The Last Time This Happened Stocks Rallied 45%

by Greg Rieben December 04, 2019

The S&P 500, NASDAQ and DJIA continue to make all-time highs adding more salt to the wounds of the injured bears and the under-invested.

Ridiculed by many for it's extreme simplicity, it turns out that "buying the dip" has proven to be a fairly successful approach, especially when applied to index investing.

But when will that next "dip" be the start of the long over due crash or bear market? When will "buying the dip" fail? What has to happen?

Personally, I think we need to see mass participation when it comes to buying stocks in order to get closer to the end of this 10 year bull market.

When I look back at other booms and busts that I experienced over the last 19 years, it certainly doesn't feel like we are anywhere near that point. Yet.

Right now the major indices are experiencing a technical event that could create that "mass participation" I'm talking about, forcing those on the sidelines to finally participate.

Why do I think this is possible? If you look at the monthly chart of the major indices you will see that the last time we had a MACD crossover and a positive turning histogram stocks went on a massive tear.

This technical event has already happened in the S&P 500 and NASDAQ which took them 30% and 50% higher in less than two years, beginning December 2016.

It looks as though the DJIA is about to join the S&P 500 and NASDAQ and the last time this occurred the index moved higher by 45%.

If you don't believe in technical analysis maybe you believe in FOMO (the Fear of Missing Out).

This market still feels unloved and despised due to many factors that I won't get into here, but I suspect there's still plenty of money on the sidelines that could fuel this next leg higher.

Need some proof? This is from Morningstar this November with regards to fund flows:

Fund Flows Show That Investors Seek Lower Risk Options in Q3 2019:

Our analysis of the quarter shows long-term inflows slowed and money market flows surged. In the third quarter, investors poured a whopping $225.2 billion into money market funds - the strongest quarterly inflows since 2008-09 financial crisis.

On the other hand, in the third quarter, US equity funds had their third-greatest quarterly outflows ($29 billion) of the past five years.

This is not typical investor behavior you see at market tops. Market tops, more so blow off tops, usually occur when everyone and their dog is buying stocks. This clearly isn't the case right now.

Love it or hate it, this market could still have plenty of upside left that could surprise even the most loyal and enthusiastic bull.