The real problem for Wall Street is that the free money from the Fed has ended (Until they announce QE 4). The relentless selling continued as stocks plunged on Wednesday after a new round of selling emerged. This time the bears went after almost all areas of the market including the big glamour names such as Amazon ($AMZN) and Netflix ($NFLX) (that had been holding up rather well in late 2015). The fact that Wall Street can not bounce from deeply oversold levels clearly illustrates how weak the market is right now.
I’m often asked: Why? Why are stocks falling? The short answer is the easy money from the Fed has ended (for now). If you filter out all the noise (enter any headline you want), the one primary driver of this entire bull market has been easy money from the Fed and other central banks. When you step back and look at the last 7 years of bullish action on Wall Street you can easily see it is all about easy money – Here. Since 2009, stocks rallied hard every time the Fed printed money (a.k.a QE) and fell when QE ended. The last round of money printing (QE 3) ended in October 2014 and stocks have been building a large top ever since (below).
Many people don’t understand what is happening and continue to think this is a pullback in a bull market. We take the other side of that trade and have been making the case that stocks topped since the summer of 2015 (before the big Aug 2015 crash). As the market continues to sell off from here it is becoming more and more obvious that stocks topped out in the summer of 2015 and the major indices are getting closer to the official definition of a bear market (decline of 20% or more from a recent high). The small-cap Russell 2000 index is already in a bear market and is trading back to a level not seen since the summer of 2013 (below)! The NYSE composite is also trading back to levels not seen since mid-2013 and the selling continues with a vengeance. Other important areas of the market topped out last year and are now in their own private bear markets (Transports $IYT, Commodities, Biotechs $IBB, Retail $XRT, Housing $XHB, Materials $XLB, just to name a few). If this is not a bear market- I don’t know what is. I’m just sharing with you what I see happening in real-time so you can take action and protect your portfolio from the next bear market. These are facts (not opinions), ignore them at your own risk.
