What is it that causes a major or even a minor crash in the stock market? Or even anything else? Daily there are events that move the market slightly either up or down. By slightly I mean one or 2%. These fluctuations occur naturally within major and minor trends again either up or down. Currently the price of crude oil has an important role. Housing/interest rates another and consumer purchases a third. These are the big three forces today. They change with the times.
So far none of them has influenced the overall major upward trend of the past 3 years. From a place almost no one can fathom comes a completely strange event that causes a change in the major trend.
The assassination of a minor Arch Duke set the flames of war for World War One. Certainly this individual act was not the reason for that terrible conflagration. Big events such as Hitler’s invasion of France and Japan’s bombing of Pearl Harbor had many tiny acts of aggression not seen to have caused such flagrant behavior.
What might seem to be the major overt act has fingers of instability reaching into areas we cannot even imagine. An important event may not trigger anything and yet an insignificant one may reach deeply into the fabric of our economy starting ripples that become a tidal wave. The failure of a small bank in North Dakota might start a series of defaults that feeds upon itself ultimately tearing into the structure of the world banking community.
Suddenly, very suddenly, a financial crisis of dramatic proportions occurs with defaults in trillions of derivatives. All other phases of world economies are sucked into it and become part of the tumbling mass. It becomes a self-feeding event that is now an avalanche that none of the world’s great financial geniuses can stop. Markets collapse world wide.
Today we look to the 3 important avalanche potentials (oil, housing and the consumer) and wonder what is holding up the market. Yet it continues its upward bias. Some far off event may occur that lights the fuse of the next recession. And don’t think there will not be one. The markets of New York, Tokyo, London, Moscow and Beijing are all connected at the hip. Recessions are as sure as the sun in the morning and the moon at night.
An investor must guard his savings during these downward periods. A zero return on investment is better than a negative return. Do not think to be able to recognize the event that will turn the market down. That is almost impossible.
Learn to recognize the major market trend and be in cash or bonds when it turns.
Al Thomas’ book, “If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.
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