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By Gregory Mannarino TradersChoice.net
If you have been following my work here in the Trends Journal ever since I began writing articles here, you have seen a common theme—the stock market is going higher—and to say the least, my calls have been correct with the market hitting a series of new record highs.
But is it even possible anymore that the market can enter into a normal corrective phase defined as a drop of up to 20 percent?
The fact of the matter is this: for quite a while every single drop in the market has been bought, a phenomenon which I still believe is going to occur as long as The Federal Reserve continues to buy assets and pump the market.
Today there is no resemblance of a free market system. Today we have a managed market being run by a runaway central bank. The fact is, the Fed is running the show, and the Fed IS the government.
Looking at the current financial cycle, we are in a time of the year when increased volatility in the market should be expected. This current week and moving into next have proven to be unstable, especially in light of current events—and we should expect it.
For the market we have the Chinese property giant Evergrande, which is facing a massive debt issue—for which the Chinese central bank has already begun pumping tens of billions into the financial system. Moreover, this week the market is looking to hear from the Fed, who is expected to lay the groundwork for tapering. So again, in light of market seasonality, the Evergrande issue, and the Fed, expect volatility.
IF a normal market correction were to happen, it should happen now, but the question remains—will we get one? To me, it’s anyone’s guess. I also believe that, in the event of a normal correction, it would be a buying opportunity.
How will we distinguish between a buying opportunity and a real crash?
Simple. We watch the 10-year yield.
The key to this market is suppressed rates. IF we observe the 10-year yield remaining stable, the market will continue higher and the dips in the market should be bought. However, IF we see an uncontrolled spike in the 10-year yield, it’s time to get out of stocks.
An essential element in evaluating the market and acting on it is this—stay calm. The moment that you panic, you lose. Staying calm allows you to make proper decisions, panicking does the opposite—and you will invariably make poor investment choices.