As with most intermediate declines many people panic and look at worst case scenarios. However, this doesn’t appear to be an end of the world event. In a bull market, intermediate cycle lows, are just profit taking events. And in a bull market, we always end up moving to new highs. Sometimes, like in February ot this year, it takes time for the recovery.
Most ICL’s are recovered quickly. On Friday, we ended up with a nice bounce. There were times during the day when it appeared that the recovery was not about to happen. However, in the last hour heavy buying came into place.
I doubt that this ICL will be as protracted as the one that we had in February of this year. That correction appears to have been to correct the huge move that followed the presidential election.
You can see that we have spent the better part of a year moving sideways. This has allowed the moving averages to catch up to market prices. I expect that this ICL will be more rapid and should initiate another powerful move up before a market top in 2019. This coming week we should see an undercut of Thursday’s low.
If this scenario plays out the NASDAQ should be stronger than the rest of the markets and the NASDAQ should fail to make a lower low. If we open on Monday with a big gap higher, then we have a dilemma. We would then wonder if the undercut would happen later in the week.
The Fed has been known to manage the markets. Since 2008, they, as well as other central banks around the world, have been buying stocks for their own accounts. These actions have prevented stock markets around the world from correcting naturally as they normally do in a free market. This propping up of the markets has contributed to extreme corrections. Normally, these corrections would take 4-6 weeks. Now it’s 2 weeks with an all-out panic capitulation of 2 or 3 days.
If we do have an undercut of Thursday’s low, it will push sentiment into bearish extremes. This should fuel the move once again into the euphoria and greed cycle where market tops are formed. I expect that we will have a recession due to heavy debt and military spending in 2020. A top should occur sometime in 2019 with a potential decline of 20%, and more than likely a lot more. Technology advances may hold back a larger decline.