Close to the Bull Trap phase of the market cycle

Oct 29, 2018 44 Comments

If you haven't studied bubbles do yourself a favor and spend some time looking into it. I expect a market rally before or right after the election (though one may never come). But if you look at monthly charts across sectors and key equities it should be clear to you that we are in a bubble and that bubble is starting to pop. It's a normal part of the market cycle nothing to be scared of. A good way to gauge is to look at long term trend-line supports and see where we are in relation to that trend support (1 year, 2 year, 5 year support lines). This is just a reminder to please take the emotions out of investing and make decisions based on your time horizon. Personally...I don't like the time in the market beats timing the market meme. I think a smarter approach is to reduce allocations in equities that are very clearly popping...increasing cash allocations...and then taking that cash and DCA'ing it back into the market (over a 6-12 month period) after or during a correction. (not financial advice).

Close to the Bull Trap phase of the market cycle

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TOP 44 Comments
  • Cisco timo
    Nice chart but NOBODY knows if this is in bull trap or not.

    The only truth in this stock market is that stocks were overpriced, we all knew it, at least in the back of our minds. You knew it. I knew it. When we put in money 2-3 years ago, we were just riding the momentum. We knew it would end. We just don't know if it's the drop last week, or today or is there more coming next week.

    Something that rises by 40% in a year without fundamentals supporting it is bound to drop. It happens with stocks, with Bitcoin, with dot coms, with mortgages, with steroids

    Nobody can abolish downturns.
    Oct 29, 2018 2
    • OP
      100% agree. I think balance of probability leans heavily towards a continued correction but we could get another post election stock buyback tax cut rally. My money is on a deep correction into 2019 possibly 2020. Just trying to wake up complacent peeps that may have only known a stock market that goes straight up...that hey it's not always like that. :)
      Oct 29, 2018
    • Oracle predickt
      Not sure if peaks and troughs will be shallower this time, with a slow taper-down instead of falling knives.
      Oct 29, 2018
  • Microsoft Bludgeon
    Post your puts or gtfo
    Oct 29, 2018 12
    • OP
      I have puts that span from April 2019 to Jan 2020. Not trying to trade frequently just trying to capture the general trend and movement of the market. Will circle back here in 6 months and see if I was right or wrong.
      Oct 30, 2018
    • Microsoft FBisEvil
      Long puts every month
      Oct 30, 2018
    • Microsoft FBisEvil
      I don’t buy any puts long term to minimize time decay. I’d rather buy more every month
      Oct 30, 2018
    • OP
      That could very well be more a economical solution.
      Oct 30, 2018
    • OP
      Just a heads up to watch the 10 year treasury price. We hit 3.22% today. Ignore the noise from the media they are not your friend. When that guy hits 3.25% expect a lot more money to move into bonds from stocks in a risk off. Just food for thought since we got a decent bounce this week. Not a bad r/r moment to exit positions or enter some short positions. Best of luck. This is Not financial advice.
      Nov 2, 2018
  • Microsoft ib4eexac
    I agree with Howard Marks that it's not technically a bubble, but we are certainly nearing the top of a short term debt cycle (last decade). He just released Mastering the Market Cycle, which I honestly can't recommend, but Ray Dalio released Big Debt Crises around the same time in Septemeber and it is the most comprehensive book on cycles I've ever read. If I can get the timing right, I'll be doing a big, leveraged short position in the next few months. For now, I'm cash, short term trades, and short term bonds.
    Oct 29, 2018 1
    • Microsoft ib4eexac
      Oh and more evidence of the bull trap if you're a chartist, S&P broke out above it's channel of the last decade this past year and is now sitting on the upper channel. A quick rally after the election to complete the pattern then a drop would be textbook.
      Oct 29, 2018
  • OP
    As companies are reporting earnings those that have a lot of variable rate debt or rely on China for exports, imports goods etc are having to adjust their 2019 outlook and the result of that is charts that look like a bubble popping. I expect more to come as most of the tariffs have not been implemented yet and Special T. has been adamant about keeping them and even increasing them. You can see China's market has been absolutely hammered this year much of the US should follow suit sooner or later. Meanwhile increased cost of goods equates to higher inflation (we also have higher inflation bc economy is hot and jobs a plenty) so FED is tightening policy. This is putting pressure on equities as well. FED is expected to raise rates another 1% before 2020 so 10 year treasury could be sitting at 4.25% ... 4.25% guaranteed return on your money is very attractive to a lot of people when for the last decade it's been 0.5% Especially with stocks looking as toppy as they look I think we get a major correction and enter a recession before 2020.
    Oct 29, 2018 2
    • Facebook Eurgev
      Holy shit hadn't seen this kind of measure. Looks like only 3 times in 35 years.
      Oct 29, 2018
    • OP
      Correlation doesn’t necessarily equal causation BUT it is hard to ignore the similarities. Still possible trump pressures the fed to step in drop rates to zero and keep the party going further inflating the bubble and causing a worse crash later. Time will tell. But I smell blood in the water I think 2019 is the year.
      Oct 30, 2018
  • OP
    And one more...again these are mostly monthly macro charts so doesn't mean a crash is coming tomorrow or even next year necessarily. But they are indicative of the end of another cycle in my opinion.
    Oct 29, 2018 2
  • OP
    Here's a long term chart that's indicating a significant downdraft on the horizon. Rising wedges tend to fall...bearish divergences support that theory.
    Oct 29, 2018 2
    • Google / Design
      monklife

      Google Design

      PRE
      Amazon
      monklifemore
      Great divergence example. I would sum this up as ‘do NOT buy the dip!!’
      Oct 29, 2018
    • OP
      Thanks and yes I agree. The BTD mentality has worked extremely well up until now.
      Oct 29, 2018
  • Facebook Eurgev
    Nice charts. Thanks! agree that this could be the bursting of the mother of all bubbles. The thing that gives me pause is this: probably because of the painful memories of the 2008 housing crisis, it seems like there hasn't been a mania phase of this bubble. In 2000 there was a true mania in dot com stocks. MSFT is the same price now as it was at the peak of that bubble almost 20 years ago! In 2004-2006 there was mania in housing. Where was the mania this time? Maybe in housing in coastal cities, FANG stocks to a smaller extent. It doesn't have that grand scale. Stocks could still crash by 40% but it probably won't have the prolonged economic impact, hence a quick recovery.

    There is no certainty but it looks like the bear is here. No need to go against the general trend which seems bearish now. I sold all stocks late-summer and then went short QQQ, AMZN, AAPL, NFLX and MSFT early October, and have been increasing my positions since. I will stay short for a year if needed. If QQQ closes a week at new all time highs, then I will close the short positions, since our theory is probably wrong then.
    Oct 29, 2018 1
    • OP
      I think this is a very fair assessment that could be summed up as new “highs or bust.” I expect we’ll bounce from somewhere and we’re either hitting new ath’s or we get a failure swing on the indexes and a rush for the exits (for a short time). I’m not an economist so can’t comment much more than that other than to say I’m paying attention and trying to make the best decisions possible based on the available information. I hope that all that we get is an equities correction and then enter another bull market. A prolonged collapse isn’t good for anyone. Will be interesting to see since this will be the first bear market where a lot of market action is really computer driven I am very curious to see how it all plays out.
      Oct 30, 2018
  • T-Mobile lAFM00
    Sell robo positions now or try to ride the last gasp and sell at the top?
    Oct 29, 2018 2
    • eBay / Eng GUnitTest
      Yea what are y'all doing with your weathfront/betterment accounts? My personal portfolio is all puts (RIDE THE BEAR) right now but that means jack-all when the other 80% of my NW is in the index
      Oct 29, 2018
    • T-Mobile lAFM00
      Follow up: Sold on Nov 14 and not looking back.
      Dec 13, 2018
  • Google / Design
    monklife

    Google Design

    PRE
    Amazon
    monklifemore
    Diversify. Markets are deflating around the world. Emerging led / is leading the charge. ‘No safe haven’ so I’m in 💵, treasury bond ETFs and am slowly dipping into 🇨🇳 equities via ETFs that have yields of 4%+. Seeking quality dividend US stocks but turning up bupkis on my screeners. Having patience on either end is hard.
    Oct 29, 2018 1
    • eBay CEbi00
      Which equities qualify in that range and of good quality ?
      Oct 29, 2018
  • OP
    This post is aging well so far...we got our counter rally after the election which failed predictably and now tech is starting its descent with the perhaps a bit of a delayed reaction from the rest of the market.
    Nov 19, 2018 0

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