Why the market falls this week

Market update today.

The market drops 1,100 points this week, the worst in 9 years. The market cannot make record highs forever. As Trump takes over, it has been up almost 30% and now it gives back a little.

The fall of about 300 points during the week was due to several major companies talking how to fix the high cost of health delivery. It is no surprise.

The fall today is due to expecting the higher Treasury interest rate. The primary reason is the booming economy as evidenced by the better employment figures. It would boost inflation as folks have more money to spend. Comparatively, both the inflation and inflation rate are still low compared to historical averages. Hence it is not the reason to panic. However, it would make new bonds more attractive than stocks.

The trillion-dollar question: Is it the beginning of the market plunge?

Yes

·      -   The market has been fundamentally unsound (check out my article “Market Peak as of 7/4/2017”) and with this fall, short-term wise it is technically unsound. It is still sound long-term wise as evidenced by the 200-day single moving average or the 350-day single moving average.

·         - “What goes up must come down” – Newton’s Law of Gravity or elastic theory. Excuse me for my humor.

·        - Margin calls. Many traders buying stocks using margins are forced to sell when their stocks drop to specific values.

·      - The ones who control the market are the institution investors. They rotate stocks, sectors… I bet they’re moving to cash now ahead of the retail investors described next.

·      - Due to the recent rising market, many retail investors have moved their safe investments such as bonds, money market funds, Treasury bills, cash and etc. to stocks. Their moves usually are wrong and historically it makes a good  contrary indicator.

·       - When the market has been saturated and overbought as evidenced by technical indicators, there is no fresh money to invest into the market to move it higher.

·       - Being a global policeman takes a big hole in our economy and jacks up our national debts. It could weaken the US dollar.

No

·         With the corporate tax cut to 21%, companies should be more profitable except for those companies having their headquarters in some Caribbean islands. 
·         The low energy cost should bring more profit to corporations.

 -      Trump’s policy could boost up our economy even I do not agree with him on many issues.



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Update. As of 7/2017, the market is fundamentally unsound but technically sound. The over-valued market could stay for a long while. When the technical turns to unsound, it is time to exit the market. There may be false alarms but it is the price to pay for insurance. When the market plunges, it will be steep and fast. Adjust your actions to your risk tolerance. I recommend using trailing stops to protect your profits. I’m a retiree and am ultra conservative and I had most (besides my annuity) were in laddered CDs. From 7/2017 to today, I blamed myself every time the market made another record.

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When should we return (if you already left the market):
http://tonyp4idea.blogspot.com/2018/02/when-should-we-return-to-market.html

The Update of 7/2017 is from my book "Profit from coming market crash" available from Amazon.com.


https://www.amazon.com/dp/B078NYR9DD