We've started on an extended trip, deal listener, and none of us know our ultimate destination.
It's almost trite to say it, but we live in a world of instant gratification. Where information comes to us at the speed of the internet, and any problems, if they exist at all, are quickly resolved.It is a world that could only be dreamed about just a few years ago. And gives us that sense of an all-knowing, omnipotent perspective.
So, when I was recently talking to a group of investors, it came as no surprise, that their basic question was: when will this disruption in the markets, be over? And why not? For over a decade, investors have become used to a market, which basically went in just one direction. Up.
When some disruption occurred, it was usually handled by the professionals, like the Treasury or the Federal Reserve, and markets resumed their trek ever higher.
And its been that way at least since the financial crisis of 08. Markets met a challenge, and then a slight adjustment by the Fed: a lowered interest rate, a liquidity boost to the Repo Market, a relaxing of the bank regulations. And markets were quickly back on track. On to yet another new high.It was almost automatic. And we've all been relying on that consistency.
Unfortunately, I think the events we've seen over the past few days have changed all that. And I don't believe that this market will recover as rapidly as we would like.
Oh there are many technical reasons I could give for thinking this is the case. I could point out that fully 96% of all stocks are currently trading below their 50-day moving average. This indicates that essentially the entire stock market currently trades at a lower level than they have in the last month and a half.
Or I notice that a rising market also requires that many individual stocks are hitting new highs. And that's how its been for years.
But currently, that's all changed. Right now about 175 stocks a day are hitting new yearly lows, while only about 25 are hitting new highs. More stocks at yearly lows, tells us the momentum is currently down.
And that momentum would have to completely change, for this market to resume its upward march.
But perhaps the best way to visualize our current situation is to imagine the human factor.I've posted a chart of the Dow Jones Industrials on my website, and drawn a line from the level we are now in the market.
You'll observe that since December of 2018 most of the trades have occurred above our current level. That means that most of the people who have purchased stock over a little more than a year are now underwater. Their cost basis is above the current market price.
This is called resistance. And we know, from past experience, that these investors are likely to sell when they have recovered their investment cost.
So going forward that means that every time the market tries to rally, it will meet the resistance of investors who hold positions at a higher cost.
Resistance, it's the first time this market has seen these phenomena in a decade. And it will make any market progress from here on out, much more difficult.
Of course this resistance will eventually be overcome. It always has been in the past.
But don't look for this to be a quick solution, and instant fix.
If I was to guess. The damage done to the market over the last 2 weeks will probably take 3 to 6 months to repair.