The stock market has lost 4% over the past few days. When this happens, it typically foreshadows a deeper correction ahead. The correction will be blamed by media on many things, but most likely not on the Federal Reserve’s easing program. For the past 3 years we have been discussing the “Federal Reserve Bubble”. We have also forecasted that when the Federal Reserve stops its “easing” program, the stock market rally will eventually stop.
It would not surprise me to see the stock market drop further in February. Right now I would forecast another 4-5% to the downside. If the DOW breaks 15,000, it is logical that it could drop all the way down to 14,000 before this correction is over. Does this mean the bear market in stocks is alive? NO. Bear markets, like bull markets, take time to develop. I have been forecasting a bear market to hit the US stock market some time in 2014 or 2015. If we do get an additional 4-5% to the downside, this would provide more evidence that the year for the bear market to start will be 2014.
By the end of February, our clients whose accounts we directly manage will receive a detailed forecast of our expectations this year. I will outline what we are looking for in US stocks. I will illustrate, for example, what we saw in Gold last year, and what we are seeing in US stocks this year. Gold started to look weak in March of last year. Many research firms were forecasting Gold to go to $3000 or higher. Alternatively, our firm saw a “break in trend”. Today, Gold is trading at $1190, and it looks to be headed for $1000. I see a similar set-up happening in US stocks.
I continue to believe we will have one more rally attempt that can take the DOW Jones up to 17,000 for our final target; however, the bear market is approaching, and if the DOW drops further, I believe it will be here later in 2014. A Bear market is defined as a drop in US equities of 20% or more over a 12 month period. I will blog more often this year as I believe this will be a pivotal year for our clients’ assets.