Tags: stocks | small cap | index | market

Stocks Set Up for Panic Move

By    |   Friday, 06 Jun 2014 07:39 AM

Stocks have delivered a mixed performance in the first five months of the year. The S&P 500 index gained more than 5 percent, but the Dow Jones Industrial Average was up just 1.8 percent. An index tracking small-cap stocks, the Russell 2000 index, was down almost 3 percent.

Based on the performance of the indexes, with some up and some down, we can see that the stock market hasn't developed a clear trend in 2014. When a trend does emerge, whether it is up or down, we should expect to see a quick move in stocks.

If prices break out to the upside, we should expect investors with cash on the sidelines to rush into the market. There will be panic buying by investors worried about missing out on gains.

If there is a downside breakout, many investors will sell in a panic. The current bull market has lasted more than five years and there will be panic selling by investors who want to lock in gains.

With a panic almost certain in the next major market move, it's important to remember that we often see extremely large price moves after the panic. If stocks sell off, that will create a buying opportunity. A melt up in price would be the set up for the third major bear market since 2000.

Which way should we expect prices to move? Watch the small caps since they are usually the market leaders. For now, small caps are warning us to expect a steep sell off followed by a buying opportunity later this year.

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MichaelCarr
Stocks have delivered a mixed performance in the first five months of the year. The S&P 500 index gained more than 5 percent, but the Dow Jones Industrial Average was up just 1.8 percent. An index tracking small-cap stocks, the Russell 2000 index, was down almost 3 percent.
stocks, small cap, index, market
261
2014-39-06
Friday, 06 Jun 2014 07:39 AM
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