In a post earlier this week I talked a bit about taking this holiday weekend to reflect on your portfolio, think about where you’ve been and where you’re going.
The major stock market indexes finished an extraordinary Thanksgiving week that saw the Dow Jones Industrial and Russell 2000 both hit new all-time highs. The S&P 500 and Nasdaq also appear close to doing the same.
But an important indicator I watch is signaling the next stock market crash could be coming soon… And we should be extra careful.
Optimism is once again too high, which may sound strange to some of you. Yes, we want optimism and bullish traders. That leads to higher prices and more profits for our own stocks.
You’ll get no argument from me there!
But when optimism becomes extreme, that’s when it’s time to look out below because the next stock market crash could be coming.
The best way to explain this is when optimism is too high, there’s no one left to pay even higher prices for a stock, or to move a big index like the S&P 500 higher. At that point, a stock or index moves lower day by day or week by week until the bulls are pushed back onto the fence…
Then the bears come out and negativity pervades.
Only at that point can prices start to move higher again. That’s why I’m starting to get worried about a correction or sell-off in the coming week as we finish the month of November and begin the final month of a stormy year.
On one hand, the election looks to finally be over, COVID-19 vaccines are on the way, and we’re heading into a season that is generally good for the stock market.
On the other hand, there’s that classic feeling of Wall Street saying you need to “buy the rumor and sell the news” going on…
Check out my short video and let’s discuss this feeling further. Are you afraid the next stock market crash is coming soon? Perhaps you have money on the sideline ready to jump in and get some stocks on sale? Share your thoughts below.
And as always, send any questions you might have to Jeff@Yastine.com, and follow me on Twitter and Facebook.
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