In May 1970 (I think), I read in the Wall Street Journal “Heard on the Street” column that the author was sure that the current steep market decline had further to go. That day was the bottom! So many pundits are searching for the market’s bottom. I think that when they all give up and surrender to the decline, it will be the bottom. In addition, T2108 is at 24% and usually market bottoms occur when that indicator is below 10%. Why not be in cash and wait for the dust to settle? There will be plenty of time to get on board with a real future up-trend.
Remember the tulip mania in the 1600s when people started trading tulip bulbs and bidding them up to absurd levels? The famous book on popular financial delusions and the madness of crowds helped Bernard Baruch to exit the market in 1929. When we see our neighbors telling us at parties that they have made $$$ from buying stocks, our competitive psychology builds and we push stocks higher and higher to absurd levels. Stocks need positive psychology for people to have the courage to hold on to them, thus allowing them to rise. In a bad market the psychology turns negative and people take their profits quickly. It will take a while for the positive psychology to build again so that traders can make large gains from steadily rising stocks. As happened to the Nifty 50 in the 70s, the psychology of the Mag 7 has broken. People are beginning to realize that they have just been trading tulip bulbs.
No one knows how long this decline will last. But based on my more than 50 years of market experience, I think we may be just at the beginning of a major decline. This weekly modified Guppy chart shows how shallow the current decline has been compared with the one in 2022. And the decline in 2022 was small compared with the one in 2008. So time for me to buckle up my seat belt. Stay tuned. I will announce here if I am wrong.
