Have you ever wondered what will happen to the markets after the Covid craziness is officially over?
I mean, when there is a reliable vaccine, when the virus mutates to a harmless version itself (like with many flus), or when it just disappears as unexpectedly and suddenly as it appeared? (And trust me, it WON’T be here forever, that’s for sure!)
Well, I will give you my own opinion – and it will probably surprise you (perhaps even shock you).
Personally, I think the market will go DOWN.
In a big, big, big way.
In fact, we will probably have long-term bear-trend.
Why do I think so?
Well, here are my points:
1. ALL OF THE OPTIMISM IS ALREADY BUILT INTO CURRENT MARKETS.
I still remember the reaction of a few excellent traders in our Elite program. After the Covid-19 appeared, their first reaction was: “Guys, let’s brainstorm some stocks that are cheap now because of the situation, but will start going up as soon as everything is over. Like airlines, hotels, cruise ship companies, etc….”. Well, guess what: MANY other savvy traders around the world had similar ideas. Thus, many of them were pushing prices up the last few months, even for companies who were reporting HORRIBLE numbers, if not massive losses. Simply said, many traders ARE already projecting the end of Covid times into the market and it is nothing more than a very serious BUBBLE. I’m pretty confident the bubble will burst as soon as the Covid situation is dealt with and the true economic damage comes to the surface. And it will be ugly. VERY ugly.
2. THE U.S. ELECTIONS.
Elections in the U.S. have always been connected to massive market manipulation. Each president wants to show how the markets have reached all-time highs, and they will use ANY tools to hold that narrative until the election is done. That’s nothing new under the sun, it’s been a common practice for decades. But, guess what… It’s just a bubble too. And there will be no need to hold on to this bubble after the election. Another reason why I believe we will see a MASSIVE bear market.
3. THE ECONOMY IS VERY UNHEALTHY.
That is a fact. Big companies are laying off hundreds of thousands of workers. We’ve seen quite a few bankruptcies since March and too many companies are fighting for survival (we just don’t read about these much because of the reason I described in the previous point). These companies will not recover. We will start seeing secondary economic impacts very soon because there is always a delay. In 2008, it was 9-12 months. So, it might still look all alright on the surface now, but under the surface, it’s a very different and much uglier story (that nobody really wants to talk about). And we will all have to deal with it. The only market scenario I can see here is bearish.
And finally…
4. WE HAVEN’T HAD A SERIOUS BEAR MARKET FOR A LONG TIME.
So, it must come sooner or later. And considering everything above, I personally think it is just around the corner.
Now, what does all of this mean for traders? Here’s my take on it:
1. There will be ENORMOUS potential for futures breakout traders. Volatility is our friend. And trading futures on the short side in a heavy bear market is technically very easy. So, breakout traders who are prepared with both long and short strategies will have an ENORMOUS opportunity. And I personally can’t wait for it. (And if you’re new to breakout trading, I recommend watching the free 14-day breakout strategy challenge).
2. At the same time, we will need to use EVERY protective tool we can to protect our capital. We will need to be ready for all of these amazing opportunities while being fully protected against the worst. So, tools like Market Internals will be the new BIG thing to get us through these times safer than the rest of the world. Plus, of course, broad diversification and a sound, conservative risk management.
So, that’s how I personally see the situation.
And how do YOU see it?
I’m curious to hear your own opinion! Let me know your thoughts!
Happy trading and stay safe.
Tomas
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