In a healthy bull market, the majority of stocks are in a bullish rising trend, making new 52-week highs compared to those making new lows. Then, as the bull market ages, the rising trend loses momentum and fewer stocks participate until the end, when the market runs out of steam and new lows start outpacing new highs and the market rolls over. You can see this trend in play in the chart below, which captures the number of stocks on the New York Stock Exchange, making new highs minus those making new lows. As we turned from bull market to bear market in 2007/2008, the trend in stocks making new highs deteriorated versus those making making new lows.
The same pattern was evident before the sharp stock market corrections in 2011 and 2015 and the same pattern is evident again today. We do not have to see a stock market collapse from here, but we could. I expect at least a sharp correction. I lowered the equity allocation in my Active Asset Allocator strategy from 20% to 0% on 2nd March 2018 and am patiently waiting before I make my next move.
At Secure Investments, I advise individual clients on their pension and non-pension fund investment portfolios. To learn more about my Active Asset Allocator and Gold Trader investment strategies, please get in touch at email@example.com or 086 821 5911.
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