The Next Bear Market
Sometimes, I predict things and keep them to myself. Then, when they happen, I don't get credit. I have written publicly about things that turned out to be true. Check the first post of my blog if you want to see a few examples. This time, too, I want to make some predictions publicly. If I'm wrong, then I'm wrong, and you can tell me about it. But if I'm right, then I'll refer back to this to show you how smart I am!
Anyway, it looks like the next bear market is nearing. A bear market is a stock market downturn. And by using technical analysis (just looking at charts to find patterns), one can see that we're nearly at the turning point.
First, some background. Since March 2008, just after Obama took office, the stock market turned around and over the past three and a half years, we have witnessed one of the fastest stock market increases in history. To be sure, unemployment didn't decrease nor did wages increase nearly as fast as stock prices rose. (So much for trickle-down economics.) But if you were an investor and got in during the first half of 2008, you probably made a killing. In fact, you did if you invested in the main American indices.
However, in the charts, I have detected a "rising wedge" pattern. According to the "Wedge pattern" Wikipedia article:
"The rising wedge pattern is characterized by a chart pattern which forms when the market makes higher highs and higher lows with a contracting range. When this pattern is found in an uptrend, it is considered a reversal pattern, as the contraction of the range indicates that the uptrend is losing strength." (http://en.wikipedia.org/wiki/Wedge_pattern#Rising_wedge)
I drew some trend lines on three charts from Yahoo Finance to show what I mean:
Dow Jones Industrial Average
NASDAQ
S&P 500
The green trend line (following the high points) is not rising as quickly as the red trend line (following the low points). The overall charts are still moving upward, but when (or shortly before) the green and red trend lines meet, there is a good chance that the markets will take a dive.
I don't know if it will happen before the presidential election (I hope it doesn't), but these charts tell me that sooner or later, something might give. It's not a sure thing, but the markets do appear to be setting up to take a great fall. My guess is that it will be the largest since 2008. This might not happen until the end of 2012 or even early 2013. Also, Friday was a bad day for the markets, and that could signal a collapse. But it's more likely that things will pick up and the markets will make one last high before collapsing. Also, the markets are near their all-time highs (from 2007, minus the NASDAQ, with its crazy dot-com bubble). The all-time high acts as "resistance", and it's hard to surpass, especially with an economy still in the doldrums. (Don't expect great economic times again.) Assuming another high comes, I'd say that as soon as markets pull back a bit from that point, that would be the prime time to short the market or pick some ETF with an inverse relation to an index. Unfortunately, I don't have the money to do that at the moment. At some point, I need to build up enough money to start getting rich off of this!
Fine Print: I am not currently shorting, nor do I expect to initiate any positions in the next 72 hours. This post is for entertainment purposes only and I cannot be held liable for any losses that might occur. (^_-)
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