The market is tumbling since the beginning of 2016, and I thought it is appropriate to share the assessment from my perspective.
As bad as it sounds, we are most likely at the beginning of a very adverse move and have yet to await a moment of balance before sentiment can establish a turnaround. Thankfully, members have been largely unscathed by this fast move down. If you wish to stay on the right side of the trend and never be caught up in such an adverse move, check out the advantages you receive by being an informed member.
What is Ahead?
In my previous post, I pointed out the 1820 support area which also happens to be one of our triggering levels. Touching that base would shape up a triple bottom (troughs of October 15, 2014 and August 24, 2015) and a bounce is likely. However, I don’t think that this will be the bounce from which the market can ultimately recover. It is going to be a mere counter-move against the predominant downtrend.
If you look at the S&P 500 valuation, the average P/E ratio currently stands at almost 20. This is not a sustainable valuation. In fact, 20 has been an extremely premium valuation historically.
Considering the possibility that we could revert back to the mean of around 15, we still have another 20% downswing ahead of us. This gives us an S&P 500 near 1500 given that earnings do not falter. With the negative sentiment spreading across the world and people becoming aware of a new bearish market, they will. In turn, we may have to anticipate an even lower mark.
I do not expect it to turn out to be another 2007/2008 financial crisis. This is just letting air out of a hot balloon without significant fundamental flaws.
With that said, a possible low is the all time highs made in the years 2000 and 2007 at around 1560 which is near the aforementioned fair valuation if everything else stays the same. It is going to be a stronghold of support and I do not expect prices to slip through it like a hot knife through butter. We would have merely reverted back to fair valuation, though. If we reach it, I will be posting a follow-up assessment.
Any thoughts? Discuss your view on the market in the comment section below. I’m always excited to hear your perspective.