The Market is Soaring in March 2016, But Stay Cautious of a Slump Ahead

It seems that suddenly the market headlines are no longer talking about the potential downside that could happen when stocks soar too quickly.

MarketWatch had a great article on 3/17/16 about the how the next financial crisis could be caused by Energy Companies defaulting like dominoes:
Energy sector defaults could go like dominoes - MarketWatch

The domino effect of one mutual fund - MarketWatch
"Markets roll over and die because the financial system finally tires of the evil twins: leverage and poor liquidity. That is what investors should be on the lookout for into 2016. Seven years into a bull market that eventually sprung from that financial agony, the signs are there again that investors will not be able to get away with investing in just anything."

When could the next market drop happen?

Look for the next market drop when the DOW approaches or breaches 18,000.

The 52-week high for the DOW is 18,351.40.
The peak in November 2015 was 17,977.The recent steep climb from Feb 11, 2016 to early March 2016 is about the same slope as the rapid rally from October to the first week of November 2015.

The 52-week high for the the S&P 500 is: 2,134.72



More articles about potential market downside in 2016:

I Still Fear A Big Market Decline Ahead | Kiplinger

5 — and only 5 — things that pose a greater global risk than a Donald Trump presidency - MarketWatch

Predicting the next stock market crash

Back in mid January, we predicted that the Stock Market Plummet Will Arrive By May 2016.


Here are some things that predict the upcoming market correction/crash:

Margin debt is reaching astronomical highs.  This happened right before the crashes in 2001 and 2008.

We are overdue for a correction based on moving averages.  The last two crashes happened seven years apart.  It could have easily happened in 2015, but was delayed a little bit, probably because of market manipulation and other factors keeping things propped up in the short term.
If history rhymes this indicator suggests stocks still have a long way to fall

The low price of oil is hurting the economies in many countries, including Russia, the U.S., and the OPEC nations in the Middle East and South America.

European banks are under pressure and some could fail in the next year. [Add news links here.]

One of the only Quants to predict a big market dip is saying that we are "in the ninth inning of a nine inning game" and that bear markets have rarely lasted over 7 years, meaning that we are overdue for a correction.

Quant Master Kolanovic makes a Long-Term (and Bearish) Prediction

Stock Market Plummet Will Arrive By May 2016

Looking at the trend lines for the 2002 and 2008 stock market drops, the last time both occurred the red line (Daily Moving Average) crossed the green line (Exponential Moving Average).  If the trend lines continue, they will cross again in the first 6 months of 2016.   This is one of the reasons we'll see the stock market plummet by May 2016.  Slow global growth and market turmoil in China will also contribute to the upcoming market correction/recession.

The Simple Moving Average and the Exponential Moving Average lines are about to converge again!

Do a google search for 2016 recession and you'll find that there are plenty of economists warning of upcoming stock market drop in 2016.

The Fed Balance compared to the S&P 500.  Even in 2014 is was predicted that 2016 would see another financial crisis. [Image from financialsense.com]

News articles about the forecasted stock market tank in 2016:

Sell everything ahead of stock market crash, say RBS economists - The Guardian

Junk Bonds Signal 44% Recession Risk in 2016 - Bloomberg

Could the Economy Tank in 2016? - 23 economic forecasts for the new year.

Is 2016 the Year of the Next Recession? - Fortune

David Levy Forecasts a Global Recession in 2016

Stocks to Buy If You Think the Market is About to Crash

Amid all the news of a potentially huge market downtown, there are some stocks that could reap big gains if the market does tank.

UVXY
A triple leveraged VIX tracker.  When the DOW goes down 1% or more, this stock usually soars.
Be aware that since UVXY invests in futures, there are higher taxes on this fund.  You are also not buying shares in any company when you purchase UVXY.  Best to buy this under $30 so you don't lose your shirt!  What day traders are saying about UVXY on StockTwits.

TVIX
"The investment seeks to replicate, net of expenses, the returns of twice (2x) the daily performance of the S&P 500 VIX Short-Term Futures index". 

NUGT
Sometimes when the market goes down, investors get worried and jump into gold as a "safe haven".  This stock price is determined by both the day's price of gold and the performance of gold miners. Read more about recent prices and strategy for buying into NUGT. It spiked on Jan 7, 2016 when the DOW fell about 400 points from 16,906 to 16,514.

A telltale sign that a huge market hit could be on the way...
The chart below shows a broad time history for the Dow Jones, from 1985 to present.  Look what happened in 2007 when the market grew too fast.  Based on this 6-year cycle of crashes, we could see a crash sometime in 2016.

My prediction for 2016: the DOW will fall to 15,000 to 15,250.

Patterns in the last 22 years of the DOW show that we could be in for a big market tank in 2016.

The DOW over the last 10 years.  The red line is a simple moving average and the blue line is an exponential moving average.  The last two times that that they crossed, the market fell!  What we are seeing now looks like 2008.

The DOW, 1995 to early January 2016.  Expect a big market corrections before 2017.

Articles about warning signs in the market:

RBS Warns: Sell Everything - MoneyBeat - WSJ

Dana Lyons' Tumblr — Complacent Correction Cause For Concern?

10 Stats to Put the Stock Sell-Off in Perspective - MoneyBeat - WSJ

Market Correction Could Become a Full-On Bear - Barron's

The Great Benefit of a Falling Stock Market - Barron's

Opinion from Stock Tweets about the current market:

@bellajolie Technicals are there, signs are there, we are in a bear market. Have been for a month.
— James Kim (@jameskim1980) Jan. 14 at 10:32 PM

Gold Stocks May Be Good During Market Volatility

One of my favorite short-term trading stocks (a month or less), NUGT tracks the performance of gold miners.  It's a triple leverged ETF, meaning that it's designed to have 300% of the performance of the Arca Gold Miner's Index.

On 1/13/16 NUGT was a buy below $23. I bought in at $22.84.
(The 52 week low is $21.70)  By the end of trading hours it was back up to $23.30.
Ideal sell price is $27.00 or higher, but with more shares I would be out at $25.15 (10% gain).

Previously I have bought in at $24.47 average on 12/31/15 and sold at $26.43 on 1/4/16.
That's an 8% gain before trading fees.

NUGT is usually a buy below $25, because it peaked at $30 twice in the last three months and could have been sold at $26 or $27 several times.
Dec 4, 2015
Jan 7, 2016

If you think Gold is on the downtrend, you can invest instead in DUST, it does the opposite of NUGT, performing well when gold miners are doing poorly.

Other Gold investing options:
GDX
GLD
GFI
UGLD

$NUGT with the way the world markets have been acting this year this guy's going to high 30s/low 40s maybe more just have to be able to wait

— Mark Rumin (@saltwatertrader) Jan. 13 at 03:54 PM