Perfect week to start sales

The upcoming week is almost perfect for the start of sales in the US stock market. At least in theory.

In our previous reviews, we have already noted that fundamentally the US stock market is not only ready but also needs to be corrected. And only record greed, as well as the absence of the last straw that breaks the ridge of a camel, keeps it from falling.

We received another confirmation very recently: the three-month correlation between the individual components of the S&P500 index and the index itself fell sharply, dropping to the lowest values ​​since October 2018. What does it mean? Recall that now the golden age is undergoing passive investment. Its most popular form is investing in index funds. This leads to a high level of correlation between the index and its components. So, a fall in the level of correlation suggests that investors no longer buy the market as a whole, but rather focus on the selection of individual stocks. This can be seen as a sign of early sales in the US stock market. At least at the end of 2018, this happened.

To begin with, that the epidemic coronavirus in China and fears of its impact, and the uncertainty in their scope has finally brought down a peg or some bulls on world stock markets. What is the record for the pre-holiday period of China's stock market decline?

The last drop, which will overflow the patience, may spill this week. The fact is that the reporting season in the United States is moving into an extreme stage. During the week quarterly reports will be published for 14 of the 30 companies included in the Dow Jones Index. In general, the list of companies that will publish their reports this week is impressive: Apple, Microsoft, Amazon, Facebook, McDonald’s, Coca-Cola and many others.

In one of our previous reviews, we already noted that in the last 3 quarters the financial statements of US corporations are deteriorating and doing so rapidly. As a result, analysts predict not only a decrease in profit growth but also its decline. So far, reporting for the 4th quarter does not confirm this, but real heavyweights will report this week. In addition, companies in the financial sector have mainly reported so far, but it has its own specifics.

If the analysts turn out to be right and the financial results turn out to be rather weak, this may very well provoke massive fixation of profits in the US stock market, which will be the beginning for the formation of a correctional wave. Then bears with short positions will connect, the first stops will start to work and the classic correction flywheel will unfold to full.

Recall that we consider 2019 the last year of unjustified growth in the US stock market. Already in 2020, it will begin to adjust. The scale of correction is from 50% and higher. Given that in recent years, shares of technology companies in the US stock market have grown by an average of 7-8 times (and some issuers have shown growth of 10 or even 20 times), the US stock market will no doubt become the object of massive sales. We recommend participating in this process, selling both the market as a whole (Nasdaq index) and the shares of individual issuers (Apple, Microsoft, Alphabet, Oracle, etc.).