A mixed week with the Dow Jones down 149 points (-0.58%) and the Nasdaq up 27 points (+0.34%) 

Thus far, the Dow continues to follow our exact long-term and short-term trajectory. And while the market remains predominantly bullish, the situations in far from being that simple. If you would like to find out what the stock market will do next, based on our mathematical and timing work, in both price and time, please Click Here

Market sentiment remains at historically high bullish levels. For instance, Bull vs. Bears 24-to-1: What a “Meltup” Looks Like. All you have to do is open any financial media outlet and it would be story galore of how the market is about to break out to all time highs with at least another 10% rally being a sure thing. 

As accurate as that forecast might be, no one, and I mean no one is taking about the possibility of an all out crash. And considering that fact alone, is it possible that a crash will develop?  That is exactly the line of thinking explored in the following article.

8 Measures Say A Crash Is Coming, Here’s How To Time It

Since 1951, this “equity reduction” signal has only occurred 17-times. Yes, since these are long-term quarterly moving averages, investors would not have necessarily “top ticked” and sold at the peak, nor would they have bought the absolute bottoms. However, they would have succeeded in avoiding much of the capital destruction of the declines and garnered most of the gains.

The last time the Equity-Q ratio was above 40% was during the late 2015/2016 correction and the technical signal warned that a reduction of risk was warranted.

The mistake most investors make is not getting “back in” when the signal reverses. The value of technical analysis is providing a glimpse into the “stampede of the herd.” When the psychology is overwhelmingly bullish, investors should be primarily allocated towards equity risk. When its not, equity risk should be greatly reduced.

Unfortunately, investors tend to not heed signals at market peaks because the belief is that stocks can only go up from here. At bottoms, investors fail to “buy” as the overriding belief is the market is heading towards zero.

In a recent post, It’s Not Too Early To Be Late, Michael Lebowitz showed the historical pain investors suffered by exiting a raging bull market too early. However, he also showed that those who exited markets three years prior to peaks, when valuations were similar to today’s, profited in the long-run.

While technical analysis can provide timely and useful information for investors, it is our “behavioral issues” which lead to underperformance over time.

Currently, with the Equity Q-ratio pushing the 3rd highest level in history, investors should be very concerned about forward returns. However, with the technical trends currently “bullish,” equity exposure should remain near target levels for now.

That is until the trend changes.

When the next long-term technical “sell signal” is registered, investors should consider heeding the warnings.

Yes, even with this, you may still “leave the party” a little early.

But such is always better than getting trapped in rush for the exits when the cops arrive.

The above is great, yet most bulls would dismiss all of the above as premature. After all, what is there to worry about. The Nasdaq/Russell/Willshire are sitting at their respective all time highs. If anything, it is to early to worry about any sort of a crash. Simply put, the market is not setup for it.

I would agree, however, I would also point out that the Dow/S&P/NYA and many other indices are INDEED technically setup for a crash. Combine that with a fact that no one is expecting a crash and we might have a real problem on our hands.

How do we reconcile all of the above……as a bear trap or as a bull slaughterhouse? 

That is exactly what we discuss in our weekly update. Not only that, our charts predict exactly what the stock market will do next. In both price and time. If you would like to find out, please Click Here