Look Out Below, Market to Test February Lows by End of October

Michael Markowski  |


Amazon and Google cast daggers into heart of bull.

After a relief rally for the major indices today the October crash will resume in full force tomorrow. Amazon  (AMZN) and Alphabet  (GOOGL) both reported their third quarter earnings after the market’s close today. They both missed their estimates. Amazon reduced their revenue outlook for their fourth quarter which is during the holiday season. Due to the misses the share prices of the four FANG stocks were off by two to seven percent in the aftermarket.

It would be difficult to fathom the major indices including the Dow 30 and the S&P 500 not plumbing new lows by as early as the end of the October. It would also be difficult for anyone to make the argument that the major indices including the S&P 500 and the Dow Jones composite will eclipse their recent all-time highs for the bull market by the end of 2018.

My October 9, 2018, article entitled “Day of Reckoning Approaching for Market” was about the valuation of FANGAM, an index that I created to conduct research on Facebook, Amazon, Netflix  (NFLX), Apple  (AAPL), Google and Microsoft  (MSFT) due to the valuations of the six growing at a much faster rate than their fundamentals. Below are the statistics for the 12 months ended September 1, 2018, for FANGAM that I pulled from my article.

  • Market cap increased at a compound annual growth rate (CAGR) of 42% versus 15% for the S&P 500 and 40% for FANG.
  • Accounted for 17% of the S&P 500’s market cap.
  • Produced 37% of the S&P 500’s gains.

The basis for my argument that FANGAM would eventually cause a collapse of the market was that since FANGAM’s market cap was represented such a large portion of the S&P 500 it had put the index into a Catch 22. Should the market cap of FANGAM decline or even cease to grow, the performance of the S&P 500 will be negatively impacted. The index had become completely dependent on FANGAM’s members to reach new highs. On the contrary should the market caps of the six FANGAM members continue to increase the market caps of S&P 500’s remaining 494 members would have to decrease. The amount of money that can be invested in stocks is finite. Throughout any period in the S&P 500’s entire history, which encompasses secular bull and bear markets, the index has never grown at double digits. In my article I also pointed out that the market cap CAGR of 42% for FANGAM for its 12 months ended September 1, 2018 was out of control when compared to the growth of its fundamentals. For the latest fiscal-year the revenue of FANGAM increased by 19%.

Now that the four members of FANG have been defanged the market will struggle. Without the tech leadership and with 45% of the members of the S&P 500 already in bear market territory it’s hard to envision the indices closing the year higher than 2017’s close.

The Bull & Bear Tracker’s GREEN and RED signals are a great way to trend trade the market’s downside and upside and to also capitalize from sudden spurts of volatility. The signals are utilized to trade the Direxion Daily S&P 500 Bull 3X Shares ( (SPXL[ARCA] - $42.92 )) and the Direxion Daily S&P 500 Bear 3X Shares ( (SPXS[ARCA] - $26.16

The table below depicts the performance of the Bull & Bear Tracker’s signals since it became operational on April 9th and through October 24th. For information on the Bull & Bear Tracker and to get access to the alerts for the signals go to https://bullsnbears.com/bull-bear-tracker/.

To better understand my math as well as to learn about the secular bear market and the recession-investing strategies that I am recommending from now through 2030, watch my recently taped two-part interview. A private pre-screening of part two of my interview, which is being aired on the Fox Business channel at 3:30PM on Saturday October 27th on the Fox Business channel is NOW exclusively available to BullsNBears.com’s alert subscribers. Click here to subscribe to BullsNBears.com free alerts. Part 1 of the interview is also available to subscribers.

Below are my most recent must-read articles pertaining to why I believe that the market will be substantially lower in the coming weeks and months:

Additional information about the tariffs including videos are available at BullsNBears.com which covers the research categories listed below.

Disclaimer. Mr. Markowski’s crash predictions are frequently ahead of the curve. The September 2007 predictions that appeared in his EquitiesMagazine.com column stated that share-price collapses of the five major brokers, including Lehman and Bear Stearns, were imminent. While warnings were accurate, they proved to be premature. For this reason he had to advise readers to get out a second time in his January 2008 column entitled “Brokerages and the Sub-Prime Crash”. His third and final warning to get out, and stay out, occurred in October of 2008 after Lehman had filed for bankruptcy. In that article “The Carnage for Financials Isn’t Over” he reiterated that share prices for Goldman and Morgan Stanley were too high. By the end of November 2008, the share prices of both had fallen by an additional 60% and 70%, respectively — new all-time lows.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
FB Facebook Inc. 141.55 -3.41 -2.35 18,539,832 Trade
GOOGL Alphabet Inc. 1,049.36 -27.66 -2.57 1,700,089 Trade
AAPL Apple Inc. 194.17 -10.30 -5.04 51,130,034 Trade
AMZN Amazon.com Inc. 1,636.85 -75.58 -4.41 6,805,904 Trade
NFLX Netflix Inc. 294.07 -9.40 -3.10 10,924,627 Trade
MSFT Microsoft Corporation 106.87 -2.70 -2.46 33,620,138 Trade

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