next down phase will come. It will be at least as strong and deep as the current one and once it is about halfway through it’s decline many will begin to change perspective and become pessimistic for the first time in years.
So, prepare and be safe, both regarding your health, and finances. Hope for the best but prepare for the worst or, at least, the unanimously unexpected.
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