Today's Market
by Dr Invest

Ouch! The decline in 2016 has not been painless. I have been expecting a rebound in the market to form a the right shoulder of a head and shoulders pattern. If you are unfamiliar with a Head and Shoulders Pattern, look on WIKIPEDIA.

Looking closer at a GREEN CIRCLE on this graph, there are two points worth noting. First, stocks have NOT rebounded where the head and shoulders pattern would have begun the right shoulder. From a technical stand point, this is not a good sign.  And by following the downtrend, stocks have currently fallen below the lows in August of 2015 and to the lows of February 2014. A bottom is at January 2014, but if stocks continue below that bottom there is a free fall until July of 2013.

Things are not looking very good and this kind of dramatic market decline, along with the current poor economic fundamentals, only need a contracting job market to confirm what we suspected all along.

Excepting that the Federal Reserve intervenes, this PSUDEO RALLY that began in 2012 from Quantitative Easing by Bernanke will likely return the market to its MEAN.  The problem is that the market forgot where the MEAN was.

Some think that the GREEN LINE in the graph above represents the current HISTORICAL MEAN. Others would make the MEAN LINE higher and others would make it lower. This is the problem with VALUATIONS of stocks. Some say stocks are undervalued and others, that stocks are overvalued. The market will make its own decision on these opinions, but the market will return to mean.

The growth of the market above the top red line in the above graph was a surprise and likely the result market stimulus by the Federal Reserve. Like in the Great Depression, efforts to manipulate the market only have a short-term result. ALL of the gains above the red line will likely be lost. Most economists believe that the BOTTOM RED LINE will mark where the stock market will BOTTOM. That could put the S&P 500 near 1000 to 1200 points. That means a DRAMATIC loss in stocks. This would make the decline in 2008 seem more like a party in comparison. Should the S&P 500 proceed down to 2008 levels at 735 points, it would be a bitter economic decline that would ruin the lives of many Americans.

Sorry to be so negative, but if you are currently invested in the market you will need to be mentally prepared for the possibilities. Bear markets exhaust themselves too, but in this case the fall has come too quickly without the other declines like in jobs and consumer spending.

It is more likely that there will be stair steps down to the 1000 point mark in the S&P but where you manipulate a market, you can't really predict what might happen. So we will watch.

You may have heard on the news tonight, the worst decision you could make is getting out of the market. This would be true if you thought the worst to be over, but I think the worst is to come. There is a point however, where you should just stay in the market. I think another 12% in loss in 2016 will be that point. With the market down already 8% this month, we could quickly reach that 20% mark.

If nothing else, re-balance your portfolio. Get rid of the losers and move some of your investments into less volatile positions.

Gotta go, but you should be serious about staying out of the market for the next two years. Look for a 20% to 50% decline. Most bear markets will last one to two years, so you have plenty of time to move around. This mini decline can only be an indicator of what is yet to come.

(note: The above information is for entertainment purposes only and not to be used in anyway as investment advice.)