Written by Lance Roberts, Clarity Financial
The good news, for those who remain ever bullishly inclined, is on a long-term, monthly basis, the bull market remains intact for now.
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Unfortunately, despite the rather harrowing correction, little was done to relieve any of the underlying pressures.
- Valuations still remain elevated
- Bearishness and volatility, despite the recent spike, remain at historically low levels, and;
- Investors simply could not jump “back” into the markets fast enough.
These are not signs of a real, lasting bottom, which long-term investors should aggressively buy into.
Given the current extension of the market, and the deviation between the current price and long-term average, a real reversion to the mean is still coming. If you thought the 10% decline over the last two weeks was painful, you should be reconsidering the risk you are currently carrying in your portfolio.
More importantly, as denoted by the red circles, the market is currently trading 3-standard deviations above the long-term average. This has only happened a few times in history and has generally preceded a rather deep correction in the not too distant future.
When will that be?
I don’t know. Nor, does anyone else.
But, we have seen this type of action before.
If you don’t recognize those charts, they are 2000 and 2007 respectively.
Each initial correction was followed by a rally to new highs which convinced investors the “bull market” would never end.
But you should already know the rest of the story.
The only thing more dangerous to investors long-term outcomes than being overly optimistic, is ignoring history.
