Rabu, 02 Desember 2020

The Market is Due for a Pullback

Money & Crisis

December 02, 2020

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The Market is Due for a Pullback

Are You Prepared for America's Death Spiral?

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Graham SummersDear Money & Crisis Reader,

The stock market is due for a significant correction.

Why?

Because stocks are EXTREMELY overstretched from their average historical price.

The S&P 500 has staged a move that is three standard deviations above its average historic price.

In the chart below, the dotted line represents the average historical price of the S&P 500 over the last 20 months. The solid lines represent price levels that are two standard deviations away from this price. When prices extend past them, as they have here, it puts the market into dangerously overstretched territory.

The S&P 500

And anytime stocks get “stretched” this far from their average historical price, there is usually a correction of 200 points or more.

I’ve circled the instances where this has occurred over the last three years in the chart below.

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As you can see, every single time this has happened, we’ve seen stocks drop at least 200 points in the S&P 500, usually in the span of a few weeks.

previous overextension

This time should prove no different. My current downside target is roughly 3,400 on the S&P 500. That represents the prior peak formed back in January 2020.

downside targets

What Could Spark This Collapse?

Take your pick:

  • The $16-$18 trillion commercial real estate market has yet to fully disclose the damage caused by the economic shutdowns.
  • The lack of a new stimulus bill — 14 million Americans will lose their unemployment benefits at the end of December. However, Congress is dead-locked and the 2020 U.S. presidential election is contested, which means the likelihood of more stimulus is minimal.
  • Inflation is on the rise and beginning to spiral out of control. This means the Fed cannot engage in more aggressive money printing without adding fuel to this fire.

Any one of these could trigger this pullback.

One, however, could spark a much more serious drop. One that would likely lead to “catastrophic economic destruction” with wide ranging impacts. If it does, it will likely play out in four distinct stages.

I’ve written an in-depth report detailing what they are, what they’ll look like and what their likely results will be. (It also describes some “crash-proof” investment strategies to prepare for it.) You can read my full report here.

Best Regards,

Graham Summers

Graham Summers
Editor, Money & Crisis

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