Buyers Beware: The Market’s in Bear Mode

The wild ride in the market continues. Last week, my inbox was bursting at the seams, from invitations to conference calls, to market strategists wondering what to do next. I’ve had more conversations than I care to count that have amounted to little more than hand-holding, trying to soothe professional investors’ fears.

It just makes me wonder – if the professional investors were freaking out, what was the average investor doing?

What I can’t get over is, this all came after a 12% decline that none of these guys I’ve talked to saw coming.

I’m just wondering… how did they not?

Exactly a week before the selling started, I wrote a piece explaining that many S&P 500 stocks were already in a bear market. All anyone had to do was look. We all have access to the same information if people will just look for it and stop presuming the market will keep going up.

Of course, after the initial scare fest, the markets then bounced off the lows, and nearly everyone started cheering the markets on and recommended buying the dip.

Suckers.

As I explained last week, markets that are in bear mode are not only volatile, but they also these have huge up days that, in the beginning, many mistake for a bull rally. The massive market bounces lure in unsuspecting investors to commit fresh capital and then rob them blind.

Headlines in the papers were touting the dramatic rise in oil prices. The largest two-day gain in six years! While that’s true, oil is still down 70% from its highs!

This just emphasizes my point. Markets don’t have their largest two-day rallies in years during bull markets.

So, investors should still proceed with caution. While market sentiment has gotten worse as investors have seen their account balances shrink, we are still in the riskiest end of the spectrum to commit fresh capital. I know. This is something I have been harping on for all of 2015. But the case still stands.

Stock market valuations are still very rich…

The S&P 500 still trades at one of the highest levels relative to sales in two generations…

And using long-term earnings, the U.S. is still among the most expensive stock markets globally.

This is not going to end with a 12% decline and a subsequent rally. This is going to be a long and painful process. Investors will get sucked in at exactly the wrong time while getting their pockets picked.

This is one of those times. Buyers beware.

John Signature

John Del Vecchio
Contributing Editor, Dent Research

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Categories: Stocks

About Author

In 2007, John Del Vecchio managed a short only portfolio for Ranger Alternatives, L.P. which was later converted into the AdvisorShares Ranger Equity Bear ETF in 2011. Mr. Del Vecchio also launched an earnings quality index used for the Forensic Accounting ETF. He is the co-author of What's Behind the Numbers? A Guide to Exposing Financial Chicanery and Avoiding Huge Losses in Your Portfolio. Previously, he worked for renowned forensic accountant Dr. Howard Schilit, as well as short seller David Tice.