We are already living through disturbing times, and it pains me to shock you even more with this headline.
But this is important.
I expect the stock market to crash this week.
For the last two weeks, I’ve been urging you to buy stocks, telling you that this is the opportunity of the decade… and, now, I’m saying there’s a crash coming. Sounds contradicting.
But, the thing is, while I still maintain that this is the time to be buying stocks, last week’s 14% market rally has me worried. It’s a sign of irrational exuberance.
I understand we’ve received a lot of good news in the last seven days. The Fed launched the “QE Infinity” program, and Congress approved a $2.2 trillion stimulus bill. These two measures and the speed with which they were implemented are tremendous positive factors for our economy.
But a 14% gain in one week in the current economic conditions can lead to only one outcome—a pullback.
The Market Sentiment Is Still Negative
You should remember that one of the primary forces moving the stock market is the news.
When it’s positive, the market moves up, and when it’s negative, it goes down.
And the headlines we’re receiving are still mostly negative.
Coronavirus cases keep increasing at the same pace, we are, so far, without a cure, and countries around the world are looking at prolonged lockdowns.
Even President Trump pulled back on his plan to re-open the economy by Easter.
Moreover, while the stock market is in the final innings of this calamity, the economic crisis is just beginning.
This means that in the coming months, you can expect nasty headlines talking about mass unemployment, bankruptcies, and the recession, to continue.
How To Invest In The Coming Weeks
What this means for you as an investor is that there will be more buying opportunities, in case you’ve missed the last one.
The first should come this week.
I expect that the negative news will push the stock market close to, or at its March 23 lows. There, the price action will form a double bottom turnaround, moving higher from there on out.
(If that’s the first time you hear this term, a “double bottom” is a pattern where a stock touches the same level twice, but refuses to decline further, signaling that all the negative news has been priced in.)
So, if you’re a long-term buy-and-hold investor, I suggest you add to your stock holdings when that happens.
Next buying opportunities will likely come at higher levels. I expect the market’s path ahead to be volatile, but overall, stocks will be moving higher.
In case you prefer to use a dollar-cost-averaging tactic for your portfolio, then future pullbacks, which there will be many this year, will provide excellent entry points. I suggest you be patient and invest only when these occur.
And if you want to play it safe, then wait for the market to form the double bottom, and then invest once the price reaches above the March 26 highs.
I also hear some analysts suggesting that retail investors should wait until we find a cure for the virus. But I think that by then the buying opportunity will have passed, so I would advise against it.