Last Tuesday, Wall Street looked like Yellowstone National Park in springtime. Bears were everywhere.
Now, however, it seems they’ve all gone back into hibernation. Which means… the market is likely to do something to coax them back out of their caves.
It all started last Monday. Stocks were in freefall. The Dow Jones Industrial Average lost over 600 points, the biggest one-day drop since December 2008. Investors were panicking. My phone was ringing off the hook – something that only happens near important market bottoms.[ad#Google Adsense 336×280-IA]Even my mother was scared to death of the stock market – and she’s completely in cash.
So I was feeling pretty comfortable with last week’s instruction to “Buy Stocks Now.” Stocks were cheap. We had the bullish history of the “presidential cycle” blowing the wind at our backs. And we had wildly bearish investor sentiment – which is incredibly bullish from a contrarian standpoint.
Now, however, things have changed a bit…
The S&P 500 is about 6% higher than where it was at the end of the day last Monday. Stocks are still cheap and we still have the bullish presidential cycle working for us. But investors have turned around and now seem downright enthusiastic about buying stocks.
One analyst after another shows up on CNBC and quotes Warren Buffett: “Be fearful when others are greedy, and greedy when others are fearful.” Financial advisors are telling customers, “Now is the time to go ALL-IN.” Even Donald Trump hit the airwaves last week to tell folks he was buying stocks.
I don’t want to be bearish. But if there was ever a reason to root for a declining stock market, it’s so we don’t have to tune into next season’s “Apprentice” and listen to The Donald brag about how he bought stocks at the bottom.
The real reason to expect a decline, however, is because real bottoms don’t happen by consensus. And crash bottoms are always retested.
I can’t help but compare last week’s market action to the 1987 stock market crash… 1987 was also the third year of a presidential cycle. Investors panicked during the crash… and stocks became cheap.
In the days following the crash, there was plenty of bullish talk. We didn’t have Donald Trump talking up his purchase of bank stocks. But everyone else seemed to be rushing to “call the bottom.”
Stocks bounced at first, and everybody looked like a genius. Six weeks later, though, the market came back down and retested its crash-time lows – and even drifted a bit lower. Take a look…
The best time to buy in 1987 was on that retest. Don’t be surprised if we see the same sort of action this year.
I still expect stocks will be higher a few months from now. It’s the next few weeks I’m worried about.
If we do get a retest of last week’s lows, chances are, that will prove to be the best time to buy stocks this year.
Best regards and good trading,
— Jeff Clark[ad#jack p.s.]
Source: The Growth Stock Wire