You will recall the extreme optimism about many things from a US-China trade deal to the dovish Fed at the end of April. This extreme in bullish sentiment was a warning the trend would turn down (as recorded by my trend reversal indicator), that is why I expected a stock market decline.
The S&P 500 is down 5% so far in May, the FTSE 100 is down 3.2%, the decline is well underway and I suspect a bottom is not yet in place. These multi-week / month declines will become more common, a buy and hold strategy won’t work in this environment. I believe there will be another rally starting from lower levels and I am preparing to switch from net short to net long.
This is not the first time I correctly predicted a stock market decline of bear market proportion, do you remember the bear market of 2015? Back in April 2015 I was invited to speak at the UK Investor Show, I was with two other guest speakers. At the time my trend reversal indicator had just given a sell signal. That year the market was rising strongly a bit like it did in the first quarter this year. Naturally the other speakers were bullish, I was the only bear and guess what? they were all wrong. From May 2015 to early 2016 the FTSE 100 experienced a 20% decline. My appearance at the show was recorded, you can watch the video here:
Timing the bottom of the current decline will be crucial, president Trump may be forced to back down on China if the stock market continues to decline. This would create an earlier than expected rally, but upside is limited. If you follow my thinking, rallies will struggle to extend past all-time highs. We are in a long sideways move as I have explained.
There will be short term opportunities to trade, rallies that last a few weeks or a few months. This strategy has been designed to catch the short term moves in the blue chip shares. You can join the service here: