How to Face Future Market Possibilities

【How to Face Future Market Possibilities】CLEC Investment Club Written date: May 21, 2019

The market's future has only two possibilities: one is a continued uptrend, and the other is a continued downtrend.

If the market rises in the future, we do not need to worry. What we need to face and prepare for is the second possibility: a downtrend.

Conclusion first: a downtrend means each wave is lower than the previous one. If after the third or fourth pullback, the rebound breaks above the previous high, then what looked like a top may fail and instead become a bottom. Those who sold may need to admit the mistake and buy back.

A downtrend does not happen in one day. It has a process of evolution and development.

1. The market moves from an uptrend into its first pullback. During this pullback, half the people sell, just as an example assumption. Now 50% remain in the market.

2. After the first pullback, the market begins to rise. At this time, half of those who previously sold admit the mistake and buy back. Now 75% are in the market.

3. After these people admit the mistake and buy back, the market has another pullback. Half the market sells again. Now 35% are in the market.

4. When everyone is selling, the market faces another pullback. Of the previous sellers, 35%, half of them, or 17.5%, buy back because of the market rebound. At this point, only 53.5% remain in the market.

5. After the final rebound comes another decline. Half of the market, 53.5% / 2 = 26.75%, sells again. Now only 26.75% of investors remain in the market.

6. At this point, very few people still believe the market will rise, so fewer people buy, more and more people sell, and the market begins to fall rapidly, forming a bear-market downtrend.

From the above explanation, we can know that when the market starts falling from the bull-market high, it usually goes through around three or more rebounds. Finally, it breaks below the neckline, completes a topping pattern, and begins a bear trend.

First we use Chart 1, the 2008 subprime mortgage bubble, as an example. Everyone can see the formation of a bear-market pattern after three corrections.

Likewise, we use Chart 2 to explain the situation we are facing now and the possible future we estimate. Everyone should remember this is possible, not inevitable. Another possibility is that the market breaks above the high and continues the uptrend.

Conclusion: a downtrend means each wave is lower than the previous one. If after the third or fourth pullback, the rebound breaks above the previous high, then what looked like a top may fail and instead become a bottom. Those who sold may need to admit the mistake and buy back.

Everyone should pay close attention to the following two future market points:

1. If in the next few weeks the market breaks below the key neckline, also the annual moving average at 7500 points, the probability that we fall into a downtrend will exceed 50%. At this time, one should sell another 1/2 of the stocks held.

2. If the market breaks below 7500 and then rebounds close to 7500, touches the annual moving average, and turns downward again, this is a selling point where the remaining stocks can be sold. It may then begin a wave of selling pressure. Finally, if it breaks below 7000 points, the probability of a market downtrend may reach 75%. This should be the last best selling point.