U.S. stocks are down 4% from their highs... And everyone is in a panic!
My friend, that is all you need to know... That is all we need to see to know that "The Big Bust" is not here.
What do I mean by that?
Let me explain with an example...
Back in March 2000, the
Nasdaq
stock index peaked at over 5,000. It bottomed out below 1,200 two years later in 2002. Now THAT was a
stock-market bust!
Most of the way down – particularly in the year 2000, investors weren't in a panic. They were still calling it a "buying opportunity."
Even though stocks peaked in March 2000, investor sentiment was still shockingly
positive throughout the year 2000 and into 2001. It took until 2001 before investor panic really set in.
Today is the opposite of the year 2000...
There's nobody on TV calling this a buying opportunity. Instead, everyone is worried about emerging-markets "contagion."
Any positive sentiment from investors this year has quickly been wiped away...
Investor sentiment is now negative...
"
The sudden 'risk-off' sentiment is one of the largest about-faces on record," my friend Jason Goepfert wrote on Friday. Jason is the man behind
www.SentimenTrader.com, which is my go-to site for tracking investor sentiment.
Jason showed what has happened the last six times that sentiment shifted this quickly (going back to 1998). The results were impressive...
Stocks were higher six months later all six times.
Stocks are down 4%, and investors are scared. My friend, this is not what happens at the
start of a bust...
When you're in a REAL stock-market bust, investors don't
start out scared. They start out calling everything a "buying opportunity."
"Scared" happens near the END of a downward move, not near the beginning.
Meanwhile, we still have excellent conditions in place for stocks to move higher... Interest rates are at zero and will stay there for a while – so people can't put their money in cash. They have to do something with it. Meanwhile, stocks are not actually that expensive, with a forward price-to-earnings ratio estimate for the Dow of less than 13.
Could stocks fall a bit more from here? Absolutely...
Could they fall 10% or 15% more from here? Could this fall last for a month, or more?
It's all possible. I can't know the future.
However, I do believe that this is not the
start of The Big Bust.
The main reason is, big busts don't start from here... because investors are already scared.
Investors get scared when you're closer to the END of a big downward move in
stock prices... not the beginning of one.
Follow your
trailing stops, of course, in case I am wrong. I could be. But it sure feels to me like this downward move won't be a big one...
This is not The Big Bust...