Stock Market Could Be Setting Up to Disappoint in 2020
The stock market could have a very hard time in 2020. Don’t be shocked to see a lot of selling and wild swings. We could even see a bear market in 2020. Why? Just look at the charts.
You see, in the short term, the stock market outlook appears great (look at the chart below of the S&P 500). And if you listen to the mainstream media, it will have you convinced that nothing is wrong and that stocks are still presenting great value.
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Since early 2019, the 3,000 level in the S&P 500 was acting as a resistance level. The stock market blew past it not too long ago. As it stands, we also see the 50-day moving average and the 200-day moving average below that price. This says the short-term and long-term trends are pointing upward.
If you look at momentum indicators like the moving average convergence/divergence (MACD) plotted at the bottom of the following chart, you will see that buyers are present.
Also, don’t forget seasonality; in December, the stock market tends to do well.
Chart courtesy of StockCharts.com
Don’t Ignore This Chart Pattern
Don’t let the bullishness in the short term make you complacent and forget the big picture.
Look at the long-term chart of the S&P 500 below and pay close attention the black lines drawn on the chart. There’s a chart pattern there saying that something bad could be ahead for the stock market in 2020.
Chart courtesy of StockCharts.com
Since 2018, moves by the stock market have been volatile to say the least. If you look closely, certainly the S&P 500 has moved much higher, but the moves to the downside have been wild too.
The pattern you see in the chart above is called a megaphone pattern. The idea behind this pattern is very simple: over time, prices get very volatile.
This pattern began in early 2018, and you can see how the stock market has acted since then.
The first move by the S&P 500 was about 11% wide. The second move was more than 18% wide.
We haven’t seen the third move yet, but assuming the megaphone pattern is still in play, the third move could be over 25% wide. If this is the case, it would mean a bear market for the stock market!
If the Stock Market Drops, Do This
Dear reader, I have said it before here and will say it again: don’t get complacent. Mark my words: complacency never ends well.
I believe the stock market is treading in very dangerous waters and there’s a storm brewing. The chart pattern mentioned above outright says a bear market could be ahead in 2020. But this is not all.
Look at the fundamentals of the stock market and you will find troublesome developments all over.
Going into 2020, it might be a very wise idea for investors to take a close look at their portfolios. Remember this: during the time of a sell-off, investors sell anything and everything. So, even if you own the most fundamentally strong companies, your portfolio could come down in value.
Capital preservation never hurts. The last thing you want to do is give away the gains you have already made.
