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This Is NOT the Bust

By Dr. Steve Sjuggerud
Monday, February 3, 2014

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...
 
Good investing,
 
Steve 




Further Reading:

"Because the Bernanke Asset Bubble is so powerful," Steve writes, "I believe we will see much higher highs before it's all over. The reasons that stocks have soared over the last few years are still in place today..." Find out what they are right here.
 
Brett Eversole agrees that the current bull market isn't over yet. "Based on history, we should expect another two years of gains," he writes. And when the next bear market does begin, "history says it won't be a 2008-style bust in stocks." Here's why...

Market Notes


NEW HIGHS OF NOTE LAST WEEK
 
Facebook (FB)... social media
Netflix (NFLX)... movie rentals
Pandora Media (P)... online radio
Live Nation Entertainment (LYV)... concerts and entertainment
World Wrestling Entertainment (WWE)... wrestling
Under Armour (UA)... "sporting" products
Burger King Worldwide (BKW)... fast food
Autozone (AZO)... auto parts
Royal Caribbean (RCL)... cruises
American Airlines Group (AAL)... airlines
Check Point Software (CHKP)... cyber security
Illumina (ILMN)... biotech
Biogen Idec (BIIB)... biotech
Merck (MRK)... Big Pharma
Union Pacific (UNP)... railroads
Alliance Resource Partners (ARLP)... coal
NXP Semiconductors (NXPI)... semiconductors

NEW LOWS OF NOTE LAST WEEK
 
Target (TGT)... retailer
Lululemon Athletica (LULU)... women's sportswear
Philip Morris Int'l (PM)... cigarettes
Westport Innovations (WPRT)... natural gas engines
Transocean (RIG)... offshore oil drilling
Weight Watchers (WTW)... weight-loss company
McDonald's (MCD)... fast food
Citrix Systems (CTXS)... cloud computing
Windstream Holdings (WIN)... cloud computing
Kellogg (K)... Big Food

premium teaser

The one strong sector now in this bust…
 
U.S. stocks in general are down so far this year. But shares of homebuilders are up...
 

In The Daily Crux



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