Top trader: ‘I expect to see a short, sharp drop in the S&P 500 index’
From Nick Rokke, Analyst, The Palm Beach Daily:
“It’s going to feel like the world is coming to an end.”
Normally, Palm Beach Letter editor Teeka “Big T” Tiwari is an optimist.
He’s long-term bullish on the overall market. Lately, Big T has been beating the drum on cryptocurrencies. But the markets are where he earned his stripes…
So when Big T recently told me he’s worried about the market, I did a double take:
I’m very worried about the market today… I’m seeing many indicators that show the market internals are weakening. I think we’re going to see a mini market correction really soon… And it’ll scare a lot of people.
Big T is a guy we love to follow. He has investing in his blood.
At the age of 18, he begged to get his first job on Wall Street. By the time he was 20, he was the youngest VP in Shearson Lehman history.
He also managed a private fund. It got so popular that it had to be closed to new investors.
So when Big T speaks, we listen…
And he’s seeing something scary in the markets today that I want to share with you… But if you play it right, he says it could be a great buying opportunity.
The Tide Is Rising, But Most Boats Are Sinking
Big T’s still long-term bullish. But he’s seeing cracks in the market over the short term.
He told us what he’s most worried about is something called the “market breadth.” That refers to the number of stocks that are rising along with the market.
Think of the market as a tide. As the old saying goes, a rising tide lifts all boats. But that’s not what’s happening…
Generally, when the market is rallying like it is today, numerous stocks would be flashing “buy” signals.
Here’s the thing. Those signals aren’t flashing like they should.
The New York Stock Exchange Bullish Percent Index measures the percentage of stocks that are flashing buy signals. The higher the number, the more sustainable the rally.
The index peaked in January. Since then, the market has risen, but fewer stocks have flashed buy signals (see chart below).
Big T says giant companies like Facebook and Netflix are doing most of the heavy lifting in the markets right now.
But eventually, the sheer number of declining stocks will overpower the heavy lifters. When they do, a pullback may follow.
“I expect to see a short, sharp drop in the S&P 500 Index,” Big T told us. “I expect it to fall between 3% and 5%. It will be an amazing buying opportunity,” he went on to say.
Although a 3–5% drop is a normal fluctuation in the market, Big T doesn’t think investors should overreact and sell out of all their positions:
Yes, it’s a small fluctuation… but it won’t feel like it. We haven’t seen a large drop since before the presidential election. No one is used to seeing that kind of volatility. It’s going to feel like the world is coming to an end. And in the markets, perception is reality. People will want to sell everything. But that’s the wrong thing to do.
Here’s why Big T says you shouldn’t sell everything on short-term volatility:
Short, sharp pullbacks are normal in long-term bull markets. The key is to not get shaken out of your good companies. Rely on your stops to keep you safe. And if you have new capital to put to work… invest it in this drop. Because this will be the shakeout before one of the most epic bull markets in history.
We agree with Big T. If there’s a pullback, it will be a great buying opportunity.
So don’t sweat any volatility. Long-term, the market will bounce back.
Nick Rokke, CFA
P.S. One area that Big T told us he remains bullish on is cryptocurrencies. Starting tomorrow, he’ll be hosting three special online training seminars covering this new asset class. During the seminars, Big T will show you how his readers have had the chance to make as much as 170%, 199%, 206%, 286%, and even 509%—in as little as 13 days—making “asymmetric trades” in cryptocurrencies. Sign up for free here.