The August plunge: assessing risks and opportunities in investment markets

When we are disappointed with the results produced by the method we have been using, that is when we are most motivated to assess other methods that may be superior. If you are concerned about the future of the US economy and US stock prices, great. Then you are open to safer and more profitable strategies (instead of just “sitting on” any investments that you may now have), right? 
 
Below, we will take a relaxed look at what to do to at least increase safety. If you can go from uncertainty to confidence, that would be ideal. Otherwise, you can recognize any remaining uncertainty and then reduce exposure to risk (such as by selling positions to “cash them out” in order to avoid larger losses).

For reference, I have repeatedly forecast the recent weakness in US stock prices (and global stock prices). I will show you detail of that below. (If you not understand any of the following or would like for me to repeat any of it to you by phone or skype, then let me know.)

While US stocks were unusually flat most of this year, I profited from other markets. I also profited from the predictable plunge in US stock prices on 8/24.

Lately, I have repeatedly suggested to people that, in particular for any funds that you do not have me manage, I would recommend exiting US stocks to “go to cash.” I have been saying that for well over a year.

Why I said that is because the trend in stocks worldwide and in the US are currently even weaker than in 2007 or 2000 (the risk levels are higher). I can show anyone my publications prior to and during the 2007-2009 stock market decline indicating advance expectation of the beginning of the plunge, the acceleration of the plunge, and the exact timing of the rebound (within a week of the exact low).

Not only did my forecasts allow for avoiding the huge losses during that time, but allowed for enormous gains during the same time. Historic profits were made from large price movements in US bond markets and in commodities as well as from declining prices in US stock prices. Again, I have made easy profits from declining prices in every major market. Almost anyone can do it but most people do not know how it is done.

Next, let’s briefly review my recent forecasts regarding the US stock market. On Jan. 30th, 2015, I published the article which you can read here: https://jrfibonacci.wordpress.com/2015/01/30/global-stock-markets-are-at-a-precipice-a-potential-cliff/

The title was rather clear:

Global stock markets are at a “precipice” (a potential cliff)

Here is a short excerpt:


“The last seven months have been quite weak [for the global stock market] relative to most of the last 10 years (shown below). The risk levels in current stock markets globally are currently exceeding the risk levels at the peak in 2007….”

wilshire 5000 decade

Here is an updated chart of that global stock index of the stock prices of 5,000 companies. Note the unusual flatness of early 2015 (the orange section at the top right):

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Even prior to January 2015, I was aware that the trend in global stocks was “maturing” (losing momentum / plateauing). Risks were increasing to such an extreme level that, at the end of last January, I published the alert linked above.

Note the date and highlighted portions of this next email (from August 19, 2015), especially that stocks are “subject to a sudden, massive, and lasting decline.”The subject line of that email is shown below: FYI, US stocks are notably weak again. Click the image to see a larger version.

 


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My predictions were correct. After 8/19/2015, US stock prices began a steep decline. On Saturday 8/22 in an email, I wrote:

“…yesterday’s 3.2% drop was the biggest in [the last 3 years]. For the last few months, I have been writing about the likelihood of such a sharp drop (and what I expect to follow). I did very well from yesterday’s decline in US stocks, but not as well as I had hoped. Fortunately for me, there is much more coming.”

There was an ever bigger plunge in stock prices on Monday 8/24 (starting in Asia when it was still Sunday evening in the US). The next day, I published this report, which shows the actual trading data from the brokerage account:

https://jrfibonacci.wordpress.com/2015/08/25/one-day-gains-of-over-50-on-yesterdays-stock-market-action/

Reported in that link are the actual investment results (from “day trading” of stock options) on Monday. I made a profit of about $1900 in a few hours off of about $3500 of capital (gains of over 50%).

Throughout early 2015, while many investors were focused on stocks, I was much more conservative and selective. I was measuring risk and focusing on discounts and other unusually-favorable opportunities (in currencies, bonds, commodity markets, etc).
 
On 8/24, as many stock investors were surprised, I saw exactly what I had been expecting. I took bold, confident action in response to confusion and panic (which I had considered inevitable). I made very sizable gains as others suffered sudden losses of several percent.

I know that trends form, accelerate, then mature. I also know that one type of trend is a “selling panic” which also may slowly form (as a prior trend destabilizes), then suddenly can accelerate, then eventually will re-stabilize.

Market conditions can be unusually “ripe” for a selling panic. I have been interested in learning how to identify that “ripeness” for a panic, then calmly watching for those conditions to develop.

Some selling panics are brief dips, recovering as fast as they happen. However, so far, the rebound after 8/24 has been “modest,” with a few weeks of partial recovery and then more than a week of slowly returning toward the prior low. Each new development is to me just another phase within a larger cycle: trends form, mature, and then de-stabilize.


Are all selling panics brief dips? No, some selling panics begin new trends. Long ago, I got curious about how to distinguish as early as possible between “brief dips” and “long-term reversals of an old trend in to a different trend.” So, I studied markets and I learned.
 
You can profit from my forecasting competence and my calm confidence. You can begin to do that immediately. If you have further questions (now or later), you are welcome to share them with me.
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