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By Gregory Mannarino TradersChoice.net
If you have been following my work here in the Trends Journal, then you are certainly aware that I am a major stock market bull. In fact, if you were to take the time and look through every single article that I have written here for the Trends Journal since I began, they all have one common theme—that the stock market will continue higher.
My calls regarding the performance of the U.S. stock market have been 100% spot on. Just about every single week, the stock market major indices continue to hit record high after record high.
I have explained multiple times here in the Trends Journal, and in my other work, how the paradox of continuing bad economic news would propel the stock market to new highs—and as long as the bad economic news continues the stock market will gain.
This phenomenon is being fostered by the fact that The Federal Reserve will continue to buy tens of billions in assets every single month as long as the bad economic news continues.
In my last article for the Trends Journal, I detailed how the U.S. stock market derives its value from several factors, of which the debt market is key.
There is a reason why the Federal Reserve has chosen to artificially suppress rates since the market meltdown of 2008. By keeping rates low/suppressed it creates a deliberately induced environment of risk, that is, cash flows into risk assets—stocks.
This mechanism has created and continues to create epic distortions across the spectrum of asset classes—producing both “risk on hyper-bubbles” and “inverse risk off hyper-bubbles.”
Risk off assets like gold and silver especially, become massively undervalued in situations like this. And suppressed rates create massive opportunities to acquire undervalued assets at ridiculously low prices.
Understanding that the stock market derives its value from other factors makes the stock market itself a derivative. Simply, a derivative is an asset(s) which derives value from something else.
In the case of the U.S. stock market, these factors are:
- The debt market
- The Dollar value
- Crude oil
- The size of The Federal Reserve’s balance sheet
Why the odds of a near term stock market crash just went up.
First off. I will remain a major bull regarding the U.S. stock market as long as the four factors which I mentioned just above remain in play.
With that said, there is a technical indicator known as The Hindenburg Omen, which just this past week has appeared to overshadow the U.S. stock market.
The Hindenburg Omen is only correct about 25 percent of the time when it shows up, but when it is right, it tends to be right in a big way.
The Hindenburg Omen showed up just prior to the stock market crash of 2008. Moreover, the Hindenburg Omen has shown up prior to every single stock market crash on record! But keep in mind that the Hindenburg Omen has also shown up many other times—and nothing happened.
The Hindenburg Omen IS NOT a stand-alone indicator, nor does it guarantee that a stock market crash is imminent, however it should be considered a warning of sorts.
To me, understanding the dynamics of the market—that is the flow of cash through the markets, and more importantly the four factors driving the stock market—I will give the Hindenburg Omen its due notice, but I will NOT be basing my investing/trading philosophy on it.
Just be aware that the Hindenburg Omen is there now, which raises the odds that a stock market crash may come soon, but it does not guarantee that it will happen either.