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Longest Bull Run in the US Stock Market – Good Idea to Buy Now?

 

If you’ve been reading the news, you will know the US stock market is at an all-time high, and quite possibly one of the longest bull runs in history. According to Zerohedge, this is the longest bull run since the great pyramid boom of 2580 B.C.

Article: https://www.zerohedge.com/news/2018-08-22/longest-bull-market-great-pyramid-boom-2580-bc

Also, the US economy seems to be doing pretty well, especially with the booming tech sector, and even the banks are hitting record profits.

Article: https://www.zerohedge.com/news/2018-08-23/us-bank-profits-hit-record-60-billion-q2

But I think the big question on everyone’s mind is this:

 

Is this a Good Time to buy Now?

If you believe that markets follow the boom and bust cycle, such as the 10-year cycle, you will know that we are “overdue” for a big correction. Logic dictates that we aim to buy after a big crash to get the best value (and most potential upside), hence buying at the all-time highs might not seem like a good idea to many people.

 

If you look at the current chart of the S&P 500, you will see that the price is just testing the prior highs, which means that it is at a very critical point.

If prices get rejected at this level, it could end up forming a double top reversal pattern, which is very bearish and could see a decline to the 2280 levels.

For the strong uptrend to continue, prices need to confidently break above the prior highs and stay above that level.

 

What Could Go Wrong?

With escalating political tensions with many countries, and the trade war with China, a confluence of negative factors could adversely affect the fundamentals of the US economy.

Article: https://www.zerohedge.com/news/2018-08-23/trade-war-escalates-us-china-slap-each-other-fresh-16-bn-tariffs

With the risks in mind, I will not be aggressively accumulating positions at this time, and will have to focus more selectively on key sectors.

 

Will the Stock Market Crash or Continue Going Up for Another 10 Years?

Since the crash of 2008, and the recovery which started in 2009, the stock markets (especially the US markets), have been on a steady uptrend.

Chart: S&P 500 index (weekly chart)

Many of us have heard about the 10 year cycle, where the market is supposed to crash once every 10 years, for example the Asian markets during the 1997 currency crisis, and the global markets in 2007 during the subprime crisis.

However, in 2017, we did not see any significant crash or correction, which have led many analysts to rethink the theory.

Now, it is 2018, so should we be expecting a delayed crash, or are we experiencing a structural change in the markets?

If we observe the supercycles of major human technological innovations, we see that each major wave of progress is driven by a major technological innovation, such as the steam engine in the 1700’s or the internet and IT advancements in the 1900’s.

And based on the cycles, we could be in the early stages of the 6th wave, which is going to be driven by the upcoming huge advancements in applications of big data, artificial intelligence, virtual reality, augmented reality, internet of things, and blockchain technology.

Source: The Market Oracle

This means that we could be on the cusp of a super bull market, if these technological advancements are able to create a quantum leap in productivity for businesses and a huge jump in the standards of living across the globe. All these would translate into stronger stock prices, which instead of crashing the market, would propel it to new heights.

However, there are also major concerns:

  • Unequal gains across companies: the major tech companies may soon dominate all industries via the application of new technologies.
  • High unemployment: If machines take all the jobs, what are humans going to do?
  • High debt and leverage of US and European economies
  • Political risks: clash of superpowers (US and China)

In summary, many retail investors are wary of entering the stock market now because it is at all time highs and has already “gone up a lot” since 2009, hence they are waiting for a “big crash” before going in. However, this big crash may not come if successful widespread application of new technologies and innovation are able to drive a quantum leap in productivity.

P.S. Next week, I will be heading to Silicon Valley to explore the latest technologies and innovation at some of the biggest tech companies, join me for live updates here:
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Cheers! 😀

Why Goldman Sachs Thinks a Stock Market Crash Might Be Coming Soon

Source: CNBC

“Financial market reconciliation lies ahead…”We are approaching the point of maximum optimism and the S&P 500 will give back recent gains…” – Mr. David Kostin, Goldman’s chief U.S. Equity Strategist

While the S&P 500 continues to break new highs, prominent economics and C-level staff in multinational banks are coming out to say it’s time it has to stop.

 

U.S Equities are at Extreme Highs

As the old adage goes, “what comes up, must come down”. However, this adage has a valid explanation in the world of stock trading. Prices that go up must come down eventually because at some point there will not be any more buyers in the market, buyers would look to take profits and sell, new sellers would short the market.

 

Markets move in swings; they often don’t go straight up.

As you can see above, classical technical analysis theory teaches that every uptrend swing must be accompanied with a correction downwards. Even though the price can go in one direction for “far too long”, there will always be a correction.

Riding the bull market ?

A post shared by Spencer Li ?? Synapse Trading (@iamrecneps) on

 

A Correction is Due, BUT…

Before I go on, let me state 2 very basic facts about market euphoria:

Fact 1: Euphoria in the Market Happens Often

In the forex markets, this happens very often. In fact, these are known as gentle trending markets and the easiest way to trade these markets is to buy, add on at every opportunity, and watch your profits grow.

If you zoom in to the 5-minute charts, 1-hour charts, or move to different financial products like Forex, Commodities or Bonds, you would notice that market euphoria is quite a frequent occurrence.

Euphoria in that sense, can happen in both directions, as seen in the diagram below (Hourly chart for EURUSD)

Euphoria can happen in both directions, and for very long. In this case,
there were many opportunities to short, and the trend lasted far longer than one would expect.

Here is another recent example of riding trends:

Trends can last far longer than one expects. That’s why it’s important to know this fact:

Fact 2: Markets Don’t Reverse Immediately!

It’s easy to jump on the hype when almost every news outlet is talking about it. But the truth is this; what’s important is on the chart. Price already gives you the decision-making tools you need!

Even though Goldman Sachs says that a correction is due, that does not mean you immediately go ahead and go all-in to short the market. Even if you are fully convinced that the market is going to crash, it is best to wait for actual price confirmation before taking any action.

Daily chart of the S&P 500, with a small pre-emptive short position which I have initiated.

In trading, it’s all about probabilities. The above technical levels show how far the market might go, but what actually happens will depend on price action. And since the reward to risk is pretty decent based on this price channel, I am winning to take a small short position, and add on more later if it goes in my favour. This will ensure that I have a decent profit from shorting near the top when the market does crash. Till then, fingers crossed!

Here’s some food for thought before we conclude this article:

“Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” -Sir John Templeton

Cheers and have a great week ahead! 😀

P.S. For those who want to start learning about how to make money from the financial markets, don’t miss our last 2 workshops for this quarter at the special price of $25.
Check workshop availability: http://wp.me/P1riws-6gw

Research Sources:

cnbc.com/2017/02/21/goldman-sachs-market-investors-have-a-letdown-coming.html
thefelderreport.com/2016/05/23/this-might-be-the-most-extreme-stock-market-euphoria-we-have-ever-seen/

Synapse Weekly Market Highlights (1 Jan 2017) – Opportunities Aplenty!

1

2016 has been a blast, and a very happy new year to everyone! This week’s analysis will be a little heavier, so keep calm and read on. Let’s just dive straight into the market analysis for this week:

 

RECAP OF LAST WEEK’S PREDICTIONS – HOW DID IT GO?

#1: Bullish breakout on EURCAD (D1 chart)

euraudLast week’s analysis; we predicted EURAUD would climb higher.
Source: MetaTrader 4

This week, we saw the EURAUD climb even higher after a mini pullback that didn’t touch the EMA. Those who took entries intra-day would have seen large profits, while those who took longer-term positions would have in-the-money positions. Congratulations to those who took this trade!

thisweekThis week, the EURAUD climbed higher and close with some profit-taking.
Source: MetaTrader 4

The chart still shows that EURAUD is bullish, and it is still wise to hold on to any long positions, adding on if a gentle pullback to the EMA occurs.

 

#2: Bullish breakout on EURCAD (D1 chart)

lastweekLast week, a bullish call was given for the EURCAD.
Source: MetaTrader 4

Traders were advised to enter only intra-day, which meant profit taking was to also be intra-day. Those that followed this advice did well:

eurcadThis week, the EURCAD climbed higher and closed with heavy profit-taking.
Source: MetaTrader 4

Despite the heavy profit taking on Friday, the intra-day traders would have already taken profits. Those who bought near the EMA would also have seen great profits and have at least had partial profit-taking, securing the profits on the position.

 

#3 Wait for pullback to EMA on USDCHF (D1 chart) and buy on a touch of the EMA (with a good bullish bar!)

usdchfLast week’s analysis for USDCHF.
Source: MetaTrader 4

Those who waited for a USDCHF pullback to the EMA saw it, but the pullback was very violent. Here’s how it looks like since last Friday:

chfThe pullback was very violent, and profit-taking from bears was very substantial.
Source: MetaTrader 4

This week, we expect the USDCHF to remain sideways, as traders consolidate what the huge candle (on last friday) would mean for 2017. Don’t expect to have your trades on USDCHF run quickly in one direction; let it consolidate for 3-5 days before deciding again. This will be on my watchlist, but will not be a top priority. Bulls would be looking to buy near 1.01000, so watch out for the price action at this level. 

UPCOMING MARKET OPPORTUNITIES: KEY STOCK MARKET INDICES

S&P500 – Look to buy on bullish bars near the EMA.

spS&P500 as at 31 Dec 2016.
Source: MetaTrader 4

The S&P has travelled upwards rather violently in 2016. After a mild correction to the 20EMA, it is wise to look to buy on bullish bars near the EMA. Profit targets can be near the all-time high, or even further up (2300 and above). However, note the following:

  • Bulls will be hesitant given the uncertainty surrounding the first week of the new year.
  • Bears would try to exert their influence repeatedly, so don’t be alarmed if your long positions get stopped out easily.
  • I would wait for 2-3 bullish signals before being confident of a nice up-move.

 

Bearish on the Hang Seng Index. Short near the EMA with bearish confirmation bars.

hsBears have exerted their influence, and will continue to exert influence unless the bulls suddenly show up for no reason at all.
Source: MetaTrader 4

Bears will be happy to short near the EMA and at any prior resistance. If the Hang Seng index climbs up beyond the EMA, it is unlikely to break above 22300 (near the trendline drawn above). I’ll look to short it in the upcoming days/weeks, if a nice opportunity arises.

 

Watch the ASX closely for a buying opportunity.

asxThe ASX has broken new highs and bulls will continue to buy on every opportunity.
Source: MetaTrader 4

The ASX has had a whirlwind of a 2016, and bulls are pleased that it has broken new highs. I would be looking to enter on pullbacks to the EMA, preferably near the breakout support level of roughly 5550, and ride up for a nice bull trend trade.

UPCOMING MARKET OPPORTUNITIES: FOREX TRADING SPACE

Short AUDUSD, but wait for pullback to EMA + bearish bars for a  higher probability trade.

audusdThe AUDUSD looks bearish and should be unable to hold support at 0.71400.
Source: MetaTrader 4

AUDUSD has seen multiple trendlines broken. The bullish move in early 2016 was broken significantly, and the sideways market that took 6 months to develop also saw its end, causing me to believe the market is transitioning into a bear market. Bears will look to short at every opportunity, which means smart traders will go short, preferably near the EMA, and until bearish signal bars appear. Possible price levels to observe at 0.73000, 0.74000, and 0.75000 (all these present good shorting opportunities). 

 

Sideways on GBPUSD; look for opportunities in both directions.

audusd
The GBPUSD looks sideways and must be traded like how a sideways market should.
Source: MetaTrader 4

GBPUSD has seen a humongous correction (almost 20%) in the past 6 months, and should still trade like a sideways market for some time before traders decide where it should finally end up. Buying low and selling high, though simple as it sounds, is the suitable strategy for such a market context.

 

Short on NZDUSD on every opportunity! (but read the cautionary notes below before you trade)

nzdusd
Good time to short on NZDUSD, but caution is advised.
Source: MetaTrader 4

Classic head and shoulders on NZDUSD, strong bearish bars in recent times, and a breakout from the prior support. A bearish bar near the EMA gives good reason to go short, but I’ll be hesitant and do the following:

  • The year has just started so a sideways market is more probably in the first few days.
  • If you are going short once the market opens on Tuesday, take a small position, use a wide stop, and don’t be afraid to sit through pullbacks and open losses.
  • Add on for every short opportunity you can find (if you are more aggressive).
  • I’ll be more confident if I see 2-3 confirmation bearish bars.

 

LASTLY: UPCOMING NEWS upcomingSome of the upcoming unemployment figures, and the NFP announcement on Friday.
Source: myfxbook.com/forex-economic-calendar 

The first week of 2017 will see 4 unemployment rate announcements. No shocker expected here, because the main market-moving news will be the NFP announcement on 6 January, Friday. Intra-day traders can keep their eyes peeled for the hours surrounding the NFP, which happens at 21:30 hours (Singapore time).

This week is a week with a number of great opportunities. Happy trading, and wishing everyone a great start to the new year!

Cheers!